Water Investment Environment

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Water Investment Environment

  1. 1. Investment Environment in Water Nothing contained in this presentation constitutes tax, legal, insurance, or investment advice, nor does the presentation constitute a solicitation or an offer March 2007 Inc. or Investing involves risksell any securities or loss offinancial instruments. Securities areInc is a memberPrivate Placement by Aquillian Investments Memorandum or Prospectus. its affiliates to buy or up to and including other all principal. Aquillian Investments offered only by of FINRA/SIPC.
  2. 2. Outline 1. About Aquillian Investments 2. Overall Investment Opportunity 3. Global Trends and Drivers 4. Water Market and Expected Growth 5. Sub-sector Focus 6. Company Examples 7. Select Investment Opportunities (ETF, Mutual, Hedge, PE/VC) 8. Water Investment Strategies 9. Investment Risks 10.Conclusion/Questions Aquillian Investments, LLC www.aquillian.com (415) 677-9118 2
  3. 3. Firm Overview • Specialized investment research and consulting on emerging themes across all alternative asset classes – Venture capital, private equity, project finance – Hedge funds, fund of funds – Real estate, commodities – Direct investments • Thematic investment expertise focused on generating alpha through resource efficiency – Clean technology – Sustainable natural resources – Health and wellness innovation • Informational edge achieved through qualified industry experts – Founded in 2004 • 12 person team – Based in San Francisco, CA • Offices in New York, Los Angeles, Connecticut, Chicago – Serving fund of funds, corporations, foundations, endowments, family offices, public and private pension funds, and ultra high-net-worth investors Aquillian Investments, LLC www.aquillian.com (415) 677-9118
  4. 4. Service Offerings • Industry research – Analyze opportunities and deliver investment recommendations – Publish specialized research reports – Conduct seminars and presentations for institutional investors • Opportunity identification, selection, and due diligence – Evaluate leading investment managers in thematic disciplines – Perform deep due diligence on selected opportunities – Identify direct investments for strategic venture and M&A advisory • Investment policy creation and implementation – Define goals and provide strategic direction for funds in formation – Provide access to thought leaders, managers, and service providers – Assist in negotiating eventual transactions Aquillian Investments, LLC www.aquillian.com (415) 677-9118
  5. 5. Resource Efficiency Thesis Aquillian Investments, LLC www.aquillian.com (415) 677-9118
  6. 6. Water - Overall Investment Opportunity • Water has no substitute at any price • $400 billion market growing at 10-15% annually in developed economies, 4-6% in developing economies • Demand for reliable, safe supply of water unaffected by inflation, recession, interest rates, inventory loss or change in taste/preferences • Exponential growth in demand due to urbanization and industrialization around the world • Supply side infrastructure in need of significant, long-term improvements and investments • Regulatory environment driving innovation and adoption of clean technologies Aquillian Investments, LLC www.aquillian.com (415) 677-9118 6
  7. 7. Global-Macro Trends and Drivers • Long-term Supply-Demand-Geographic Imbalance • Aging Infrastructure Worldwide • Urbanization and Industrialization • Public Health Emergency, 1.1 billion people lack access • Increasingly Stringent Regulatory Environments • Moving Towards a Water Oligopoly • Climate Change/Fluctuation in Precipitation/Snowmelt Aquillian Investments, LLC www.aquillian.com (415) 677-9118 7
  8. 8. Supply Imbalance Areas of Physical and Economic Water Scarcity Source: International Water Management Institute (IWMI), 2006 Aquillian Investments, LLC www.aquillian.com (415) 677-9118 8
