Investors warm to water as shortages mount

By Gerard Wynn

LONDON (Reuters) - As liquidity is drained from credit and money markets and pours into oil and gold, another asset class that could offer long-term returns to the discerning investor is water.

Water shortages are on the rise -- stemming from soaring demand, growing populations, rising living standards and changing diets. A lack of supply is compounded by pollution and climate change.

Investors are mobilizing funds to buy the assets that control water and improve supplies, especially in developing countries such as China where urban populations are booming, further tightening supply.

"Many of these cities have tripled in size in the last 10 years so there's just an unaddressed need, there's an enormous opportunity for investment," said Kimberly Tara, chief executive of commodities investor FourWinds Capital Management.

FourWinds will this year start raising global funds initially of up to 3 billion euros ($4.68 billion) to invest in water, Tara said.

Water shortage is already a serious problem in many regions of the world, as underlined in a December report from Zurich-based Sustainable Asset Management (SAM), which manages about 8.5 billion Swiss francs in assets.

These include southern Spain, the Maghreb, the Middle East, Central Asia, Pakistan, southern India and northern China. In the Americas, the U.S. mid-west, Mexico and the Andes are the worst-hit areas. Eastern Australia is also badly affected.

China is a particularly strong example. It has a fifth of the world's population but just 7 percent of the water.