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Food and Water Basic Challenges to International Stability

February 5, 2009


Disclosure This document provides only impersonal advice and/or statistical data and is not intended to meet objectives or suitability requirements of any specific individual or account. The document should not be construed as a recommendation to buy or sell any security. All investments involve risk, including the loss of principal. Past results do not guarantee future performance. Further, the investment return and principal value of an investment will fluctuate; thus investor’s equity, when liquidated, may be worth more or less than the original cost. Investments that are concentrated in one or a few industries are subject to greater risk and volatility than more diversified investments. Portfolios that invest in fixed income securities are subject to several general risks, including interest rate risk, credit risk, and market risk, which could reduce the yield that an investor receives from his or her portfolio. These risks may occur from fluctuations in interest rates, a change to an issuer's individual situation or industry, or events in the financial markets. Subject to applicable investment guidelines, Aqua Terra may invest portions of Client accounts in illiquid security investments. Investing in relatively illiquid (difficult to trade) securities may restrict Aqua Terra's ability to dispose of investments in a timely fashion or at an advantageous price, which may limit the ability to take full advantage of market opportunities. Investments in small and mid-cap securities may involve a greater degree of risk that investments in large-cap securities. Options involve risks and are not suitable for everyone. Option trading can be speculative in nature and carry substantial risk of loss, including the loss of principal. Investments in foreign securities are subject to greater volatility due to such factors as changes in currency rates, foreign taxation, differences in auditing and other financial standards, etc.

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About Aqua Terra Asset Management LLC • Aqua Terra Asset Management (“Aqua Terra”) is an institutional investment firm that manages equity

portfolios of companies with exposure to water, natural resources and other ancillary environmental companies.

• Aqua Terra manages assets for high net worth individuals, family offices, and institutions. • Aqua Terra is a subsidiary of Boenning & Scattergood a full service investment bank and brokerage firm

with 175 employees headquartered in West Conshohocken, PA.

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Water 101 - Background

Closed Loop System • Amount of water is constant. • It is held in various forms as it is cycled through the hydrological system. • While the Earth is predominantly water, fresh water represents less than 3% of water reserves. • Fresh water in free flowing form is less than 1% of all water.

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Classic Commodity

Quality and Quantity Finite

Increasing Demand

•Above all else water, is a Quality and Quantity issue, as all areas suffer from one or both issues.

• Quality and Quantity factor leads to a supply and demand imbalance.

• Water is a global issue, but many problems Unequal Allocation

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Pricing

reside on the local level, which hinders a coordinate response and makes solving problems more difficult.


Quantity - Increasing Demand

Demand Drivers • Population • Industrialization • Socio-Economic Trends • Agriculture

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Quality – Supply Diminishing

Supply Drivers • Pollution is increasing. • Climate change affects weather patterns. • Many developing regions have little to no waste water treatment or regulation.

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Food, Water & Energy Connection

Food, Water and Energy are Intertwined Water

• Large amounts of energy are required to move and filter. • Food requires large amounts of water for growing requirements. • Energy requires large volumes of water for production.

Energy

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FOOD


Framing The Investment Opportunity

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Cross Section of Global Water Companies Aqua Terra breaks down its water universe of 400 companies into six broader sectors which outline the diversity of companies from an industry standpoint as well as geographical positioning. Engineering & Equipment & Water Utilities Consulting Infrastructure Distribute & treat water for communities typically through a regulated rate of return model.

Companies which provide engineering & consulting services

Americas

Aqua America American Water

Jacobs Tetra Tech

Watts Muller Water Pentair

Europe

Veolia Pennon Group Severn Trent

Abengoa S.A. Alfa Laval

Asia & Middle East

Manila Water Cheung Kong Hyflux

Coffey Int’l. Voltas United Envirotech

Provide pumps, valves, motors, pipes for the transportation of water and waste water

Treatment Chemicals, filtration, membranes and other products that treat water

Instrument, Test & Tech.

Asset Companies

Meters, testing equipment, technology used to measure flow and contaminant levels

Hold physical assets related to water including water rights and land

Arch Hawkins Dow

Badger Meter Itron

PICO Holdings Tejon Ranch

Weir Gebereit

Ciba Holding Kemira Oyj

Rtork PLC Real AG

Future Pipe Doosan Heavy SinoPipe

Kurita SinoChem

Horiba China Water Affairs

Timbercorp Chaoda Modern

This information is not intended to be a recommendation to buy or sell any security. Aqua terra may or may not be invested in these securities as of the date of this report.

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Drivers of Global Investments Supply

Demand

Population Growth Pollution Migration & Industrialization Climate Change Dietary Habits

Regulation

Infrastructure

EPA / Clean Water Act requires testing for over 90 contaminants; up from 22 in 1976.

Developed world faces a serious repair / replacement cycle; U.S. estimates range as high as $1 trillion of needed investment

Global regulation is growing as the realization that water standards affect GDP and health care costs.

Drivers of Global Water Investments

The developing world lacks complete infrastructure; China’s facilities clean only 30% of its waste water

Ancillary Industries Energy – Water is the key input into energy generation; conversely, water transportation is energy intense. Agriculture – Agriculture is the single largest user of water resources on a global basis; companies with exposure to fertilizer, irrigation, seed and equipment will benefit. Environmental Technology – Clean technologies help reduce emissions and other pollutants which can reduce water quality; help redesign processes to lower water consumption. 11


Opportunities in Water Investment

Water • Water Utilities: operate under a rate of return

model in exchange for monopoly in the service area • Water Reuse: drive to better utilize resources •Metering: only 22% penetration for automatic

meter reading

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Agriculture • Irrigation: significantly reduces water usage and increases crop

yields

• Seed Companies: modified seeds require less water • Fertilizer: increase crop yields


Additional Information • World Bank • National Association of Water Companies

(NAWC)

• Circle of Blue • Pacific Institute • United Nations

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Thank You

Aqua Terra Asset Management C/O Boenning & Scattergood 4 Tower Bridge 200 Barr Harbor Drive, Suite 300 Conshohocken, PA 19406 Gerry Sweeney Direct: 610.832.5295 Email: gsweeney@aquaterraam.com www.Aquaterraam.com

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Sweeney - CFA Food & Water Feb 0509  

Food and Water Basic Challenges to International Stability February 5, 2009 This document provides only impersonal advice and/or statistical...

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