NZ money manager offers clean energy, climate change and water mutual funds

Like pure water for the parched investors

Gone are the days when you could lead an investor to water but not make him drink. Rob Stock of stuff.co.nz reports.

Fund manager Liontamer is calling it "blue gold". The rest of us call it water.

But whichever of the two designations you choose, heavyweight research suggests there's money to be made for investors sinking their cash into global water investments.

Liontamer, a home-grown fund manager purchased this year by Belgian bank KBC, has launched a capital-protected water fund that does just that.

The fund is just a toe in the water. Although the offer locks away investors' cash for three to five years, Liontamer plans to launch an "open-ended" water fund in November, allowing investors to invest and withdraw their money at will.

That fund heralds a new era for Liontamer as it launches two other funds which will have similarly planet-conscious mandates: an alternative energy fund and a climate change fund which will invest in, among other things, carbon credits.

The sudden greening of Liontamer, which has attracted over $200 million from Kiwi investors by focusing solely on capital-protected products, is related to its new owner, KBC, says Liontamer's Janine Starks, but is less about a save-the-planet ethos and more about generating hard investment returns.

KBC has one of only three water funds on the planet, run by a team of fund managers in Dublin led by Jens Peers, a team which also manages alternative energy and climate change funds.

"First and foremost, we believe in good investments," Starks says. "If there is an environmental overlay, then that's nice."

The investment story for water is based on the world's increasing "water stress". Water consumption globally is increasing faster than the world's population, and though there's lots of the stuff, much of it is in a form that is not usable, or requires new technologies and investment to get at.

For example, 97% of the world's water is in the seas and oceans, and much of the rest is unequally distributed. People in Asia, for example, represent 60% of the world's population, but have only 36% of the world's usable water.

Some countries, such as China, are polluting their supplies so fast their water stress levels are rising rapidly, and are committing hundreds of billions to investing in water treatment and delivery systems.

Water consumption grows faster than population for several reasons. The first is that to feed a growing population, agriculture must become more intensive. The second is that the world is urbanising, with people moving to cities and consuming more manufactured goods, which require large quantities of water to make.

Summit Global Management also says that many people are not paying enough for water, in many cases less than it actually costs to deliver it to them.

"We rage when our water bill increases slightly, and yet we are happy to pay exorbitant prices for non-essential products such as cable television," Summit's John Dickerson and Rob Anfuso wrote in their Case for Water Investing this year.

"This price-to-value inequality will most certainly correct itself," they said.

For those who believe in the water story, the next step is identifying the companies to invest in. Liontamer's capital-protected water fund gives investors exposure to 15 global water companies based in the US, Europe, Japan and the UK. While some treat and deliver water in markets such as the UK, others are involved in sea-water desalination plants in places that are rapidly drying out, such as China and Australia.

The fund has two kinds of units for investors. Booster units which have 100% capital protection, and super-booster units have 90% capital protection. The fund is invested in derivatives tracking an index of 15 water companies five British, four US, two French, and one each from Switzerland, Finland, Japan, and Spain.

The booster units give investors 130% exposure to rises in the index, which would equate to a 78% rise in the value of units, should the index rise by 60%. The super booster units provide 165% exposure, meaning a 60% rise in the index would result in a 99% rise in the units. Investors' cash is locked up for a term of between four and five years, though there is the chance of early redemption, should the fund do very well.

Liontamer is conscious that some might frown on making returns from access to water, which should be a basic human right. For that reason, Liontamer will donate 5c in every dollar raised by the closed-ended water fund to World Vision to help those in developing countries improve their access to water. Currently 1.1 billion people lack easy access to drinking water, according to investment bank UBS.