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.

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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.

Michael Burry: The water trade 

Raul Pomares of Sonen Capital LLC identifies three themes that will drive the price of water and water assets over the next few years. These themes include 1) population growth, which will mean a greater global demand for food and water; 2) Urbanization, will lead to more demand for food but due to space constraints will make water scarce in key areas.; 3) Climate change, the big variable. Climate change could lead to droughts disrupting the world’s already fragile water infrastructure. In each of these scenarios, engineers will find themselves trying to develop ways of 1) improving water use efficiency/reuse, 2) improving water purity, and 3) protecting water resources from environmental changes. According to the 2030 Water Resource Group, global demand for water could exceed supply by 40% in 2030.

Two-thirds of the world’s surface is covered in water, so for the time being, there’s plenty of this commodity to go around. Nonetheless, the majority of this water is undrinkable and improving the quality of existing water sources is becoming big business. Michael Underhill of Capital Innovations, LLC’s presentation focused on this topic. He believes the most compelling technology right now is graphene technology where water goes through a filter/screen and comes out pure. Middle Eastern state ABU Dhabi is using its oil wealth to back the development of this technology and US defense giant Lockheed has also devoted a portion of its R&D to the technology.

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