Water has yet to live up to its hype as the commodity bet of the future, but the world's most basic resource is drawing ever more money as asset managers seek steady inflation-protected returns.
Investment opportunities are increasing as cities in faster growing markets expand and as governments in more developed countries, short of cash, are forced to turn to the private sector to fund upgrades to meet tougher environmental standards.
Meanwhile, investors such as pension funds want alternatives to rock-bottom bond yields and volatile equity markets.
"There are opportunities in the water space that haven't been seen for decades now that governments have run out of money," said Zurich-based investor Martin Kloeck, whose Signina Capital recently launched a water fund.
The global business, including drinking and waste water, is thought to be worth about $450 billion a year and is growing at up to 6 percent annually, according to Citigroup.
The assets of funds focused on water and specialist water funds nearly doubled from just over $12 billion in 2010 to nearly $24 billion in 2011, according to data from Lipper, a Thomson Reuters service. That could reach $50 billion by 2015, industry analysts believe.
Growing urban populations and a lack of government money to upgrade infrastructure are increasing the need for private sector investment, said Hans-Peter Portner, who runs Swiss bank Pictet's $2.9 billion water fund, the world's largest.
"These drivers are solid as rock," he said.
Private sector investment is likely to account for 30 percent of investment in drinking water and waste water by 2016 compared to 19 percent now, according to the independent Global Water Fund consultancy.
Long term predictions have yet to be borne out that climate change and swelling cities could mean water takes off as a commodity investment to rival oil, but investing in such a basic need has an appeal at a time of global uncertainty.
Morningstar data show the top water-focused funds have returned over 10 percent year-to-date against 6.4 percent for the MSCI World Index. The iShares global water Exchange Traded Fund has returned 17.6 percent.
Many funds invest in water-related stocks, such as treament companies, meter makers and utilities.
"Despite a compelling long term growth case, global water companies trade at discounts on earnings and cash flow and provide a better dividend yield than the broad equity market," said Patrick Armstrong, chief investment officer at Armstrong Investment Managers.
Two of the world's largest water companies, Veolia Environnement and Suez Environnement Co., offer dividend yields of 8.4 percent and 7.7 percent respectively.
Debt financing and more complex deals are also options.
Kloeck's Signina Capital, which recently launched a $450 million fund, this year closed a deal involving the City of Ottawa in a contract that pays an annual eight percent.
"There are plenty of deals that we consider sweet spots," said Kloeck, eyeing those in the $20-$100 million range.
Even bigger returns - and growth rates of up to 20 percent a year - could come from some emerging market sectors, such as Chinese water companies and those dealing with desalination, said Ian Simm of environment-focused Impax Asset Management. It hopes to double the 220 million pounds ($357 million) of water assets it has under management within four years.
LIQUIDITY AMONG CONCERNS
Not everyone is as bullish.
Schroders invests in water companies through its climate change fund, but has no dedicated water fund.
"There are few large stocks like utility companies and then a long tail of specialist smaller companies," said Richard Strathers, an equity analyst at Schroders. "The liquidity issue would also be a concern."
Politics is another worry for long term investments in a sector which carries risks of expropriation and where it can be hard to pass on price increases for such an essential service.
"We expect more growth in waste water as this market segment is less politically charged and offers higher margins," Pictet's Portner said.
Britain's water companies offer exactly the sort of stability and clear regulation that investors are seeking and the number of deals shows the growing appetite for the sector.
China Investment Corporation and the BT Pension Scheme both picked up stakes in Thames Water this year, while Canadian pension funds CDPQ and CPPIB have acquired stakes in South East Water and Anglian Water respectively. Fund manager M&G and Morgan Stanley bought a 90 percent stake in French water firm Veolia's British business.
Another advantage of water was that its performance was not linked as closely to overall economic growth as other infrastructure investments, noted Tony Rocker, partner at consultancy KPMG's infrastructure unit.
"During the financial crisis of 2006-2009, it was the GDP linked infrastructure assets that didn't perform as well as expected," he said. "Water did exactly what it said on the tin."
($1=0.6155 British pounds)
(Additional reporting by Laurence Fletcher; Editing by Matthew Tostevin)