  9. 9. Persistent US Drought Conditions Aquillian Investments, LLC www.aquillian.com (415) 677-9118 9
  10. 10. Demand Imbalance Aggregate Daily Water Usage Per Capita in Selected Regions (in gallons) Aquillian Investments, LLC www.aquillian.com (415) 677-9118 10
  11. 11. Aging Infrastructure • Estimates of US investments to bring water infrastructure “back to acceptable rates” is between $277 and $420 billion • The City of San Diego buys 300 million m3 of water every year, but 25 million m3 are never actually used, which costs the city approximately $22 million.13 • Total water loss nationwide is in the region of 23 million m3 per day, which is equivalent to the combined water consumption of America’s ten biggest cities. • In France and Spain water is also being used inefficiently: around 30% of water is lost before it even reaches the end consumer Source: USEPA, 2002; AWWA, 2007; European Environment Agency, 2007 Aquillian Investments, LLC www.aquillian.com (415) 677-9118 11
  12. 12. Industrialization Drives Demand, Diminishes Supply Global Demand For Water Source: National Geographic, 2002; World Bank, 2001 Aquillian Investments, LLC www.aquillian.com (415) 677-9118 12
  13. 13. Water Sector Consolidation Water Technology M&A and IPOs, 2005-2006 Source: SVB Alliant, 2007 Aquillian Investments, LLC www.aquillian.com (415) 677-9118 13
  14. 14. Select Water Acquisitions (1998-2007) Aquillian Investments, LLC www.aquillian.com (415) 677-9118 14
  15. 15. Current Market Size Distribution and Management • Advanced Water Treatment – Water Mains (New) 33 B – Sewage Treatment 104 B – Water Main (Ren) 10 B – Wastewater Treat. (Equip.) 12 B – Sewers (New) 35 B – Wastewater Treat. (Mem.) 4.2 B – Sewers (Ren) 14 B – Wastewater Treat. (Chem.) 13 B – Pipes (all) 42 B – Drinking Water Purification 129 B – Valves 4.5 B – Ozone Treat. 0.3 B – Pumps 8B – UV Treat. - 0.5 B – Management 20 B – Membrane Systems Treat. 1.9 B – Thermal Desal. 2.5 B • Water and Food – RO Desal. - 2.4 B – Bottled Water 91 B – Desal. Operations 7.3 B – Organic Food 33 B – Irrigation 9-30 B • Demand-Side Efficiency – Ind. Wastewater Treat. 24 B – Domestic Install/Appl. 10 B – Wastewater Reuse 1.3 B – Water Meters 2.4 B Source: SAM Aquillian Investments, LLC www.aquillian.com (415) 677-9118 15
  16. 16. Expected Water Sector Growth • Investments of $400-500 billion • Advanced Water Treatment annually (10-15% Growth) – Sewage Treatment 4% – Wastewater Treat. (Equip.) 6% • Distribution and Management – Wastewater Treat. (Mem.) 19% – Water Mains (New) 7.2% – Wastewater Treat. (Chem.) 4% – Water Main (Ren) 4.3% – Drinking Water Purification 4% – Sewers (New) 7.4% – Ozone Treat. 10% – Sewers (Ren) 5.5% – UV Treat. 14% – Pipes 3.4% – Membrane Systems Treat. 20% – Pipes (Plastic) 4.4% – Thermal Desal. 4% – Valves 6.7% – RO Desal. 8% – Pumps 4.3% – Desal. Operations 9% – Management 10.0% • Demand-Side Efficiency • Water and Food – Ind. Wastewater Treat. 4-5% – Bottled Water 10% – Domestic Istall/Appl. 10% – Organic Food 10-12% – Wastewater Reuse 17% – Irrigation 10% – Water Meters 12% Source: SAM Aquillian Investments, LLC www.aquillian.com (415) 677-9118 16
  17. 17. Representative Water Investment Opportunities Aquillian Investments, LLC www.aquillian.com (415) 677-9118
  18. 18. Specific Sub Sector Opportunities Treatment and Purification • High Purity Water • Desalination Monitoring, Security and Safety • Leak Detection and Monitoring • Control Systems and Smart Metering Technologies • Advanced Sensors • Agricultural Harvest, Transport and Food Washing Distribution • Distributed Treatment, Storage and Delivery Systems • Separation of Water into Use-types Demand Side Efficiency • Smart/Precision Drip Irrigation (Low-volume Irrigation) • Smart Appliances Disposal • Water Recycling and Reuse • Biological and Mechanical Wastewater Treatment (non-chemical) • Sludge Minimization Energy From Water • Tidal and Wave Power Aquillian Investments, LLC www.aquillian.com (415) 677-9118 18
