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Drought and Thirst: Opportunities for Private Equity

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If there’s one thing the West really needs, it’s the vultures of private equity messing up the water distribution system even more than they already are.

But another controversial vision has roared back to life in recent months that would upend nearly a century and a half of precedent. Hedge funds and other Wall Street interests want to rewrite the “Law of the River” in the Colorado River Basin and use the free market to solve the problem of scarcity — while potentially raking in immense profits.

Privatizing water resources has long been the dream of libertarian-leaning think tanks, and publications from the Financial Times to Forbes have referred to water as “the next oil.” If geopolitical conflicts and vast swaths of the global economy in the 20th century were driven by fossil fuels, some analysts predict a repeat in this century with a different commodity.

Partners at Water Asset Management (WAM), a New York-based hedge fund that invests in water around the world, have been involved with Western water since the 1990s. But as the situation in the basin grows more dire, WAM has grown increasingly vocal about the need to reform the system in the Colorado River Basin, where rising temperatures linked to the burning of fossil fuels are leading to reduced runoff. Average flows have diminished by 18% over the past two decades compared to the previous century, a trend known as the Millennium Drought.

“I have seen time and again the wisdom of using incentives that attract private-sector investment and innovation,” James Eklund, legal counsel for WAM, recently told The New York Times. “Dealing with the threat of climate change to our water requires all sectors, public and private, working together.”

Eklund formerly served as a top water negotiator for Colorado, and his comments in the article set off a flurry of rebuttals from environmental groups, water managers and farm advocates.

WAM had invested $300 million in farmland in Colorado, California, Arizona and Nevada as of last year, including $16.6 million on 2,220 acres of farmland with senior water rights in Colorado’s Grand Valley just upstream from where the Colorado River crosses into Utah. So far, farming has continued on the hedge fund’s plots in the Grand Valley, and investors have said their goal is to make the agricultural techniques more water efficient.

I officially and sincerely apologize to vultures. They serve a useful place in the ecosystem, as opposed to capitalists who want to take water away from the poor for the holy grail of profit.

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