A new mutual fund is being offered in Israel: the PKN Plus Aqua Fund, that will specialize in utility companies investment all over the world. The fund proposes to capitalize in the "vital" element, which is - to use their cliche - the oil resource of the future. Israel will be, so say many, the Saudi Arabia of the water business. The idea is that water is more precious than oil and investing a dollar in the fund will make one rich, fabulously rich, like a Saudi prince.
As a selling point, the fund may attract the money of fools, a specie in no imminent danger of extintion in Israel. The concept is based on iron logic: you can drink water but not oil, water is very scarce and getting scarcer (just read the papers), water companies will strike it rich, give your money to PKN to invest it for you in this invaluable, precious resource.
Before you dear reader are tempted to buy the new financial instrument, lets think what in fact offers this shiny new fund. Are the financial papers full of articles on water related stocks whose price is skyrocketing? Are water infrastructure related firms making lots of money and yielding big fat dividends? Are infrastructure related companies growing faster than the general economy? Is it a field where a technological revolution is taking place, creating new opportunities?
The answer, you will agree, is that nothing is happening in the water related field. In fact, it is difficult even to find a stock exposed to the water industry.
PKN will not specify in which stocks it is planning to invest the monies. There are two categories of water stocks: (1) managing firms operating a public utility or service, generally contracted by a municipal authority, (2) engineering companies building water infrastructure, generally for municipal or state authorities, or in the Third World, for the World Bank or the Interamerican Development Bank.
In Israel, water utilities were programmed to be privatized and 3 or 4 municipalities did in fact create water companies that took over the municipal water department. Rishon Le Zion, Petach Tikva, Natania transferred the municipal infrastructure to these new frameworks, with the idea that private companies are by definition more efficient and they are bankable (they can raise money in the Stock Exchange or to sell bonds to the public). Several financial organizations tried to get into the new business, such as Gaon Agriculture, but with the years it became evident that actually there was no much business to do.
Since the Infrastructure Ministry became a fief of the Labor Party, the process of privatization of water infrastructures (and of electricity and so on) was put into suspended animation. The next Minister of National Infrastructures within the new coalition is the very same old Minister, Fuad. fat gnome of a person, big red cheeks and all the hair painted black. He walked from his native Iraq to then Palestine and lead the evacuation of the Iraqi Jewish community in early fifties. I recognize his merits, but I dont like him. I happen to know him personally since his office was across the corridor and with the paper walls favoured by modern office science, I overheard most of his phone conversations and those of his two ugly fat old and specially relevant, loud and vulgar secretaries. I also met him in the Labor Party.
(The highest salaries in Israel are drawn by employees of the Electricity Corporation, followed by those of Mekorot, the National Water Corporation. I heard personally Fuad assuring the vaadot - workers commissions - that he will never privatize any state company. And that is why he is and will be the minister.)
In summary, I see no opportunities to invest in this area in Israel.
Another possible investment area is the kablanim - the contractors who actually build roads, water carriers, wastewater plants. Most of them are small family business, and only a few are in the Stock Market. Menrav, a contracting company, built the Beer Sheba wastewater plant, and its main sewage lines. Elco is a mechanical contracting firm, supplying mechanical equipment and mounting them. Tambour builds wastewater treatment plants. In general, the specifically water, wastewater and other infrastructure business in Israel is too small to maintain specialized firms, and these contractors are general contractors. All of them are looking for contracts in foreign countries, such as Romania, Hungary and Russia, as in Israel there is very hard competition and they lose money in many projects. They are also very risky investments, since they have no solid local basis but follow the ups and downs of Israel's construction sector.
Where is this new fund going to invest its money? I dont see much potential. And no one is getting rich in this field. The Aqua fund seems more a publicity gimmick, to attract the public's savings with a new concept.
I think the public will buy the new product, since the Government always says that they are going to carry out grandiose plans of investment in infrastructure. (As a former insider, I can attest that this intention is always real and sincere, but the bureaucracy is unable to spend all the budgets the Otzar puts to its disposition. Israel has very good infrastructure and there are no new projects that make economic sense, at least not in the water sector. In fact, the bottleneck for Israel´s infrastructure is the scarcity of projects that make economic sense, and the lack of bureaucratic capability to formulate, organize the public bidding and supervise projects. Every infrastructure project in Israel is at one point stopped by litigation. And as Alex Wiznitzer - currently head of the National Road Company - said, there are not enough engineers in Israel to take care of the design and supervision! Yes, engineers should be paid more since we are so precious. I love Alex!).
The concept has to be attractive to the gullible public, and not necessarily investable or profitable. We were not born yesterday and are aware that PKN makes its money managing the fund buyer's money (taking some 2-3% annual management fee and the spread between selling and buying price of the fund, as well as other ways of profiting from the capital under its management) and not from making money for the fund buyers. For that purpose, to get the people to give their money to them to manage, Aqua Plus is a great concept.
It may not even be the worst of all the funds Israelis can and do buy.