Paul H. Ang

Paul H. Ang

Portfolio Manager, Principal

Water Equities

Summit Water Capital Advisors has been investing in water equities for more than 30 years, beginning when the firm’s founder John Dickerson volunteered as Treasurer for his local water utility district in the 1980s.  As an investment manager with focus on deep value, John was amazed by the fundamentals of the water utility business and began searching for ways to deliver his clients exposure to the industry.

At the time, water was not recognized by Wall Street as a discrete investment sector so John was forced to build his own universe of “hydrocommerce” companies involved in the large-scale treatment and distribution of water, including investor-owned utilities and their diverse supply chain of technology providers, engineering firms, and heavy equipment manufacturers.  As he pioneered this new investment thesis, he uncovered several attractive investment attributes unique to the industry:

  • Compared with any other industry sector, hydrocommerce has the most compelling core supply and demand drivers capable of propelling secular growth. We literally cannot live without water and there is no economic substitute at any price, while demand has exploded as the strains of population increase, emerging economies, pollution, and drought have created crisis-level shortages for this most basic of resources.

  • Water utilities are a natural monopoly and, given the core drivers above, are able to generate a strong, predictable revenue and earnings stream regardless of the economic environment. This defensive, non-cyclical business model leads to another hallmark of water utilities – regular dividend increases – which highlight the regularity of the cash-flow generated by these companies.

  • Similarly, industrial companies that sell primarily to water utilities have a much more persistent, predictable, and stable business profile than comparable companies who might be selling into more cyclical industries. As a result, these businesses have tended to outperform other industrial sectors with respect to equity growth.

  • Beyond these compelling business-as-usual characteristics, developed countries are struggling to maintain their aging water infrastructure at a sustainable rate while developing countries still need to complete the basic framework for water and wastewater systems. McKinsey Global Institute indicates that global water infrastructure spending requirements could reach a cumulative total of almost $12 trillion by 2030.

  • Recent trends suggest that the large capital expenditures required to maintain water systems are encouraging a transition from municipal ownership to privatization and consolidation, creating more investible opportunities.

In 1999, Summit Water launched the world’s first equity hedge fund focused exclusively on the hydrocommerce space, delivering a lifetime compound annual return of 7.6% net of fees with exceptionally low risk metrics and market correlation, before closing in early 2016 following John’s passing.  Today, Summit Water offers bespoke water equities investments for large institutional investors in the form of separately managed accounts with customized emphases including yield-enhancing, utilities-only, long-short, and various global concentrations.