Unlisted Natural Resources Growing

Since 2015, the ESG-based asset class, which invests in the likes of farming and timber, has been delivering stronger returns.

While not as strong as other private asset classes, unlisted natural resources, such as agriculture, timber, and energy, look to be picking up thanks to the growing popularity of environmental, social, and governance (ESG) investments.

In general, natural resources funds from 2005 had median net returns of 2.7% annually, and stayed relatively low until 2015, when they returned 15%, data firm Preqin reported.

The 2015 funds saw a higher return than the buyout funds (13%). Typically, the buyout performance is better than that of unlisted natural resources, which recently also have outpaced venture capital (8.6%) and infrastructure funds (9%). Asset growth in the class grew from $520 billion to $563 billion in the first nine months of 2017. In December, 79% of investors said natural resources investments had either met or exceeded expectations in the past year, according to a Preqin survey.

Patrick Adefuye, head of Preqin’s real assets products division, called the research “an encouraging sign” for the industry. “Unlisted natural resources funds could also be viewed as a safer route for investors, because although unlisted fund performance is impacted by changes in oil prices, it is more insulated from short-term volatility than listed fund returns.”

The high point for natural resources in Preqin’s performance index was 136 in September 2014. It fell slightly in December that year, but regained traction in June 2016 and shot up to 133 points last September.

Oil, on the other hand, has been losing ground since 2014. The S&P Global Index TR fell that that year, and while it has recovered, it is only at 87 points in September. In 2007, it was at 100, says Preqin.

Dry powder was also on the decline in the 2005-2014 timeframe, slipping from $201 billion to $192 billion across the asset owner industry.

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