While a new kind of public humiliation — “drought shaming” for homeowners sporting verdant lawns and sparkling pools — made headlines in water-starved California this spring, another perennially dry state underwent a shock in the opposite direction. The rain came so hard and fast in Texas in May that some areas reportedly saw 300 to 600 percent of their normal annual rainfall in just a few weeks. The images were striking: homes destroyed, fields turned to temporary muddy lakes, men sitting at the top of a hill on a washed-out road with fishing lines dipped in the water below. It may have seemed like good news for a state that’s been dealing with drought conditions for years, but few cities are equipped with infrastructure to handle that much water all at once. More than 20 people died as the flooding destroyed homes and businesses, and despite the high waters, climatologists say the storms may not be enough to end the state’s megadrought.

“All of that water will likely be lost, because the infrastructure isn’t there,” says Simon Gottelier, a New York–based senior portfolio manager and director at Impax Asset Management, which manages $1.8 billion in water sector investments.

Switching so quickly from drought to flooding and back again is an extreme scenario, but it’s one many experts are saying may become more common thanks to the combination of climate change, poor water management and crumbling infrastructure. Many state and local governments are working to fix the latter problem, facing the urgency of upgrading 100-year-old pipes that are in constant need of repair. The task is daunting, but there’s a silver lining for investors in that a great deal of private money will be needed to get these projects off the ground.

Three main areas of the sector hold the most opportunity for asset managers and funds looking for long-term, stable income streams and the occasional big-ticket asset: the construction and operation of desalination plants, the implementation of new wastewater treatment and reuse facilities, and infrastructure maintenance and modernization. Opportunities can come in the form of public-private partnerships, collaborations with private institutions such as banks or indirect investments through bonds sold by municipalities.

According to the American Society of Civil Engineers, in 2010, water systems spent $36.4 billion to address $91.2 billion worth of water infrastructure needs. By 2020, the disparity is expected to grow, with planned spending at $41.5 billion of the $125.9 billion needed annually. That gap is where many institutional investors will find attractive deals, if they have the patience and expertise to understand the market.