  19. 19. Remote Water Quality Monitoring Aquillian Investments, LLC www.aquillian.com (415) 677-9118 19
  20. 20. Water Storage Aquillian Investments, LLC www.aquillian.com (415) 677-9118 20
  21. 21. Food Safety • Ioteq was founded in Sydney, Australia, in 1999 with the specific aim of developing an iodine-based water sanitation system. • Currently raising funds for US launch. • Alternative to chlorine due to the significant environmental, health and safety problems associated with chlorine. • 150 successful commercial installations across Australia and New Zealand in several agriculture sectors – Fruit and Vegetable Post-Harvest – Nurseries and Hydroponics – Food Processing – Poultry – Dairy • The business model is that of “razor-razorblade” with one-time sales of the system equipment and subsequent regular purchases by the customer of the specially formulated iodine from Ioteq for use in the system. Aquillian Investments, LLC www.aquillian.com (415) 677-9118 21
  22. 22. Food Washing Aquillian Investments, LLC www.aquillian.com (415) 677-9118 22
  23. 23. Food Safety • Based in Pleasanton, CA • Recently closed $25M Series C Round • Chemical-free, ozone-based family of products has been approved by the FDA, EPA and USDA to kill deadly, food-borne pathogens such as E. coli and Salmonella, while remaining 100 percent organic • Safest and most natural purification and disinfection agent for both bottled water and pharmaceutical applications. • Pre-harvest and post-harvest packaging, transport and cold storage processes. • Thin-film sunshield, made from harmless calcium carbonate crystals, reduces sunburn damage and product losses for growers, resulting in better quality product and increased returns. Aquillian Investments, LLC www.aquillian.com (415) 677-9118 23
  24. 24. Distributed Water Treat. Aquillian Investments, LLC www.aquillian.com (415) 677-9118 24
  25. 25. Distributed Water Treat. Aquillian Investments, LLC www.aquillian.com (415) 677-9118 25
  26. 26. Niche Water Systems • Water and Wastewater Systems in the Caribbean • Mobile Desalination Plants – Emergency and Contingency Water • $20 million round Q1-2008 was led by TPG Growth and Element Partners. Virgin Green Fund, Advent-Morro Equity Partners and CEO Doug Brown also participated. Aquillian Investments, LLC www.aquillian.com (415) 677-9118 26
  27. 27. Water Efficient Treatment Aquillian Investments, LLC www.aquillian.com (415) 677-9118 27
  28. 28. Demand Side Efficiency - Residential How US Households Use Water (%) Aquillian Investments, LLC www.aquillian.com (415) 677-9118 28
  29. 29. Dual-Flush Toilets Aquillian Investments, LLC www.aquillian.com (415) 677-9118 29
  30. 30. Tankless Water Heaters Aquillian Investments, LLC www.aquillian.com (415) 677-9118 30
  31. 31. Smart Irrigation Aquillian Investments, LLC www.aquillian.com (415) 677-9118 31
  32. 32. Grey Water Recycling Aquillian Investments, LLC www.aquillian.com (415) 677-9118 32
  33. 33. Grey Water Recycling Aquillian Investments, LLC www.aquillian.com (415) 677-9118 33
  34. 34. Energy – Water Nexus • Investments in Energy Efficiency translate to Water Efficiency and vice-versa • There is an increased understanding and appreciation of the energy and water interrelationships • We are experiencing a “double whammy” – Increasing energy costs and a decreasing or degraded water supply • Increased need and value for technologies that: – Increase energy production while decreasing water use – Increase water supply and quality while reducing the energy required to provide it • Two of the largest sectors of the global economy Aquillian Investments, LLC www.aquillian.com (415) 677-9118 34
