Commodities worldwide are in high demand based on a significant
increase in assets held by unlisted
natural resources funds. As of June 2016, assets in these funds reached $455
billion, while the industry grew by $48 billion in
six months. All old assets under management in this fund category have tripled
in size since 2008, according to a new report by Preqin.
its new 2017
Global Natural Resources report the data, analysis and
services company found that unlisted natural resources assets grew by 12% in
the first half of 2016, following two successive years in which the industry
expanded by 10%.
of this asset growth was in “vintage” funds (funds started before 2009,
according to Preqin) that hold a significant proportion of industry assets.
Funds with a 2009 vintage or older hold $89 billion in total assets, almost one-fifth
of the total industry.
launched post-2009 have significant amounts of “dry powder” (capital yet to be
invested) to invest. This may help explain why 2014 vintage funds alone account
for $49 billion, almost as much as the $50 billion held by 2016-vintage
vehicles. North America-focused funds account for $328 billion, or 72% of total
global assets. This AUM total dwarfs those held by funds focused on Europe ($52
billion), Asia ($23 billion) or other regions ($53 billion). Similarly, energy-focused funds hold $362 billion
in total assets and account for 79% of the industry AUM. Diversified natural
resources funds account for 7% of AUM, while agriculture (5%), mining (4%),
timberland (4%) and water (0.3%) funds are much smaller.
a category, energy-focused funds are the fastest-growing sector of the unlisted
natural resources industry. The AUM of energy funds grew by 18% in the first
half of 2016, compared to 12% for agriculture funds and 6% for mining funds.
Diversified natural resources funds actually saw assets decrease by 10% in the
to Tom Carr, Preqin’s Head of Real Assets Products, “the unlisted natural
resources industry added almost $50 billion in combined assets in the first six
months of 2016 alone. These funds are
continuing to grow and the pace of growth for the industry is actually
accelerating. This whole sector has seen double-digit annual increases for over
a decade. At this pace, we may see the industry exceed half a trillion dollars
in AUM by the end of 2017.”
noted that within the asset class, the balance of assets remains heavily
weighted towards energy funds and funds investing in North America. Although
agriculture- and mining-focused funds have seen steady growth, they remain
dwarfed by the energy sector. “Still, all primary natural resources sectors
have seen consistent growth, and the asset class as a whole continues to emerge
as an important part of the alternatives industry,” Carr said.
Performance Remains an Issue
study found that 54% of respondents to Preqin’s latest survey of institutional
investors said their investments in
natural resources “fell short of their expectations” in 2016 as more investors
were dissatisfied with their natural resources investments than were dissatisfied
with their portfolios of any of the other private capital asset classes. The
report said this is “a significant worry for managers” seeking to raise
capital, but investors remain optimistic. The study found that investor
interest in the asset class is improving, with 80% of investors considering the
asset class positively or neutrally, compared with 67% at year-end 2015.
despite performance concerns, investors remain bullish on the asset class
entering into 2017, and 35% expect the asset class to perform better than it
did in 2016, compared with 21% that believe it will perform worse.
largest funds in the sector investing in North America are: the Riverstone
Global Energy and Power Fund VI (AUM $5 billion); North America Global North
Haven Infrastructure Partners II (AUM $3.6 billion); Global Stonepeak
Infrastructure Partners II (AUM $3.5 billion); Water North America Carlyle
Energy Mezzanine Opportunities Fund II (AUM $2.8 billion); and the Global AMP
Capital Global Infrastructure Fund (AUM $2.4 billion).
Investors and Managers
Neutral on Terms
part of their survey, the study found that the majority (63%) of investors
surveyed have seen no changes in prevailing fund terms over the last year, but
27% of institutions saw a change in fund terms that favor investors, compared
with 9% that have witnessed changes in favor of fund managers. One reason for
this change in favor of investors may be due to an increasingly competitive
fundraising environment, the study suggested.
may help explain why investors are seeing changes in management fees, how
performance fees are charged, transparency and higher commitments from fund
managers. Each mentioned by more than
half of surveyed investors as areas in which they would like to see
improvement. However, 43% of institutions reported changes to management fees
and transparency in the past 12 months, indicating that fund managers have
taken action to reformat their fund’s term offerings.