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July 30th, 2009

Investing in water funds: a soggy venture

Earlier this week, BusinessWeek alerted its readership to the increasing profitability of water. According to reporter David Bogoslaw, we should expect a ‚surge in water investments to begin over the next one to three years.” In other words, investors who have no doubt been taking a beating due to the instability of the stock market are starting to view water as the potential key to salvaging their flailing portfolios.

While some may see this as a good thing, there is plenty of cause for alarm in Bogoslaw‚ prediction. Because many water funds include private utility companies, investing in these funds channels more money to private utilities, thereby granting them the capital to gobble up more local water utilities where they will continue to do what they have already gained notoriety for: raising rates while offering subpar service and neglecting basic infrastructure upkeep.

Putting aside ideological arguments against privatization, investing in water funds is simply an impractical move. Around the country, communities that have had their public water utilities bought by private entities have experienced a litany of problems with their water service. From Lexington, Kentucky to Urbana-Champaign, Illinois, a movement is afoot to buy water systems back from bumbling corporations. With momentum for public control building, it makes one wonder why anyone would knowingly pin his or her financial future on such an obviously flawed investment.

Private water companies know it too. Minutes leaked from a Supervisory Board meeting of RWE, a multinational private water corporation, cited‚ considerable resistance to privatization of the water sector” as impetus for the company‚ desire to pull out of U.S. markets. So while large water corporations may welcome money from investors, even they know that their product isn’t exactly a fail-safe financial venture.

When it comes to investing in water, the best bet will always be government funding for public water utilities. That‚ why Representative Earl Blumenauer‚ (D-Ore.) Water Protection and Reinvestment Act (H.R.3202) is a welcome addition to the escalating dialogue about our collective water woes. If passed, the bill will create a dedicated source of federal funding to repair our nation‚ ailing water infrastructure, and to keep it in top condition for many years to come. That way, communities wont need to sell their water utilities to private companies in a desperate attempt to keep water flowing to their residents.

Potential investors looking for a safe place to stash a few dollars might instead consider investing in municipal bonds , which are less risky and tax-exempt to boot.  Rather than feeding the privatization beast, they’ll be granting much-needed help to public utilities, while experiencing a far safer default rate. Need further evidence? Between the years 1970 to 2000, the default rate on municipal bonds issued for water projects was zero.

-Kate Fried

One Comment on Investing in water funds: a soggy venture

  1. [...] how skewed the battle is over water privatization, we just got an indication of just how sweet the victory in Trenton, New Jersey really was. It seems that the privatization proponent — The Committee for [...]

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