  35. 35. Energy-Efficient Desal. Aquillian Investments, LLC www.aquillian.com (415) 677-9118 35
  36. 36. Wave Power Aquillian Investments, LLC www.aquillian.com (415) 677-9118 36
  37. 37. Tidal Power Aquillian Investments, LLC www.aquillian.com (415) 677-9118 37
  38. 38. Exchange Traded Funds Ticker PHO PIO CGW FIW Manager PowerShares PowerShares Claymore First Trust Expense Ratio 0.66% 0.75% 0.50% 0.70% # of Holdings 35 40 51 36 Top Ten Holdings % 38.05 42.07 54.56 43.29 Average Market Cap 22.04 B 19.55 B 17.59 B 5.41 B Average P/E 24.96 23.17 22.41 25.77 Sector Allocation 26.03% Misc. Manu. 21.02% Env. 31.44% Water 23.82% Misc. Control Manu. 17.03% Water 14.25% Machinery 15.96% Electric 21.61% Water 13.43% E&C 13.33% Misc. Manu. 14.70% Misc. Manu 15.56% Machinery Geo. Allocation 88.57% US 24.92% US 31.82% US 89.44% US 4.14% France 10.08% Japan 20.35% France 4.69% Brazil 3.45% Germany 9.93% Germany 13.67% UK 4.41% France Source: www.seekingalpha.com, November 2007 Aquillian Investments, LLC www.aquillian.com (415) 677-9118 38
  39. 39. Water-focused Mutual Funds • Pictet Asset Management – Criteron Water Infrastructure Fund – Canada (VEN5400) • Sustainable Asset Management - US • Kinetics – US Aquillian Investments, LLC www.aquillian.com (415) 677-9118 39
  40. 40. Criterion Water Fund Source: Criterion, www.globalblue.ca, 20008 Aquillian Investments, LLC www.aquillian.com (415) 677-9118 40
  41. 41. SAM Water Fund • The fund invests worldwide in companies providing technology, products and services relating to the water value chain, such as: – Water distribution – Water management – Water treatment – Water analysis – Irrigation – Demand-side management • Fund Basics – 64 Holdings – Top Ten – 37% – Less utility-focused – Tilted to mid to small-cap – Benchmarked to the MSCI World Index – Approx. 80% of holding have 20% of revenues attributed to water – DCF model for sustainability and fair value • www.sam-group.com Source: SAM; S&P Fund Analysis, 2008 Aquillian Investments, LLC www.aquillian.com (415) 677-9118 41
  42. 42. Kinetics Water Infrastructure Fund • Aims to invest in securities issued by companies operating in the water infrastructure and natural resource sector globally. The companies targeted in the water sector will include, but are not limited to: – Water production companies – Water conditioning and desalination companies – Water suppliers – Water transport and distribution companies, – Waste water, sewage and solid, liquid and chemical waste treatment companies – Sewage treatment plants – Equipment, consulting and engineering services companies • Fund Basics – Inception Date: 06/29/07 – Trading Symbol: KWINX (KWIIX- Institutional, KWIAX – Advisor) – Assets (12/31/07): $6,139,795 – Sales Charge: None – Total Expense Ratio: 1.74% – Investment Minimum: $2,500 – Objective: Long-term growth of capital – Sub-Adviser: Aqua Terra Asset Management, LLC – Portfolio Management: William Brennan, Portfolio Manager • www.kineticsfunds.com Source: Kinetics, 2008 Aquillian Investments, LLC www.aquillian.com (415) 677-9118 42
  43. 43. Water-focused Hedge Funds • Master Water Equity Fund - Summit Global AM (US) • Water Partners Fund - Aqua Terra AM • The Water Fund – Terrapin AM (US) • The Reservoir Fund – Water AM (US) • The Oasis Fund – Perella Weinberg (US) • Signina Water Fund – Signina Capital AG (Switzerland) • MFS Water Fund of Funds – MFS Aqua AM (Australia) • Triton Water Fund of Funds – FourWinds CM (US) • Water Edge Fund of Funds – Parker Global Strategies Aquillian Investments, LLC www.aquillian.com (415) 677-9118 43
  44. 44. Venture Capital and Water Venture Capital Invested per Cleantech Segment, 2003-2006 Source: Cleantech Group, 2007 Aquillian Investments, LLC www.aquillian.com (415) 677-9118 44
