Steve Hoffmann, founder of WaterTech Capital, a private investment company focused on the water industry, is betting water will become the world's most precious resource in the near future.

You can read all about his rationale for investing in what you might call "Water Incorporated" in his new book, Planet Water: Investing in the World's Most Valuable Resource. The book was reviewed recently in The Wall Street Journal (May 27, 2009) by Roger Bate, who concedes Hoffmann is "a financier, not a writer" but reading the book "might well guide [you to] some very satisfactory investments."

Bate writes, "Mr. Hoffmann does an able job of laying out the basics of water scarcity and delivery, and he presents a persuasive case for water's looming importance, rivaling oil as the most important commodity this century.... [However] what's of interest in Planet Water is Mr. Hoffmann's advice about water as an investment opportunity."

Bate particularly likes how Hoffmann gets into the specifics of the companies and technologies that will prosper in an era of precious water:

"When he describes the appalling water losses from leaking pipes, for instance, he turns the discussion to the methods being employed to find holes in piping, such as ‘ultrasonic transducers, cable-based sensors, digital signal processing, ground-penetrating radar, thermography, and advanced software tools.' A savvy investor, he says, would examine this sector of the water economy."

In his book Hoffman sees water utilities, largely owned by local governments in the U.S., turning to private investment to fund upgrades of ancient infrastructure and pay for new technologies to improve water quality or process otherwise undrinkable water.

Hoffman also shows up in Businessweek's "Water: A Rising Tide of Smart Investing Plays" by David Bogoslaw (April 23, 2009). Bogoslaw writes:

"There is growing recognition that this resource—which has no substitute—may turn out to be the hot commodity of the 21st century, much as oil has been for much of the past century.

"The higher value ascribed to water has less to do with depletion and scarcity than cost. While there's as much water on the planet as there has ever been, cheap water is in short supply…. What remains are more expensive sources of water—from oceans, groundwater, or reclaimed used water—which require either desalination, chemical disinfectants, or other processes to be made suitable for drinking."

Bogoslaw quotes experts who see water prices in The U.S. doubling or tripling over the next few years. Even starting at water's current bargain price in most of the U.S., this level of increase may attract more private investment. He cites other factors favoring water sector privatization around the world, despite the trend toward more central government intervention, as exemplified by the recent bailouts of the financial sector and the auto industry:

• Higher water purity standards, not just for human consumption but for industries such as semiconductor manufacture
• Costs of repairing infrastructure
• Cost of providing more clean water
• The downturn of the U.S. housing market, which has eroded the local tax base

Bogoslaw writes that a backlash against privatization will likely intensify. "Still, there's growing recognition of the need for further market-oriented solutions, since people lack sufficient motivation to use water more efficiently unless they're paying more for it." He cites Steve Hoffman and his new book's prediction that we will see companies emerging "that are dedicated to resolving water challenges."

In his book Hoffman anticipates that over time increased mergers and acquisitions will have to occur. "Customer demands for comprehensive, cost-effective solutions discourage a segmented industry structure," he writes.

Hoffman says that companies focused on instrumentation, regulatory compliance monitoring, membrane manufacturing, pumps, and environmental remediation will be among those consolidating in the future.

Don Dunnington
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