David Henderson, managing partner at XPV Water Partners, shares his thoughts on what lies ahead for the water-infrastructure sector.
Real-assets investments have attracted growing interest among institutional investors in recent years, thanks partly to concerns over inflation risk, low yields in traditional bond markets and a mounting inventory of deteriorating infrastructure in need of repair and renewal. Investors have poured capital into funds focused on different subsectors of real assets, most notably infrastructure. We caught up with investors who touch the different corners of the real-assets world to get their perspectives on what lies ahead for their respective subsectors. Responses have been edited for clarity and style.
David Henderson, managing partner, XPV Water Partners
What are the biggest hurdles faced by investors in water infrastructure and the companies that serve that infrastructure?
Water is a very complex space. It has social elements. It has political elements. It has economic elements. I think whenever you blend those things you have a complex environment. Obviously, it’s regulated in many different ways. You also have regional impacts, because not all regions have the same kind of water, the same amount of water or access to it. When you bring all those elements in, it’s quite a complex space. Certainly if you think about it from an investor standpoint, you’re also playing with physics and biology. There are all sorts of elements that go into managing any sort of water infrastructure that are a little different than if you were to build a bridge or school or some other type of infrastructure. It’s also a very fragmented world, particularly in the U.S. and Canada. There are literally tens of thousands of utilities. It’s very fragmented and it tends to be fairly local.
So how does your firm navigate that complexity?
If you look at the total cost to repair or replace the [water] infrastructure, it’s enormous and frankly I don’t think there’s any government on earth that has this kind of capital to deploy. So, we’re big believers that one of the ways we’re going to help solve some of these water challenges is by enhancing and making existing infrastructure better and more efficient. We call it infrastructure renewal.
For example, we have a company called SmartCover that has a technology that allows you to sense and provide data about what’s going on in your collection system, your sewer network. They have technology that they mount on the bottom of a manhole cover, and it has a sensor which reads what’s going on in the sewer and that is sent via satellite to the utility operator. It’s telling the utility operator what’s going on in the sewers. It’s prevented tens of thousands of sewer overflows, because utility operators can manage the sewer network proactivity. They can tell where there’s a blockage in place.