  45. 45. VC Activity in Water Water Technology VC Investments, 2003-2006 Source: Cleantech Group and SVB Alliant, 2007 Aquillian Investments, LLC www.aquillian.com (415) 677-9118 45
  46. 46. Leading PE/Venture Capital Opportunities • Water Pure Play Funds – 100% Water or Near-water Company-focused – Deep Water Industry Experience – Water Company Realizations/Exits • Specialist Cleantech Funds – 3+ Investments (or 1/4) in Water or Near-water Companies – Compelling Water Investment Theme/Strategy – Internal Water Industry Expertise and Experience – Significant Number of Realizations/Exits from Overall Portfolio • Generalist Cleantech Funds – <3 Investments in Water or Near-water Companies – Expressed interest in Water Investments Aquillian Investments, LLC www.aquillian.com (415) 677-9118 46
  47. 47. PE/VC Investment Strategies – DD • What level of internal water industry experience and expertise? • What external sources of industry expertise, access to academics and thought leaders, relationships with CEOs and entrepreneurs? • What is the underlying "use" or "role" of water for the technology or in the business model? – Input? • Agricultural, heating and cooling, beverage – Manufacturing Process? • Automobile, semi-conductor – Energy generation? • Hydro, wave, tidal – End-Product? • Drinking Water, ultra-pure water – Increase Energy and/or Water Efficiency or decrease? • Smart meters, smart appliances • Number of investments and rationale/value proposition? • What problem/inefficiency are the attempting to address and thereby profit from? • Opportunistic or part of a larger water investment strategy or theme? • Number of and time to realizations/exits? Aquillian Investments, LLC www.aquillian.com (415) 677-9118 47
  48. 48. PE/VC Investment Risks - DD • Technology Risk – Proven, protected, existing/potential competition, operational/financial sustainability? – Address safety, reliability or profitability? – Hardware, software or service? • Business Execution – Business model: direct sales, distribution, licensing, etc. – Team risk • Market Adoption Risk – Who are the customers? (Utility, Agricultural, Commercial, Residential) – How large is the market? – What pain points is the water technology/service addressing? – What is the ROI? • Regulatory Risk (Quality and Quantity) – EPA, Utility Commission/Water Authority, Municipality • Price Risk (Right vs. Commodity) – How do the customers/users value water? Aquillian Investments, LLC www.aquillian.com (415) 677-9118 48
  49. 49. Conclusion • Global trends and drivers are real and occurring now • Water companies are capitalizing on these trends with real technology/service solutions and scaleable business models • Water investment vehicles are performing well, but for diverse reasons • Water investing requires a distinct theme/strategy and discipline • Investors and advisors should identify their existing water sector exposure and evaluate new opportunities with an added level of due diligence • Water is not the next oil….oil has substitutes! Aquillian Investments, LLC www.aquillian.com (415) 677-9118 49
  50. 50. Thank You…Questions? • Robert Steiner, Director – rsteiner@aquillian.com – (415) 677-9118 ext. 219 Aquillian Investments, LLC One Post Street, Suite 2775 San Francisco, CA 94104 www.aquillian.com Aquillian Investments, LLC www.aquillian.com (415) 677-9118 50
  51. 51. Additional Slides
  52. 52. Water Supply Chain Source: Sustainable Asset Management, 2006 and SVB Alliant, 2007 Aquillian Investments, LLC www.aquillian.com (415) 677-9118 52
  53. 53. Water Value Chain Source: SAM Group, 2008 Aquillian Investments, LLC www.aquillian.com (415) 677-9118 53
  54. 54. Smart Meters Aquillian Investments, LLC www.aquillian.com (415) 677-9118 54
  55. 55. Monitoring/Valves Aquillian Investments, LLC www.aquillian.com (415) 677-9118 55
