U.K.-based Wessex Asset Management is taking a dive into the water sector. The firm began trading in its Wessex Global Water Fund, an equity long/short vehicle, in January, with some $13 million in assets. It has since doubled in size, and returned an estimated 3.5% through March.
Tim Weir, Wessex’s CEO and investment director, says he looks to capitalize on the increasing demand for water worldwide. “I think this sector is going to have a lot of money spent on it in the next decade, and that’s fairly obvious whether you’re looking at India, China, the U.S. or Western Europe,” he says. “Urbanization, economic growth and population growth is significantly increasing the demand for water and the supply side has got to respond, and that means money. The infrastructure in most of Asia doesn’t really exist and the infrastructure in Western Europe and North America is about 100 years old.”
Also, Weir said the water sector has excellent pricing power because it is a “commodity for which there is no substitute.” He estimates that the global market cap for water concerns is between $350 billion to $400 billion market cap, 15% of which is in Asia. “We’ve got a target of 50% in Asia and as of now two-thirds of our portfolio is in Asia just because that’s where the growth is fastest and the valuations are most compelling,” he said.
The bulk of the fund’s investments are in Singapore-listed concerns, followed by listings in Hong Kong. However, Weir is shying away from Shanghai-listed companies because he’s not comfortable with the market risks associated with investing in the region.
If Wessex is so bullish on the sector, then why didn’t it just launch a long-only fund? “Some companies are not going to make it however good the macro case is and that’s particularly the case in China,” Weir explained. “There were a number of cases in china in the 1990s where independent foreign-owned power producers were going to make 15% returns selling power to the Chinese government, and it never really happened. So there will be companies that understand how to build water plants but can’t necessarily operate profitably in China."
Weir said the fund’s mandate of investing in growth companies in Asia as well as more liquid, bigger water utilities in the West limits the fund’s capacity to between $250 million to $350 million. The fund charges 1.5% for management and 20% for performance, with a $500,000 minimum investment requirement.
Wessex’s next offering could be a gold hedge fund, according to Weir, who said, “We’ve got a resources fund, which has a big gold component, and that’s done really well. There are clients who want pure gold exposure and we could certainly do that.” Wessex also runs an Asian equity long/short fund. All told, the firm manages $434 million in total assets among the three strategies.