Water is currently a $600 billion market that could grow to as much as $1 trillion by 2020.
Michael Burry likes water, is he onto something? When the film adaptation of Michael Lewis’ book The Big Short was released last year, it caused a stir. At the end of the movie, it is revealed that one of the film’s heroes, Dr. Michael Burry the first institutional investors to discover the problems with and bet against the US subprime market, has now refocused his investing efforts on one commodity: water. But can water really be considered to be an asset class? This topic came up at the IMN’s Alpha Hedge West Conference on September 8-9, 2016. Discussing “Water As An Asset Class” five hedge fund managers weighed in on how they are placing bets on the commodity to profit from several key developing trends.
While water isn’t a tradable asset today, there are some who believe that over the next few years, as financial markets wake up to the opportunity the market offers, a globally intergrated market for trading water will develop. Schumann cities a quote from Willem Buiter, Global Chief Economist at Citigroup in his presentation who believe that this market is only a few decades away:
“I expect to see a globally integrated market for fresh water within 25 to 30 years. Once the spot markets for water are integrated, futures markets and other derivative water-based financial instruments – puts, calls, swaps – both exchange-traded and OTC will follow. There will be different grades and types of fresh water, just the way we have light sweet and heavy sour crude oil today. Water as an asset class will, in my view, become eventually the single most important physical-commodity based asset class, dwarfing oil, copper, agricultural commodities and precious metals.”