  56. 56. Perth Seawater RO Plant – Emu Downs Wind Farm Aquillian Investments, LLC www.aquillian.com (415) 677-9118 56
  57. 57. Precision/LV Irrigation Aquillian Investments, LLC www.aquillian.com (415) 677-9118 57
  58. 58. Competence Correlation Matrix of Water Companies Source: 3Stone Advisors Aquillian Investments, LLC www.aquillian.com (415) 677-9118 58
  59. 59. Water Infrastructure Value Chain Source: Perella Weinberg, 2007 (*=Private Company) Aquillian Investments, LLC www.aquillian.com (415) 677-9118 59
  60. 60. Wastewater Treatment Source: Wm. H Reilly and Co., 2008 Aquillian Investments, LLC www.aquillian.com (415) 677-9118 60
  61. 61. Water Treatment Source: Wm. H Reilly and Co., 2008 Aquillian Investments, LLC www.aquillian.com (415) 677-9118 61
  62. 62. Water Valuation Continuum Source: Goldman Sachs Research Aquillian Investments, LLC www.aquillian.com (415) 677-9118 62
  63. 63. Public and Private Water Facilities Source: Environmental Protection Agency (EPA) Aquillian Investments, LLC www.aquillian.com (415) 677-9118 63
  64. 64. Water Sector Outperformance Source: FactSet, Goldman Sachs Research Aquillian Investments, LLC www.aquillian.com (415) 677-9118 64
  65. 65. Water Shortages and Population Growth (1995) Aquillian Investments, LLC www.aquillian.com (415) 677-9118 65
  66. 66. Energy – Water Nexus • Investments in Energy Efficiency translate to Water Efficiency and vice-versa • There is an increased understanding and appreciation of the energy and water interrelationships • We are experiencing a “double whammy” – Increasing energy costs and a decreasing or degraded water supply • Increased need and value for technologies that: – Increase energy production while decreasing water use – Increase water supply and quality while reducing the energy required to provide it • Two of the largest sectors of the global economy Aquillian Investments, LLC www.aquillian.com (415) 677-9118 66
  67. 67. Water Use for Fuel Extraction and Processing Aquillian Investments, LLC www.aquillian.com (415) 677-9118 67
  68. 68. Estimated Energy Use Integral to Water End Use Aquillian Investments, LLC www.aquillian.com (415) 677-9118 68
  69. 69. Energy Needs Throughout the Water Use Cycle Aquillian Investments, LLC www.aquillian.com (415) 677-9118 69
  70. 70. Estimated U.S. Freshwater Flows in 1995 (total ~341,000 Mgal/day) Aquillian Investments, LLC www.aquillian.com (415) 677-9118 70
  71. 71. Estimated California Freshwater Use in 1995 (36,000 Mgal/day) Aquillian Investments, LLC www.aquillian.com (415) 677-9118 71
  72. 72. Energy – Water Interrelationships Aquillian Investments, LLC www.aquillian.com (415) 677-9118 72
  73. 73. CA Energy Snapshot • Population: 34 million,1.1% per year growth • Multiple Utility Service Territories • 2004 Electricity Use: 262,000 GWH • 2004 Peak Demand: 54,500 MW • Annual growth: – Consumption - 1.4% – Peak - 1.65% Aquillian Investments, LLC www.aquillian.com (415) 677-9118 73
  74. 74. CA Electricity Production (2004) Aquillian Investments, LLC www.aquillian.com (415) 677-9118 74
  75. 75. Water System’s Demand for Electricity Aquillian Investments, LLC www.aquillian.com (415) 677-9118 75
  76. 76. Electricity Use Per Capita Aquillian Investments, LLC www.aquillian.com (415) 677-9118 76
  77. 77. CA Water Snapshot • 2/3 of Precipitation in North • 2/3 Demand in the South • Water Demand: 43 maf – 9 maf Urban – 34 maf Agricultural • Energy Use:48,000 GWh; 4,300 MTh • Population by 2030: 48 million • 2030 Water Demand: 43-50 maf Aquillian Investments, LLC www.aquillian.com (415) 677-9118 77
  78. 78. Regional Disparities Aquillian Investments, LLC www.aquillian.com (415) 677-9118 78
  79. 79. Aquillian Investments, LLC www.aquillian.com (415) 677-9118 79

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