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Growth in Natural Resources Fundraising Despite Investor Concerns – March 2016

by Justin Hall

  • 08 Mar 2016
  • NR

Natural resources has seen strong growth in fundraising over the last 10 years, with a total of 823 funds closed and $467bn in aggregate capital raised since 2006. As the chart below shows, 2013 saw the largest annual number of funds reach a final close: 113 funds secured $63bn in institutional investor capital commitments. In terms of capital raised, 2015 was a record year for natural resources fundraising, despite a significantly lower number of funds reaching a final close (73). Consequently, the average fund size was considerably higher compared with previous years; at $925mn, the average size of funds closed in 2015 was 63% larger than the previous year. Furthermore, there was a notably larger proportion (33%) of large funds (over $1bn) raised in 2015, compared with 17% in 2014.

Preqin’s Natural Resources Online currently tracks 255 natural resources funds in market, collectively targeting more than $145bn in investor capital. The market is dominated by energy-focused vehicles, which represent nearly two-thirds of the funds in market and accounting for 74% of total capital targeted by natural resources funds. The dominance of this strategy is exemplified when looking at the top 10 largest natural resources funds currently seeking capital: seven of these have energy as their primary strategy. Agriculture/farmland-focused vehicles represent 16% of funds in market, followed by funds with a diversified investment strategy (8%), timberland (5%), metals & mining (5%) and water (2%).

North America-focused natural resources funds are most prevalent in the market, with 41% of funds in market targeting assets in the region. Nearly a quarter (23%) of funds in market target Europe, 7% are targeting Asia, 7% are geographically diverse and 22% focus on investments outside the aforementioned regions.

First-time funds represent over a third (35%) of natural resources funds in market and are collectively targeting almost a quarter ($30bn) of the total targeted capital for the asset class. The largest first-time fund in market comes from AGL Energy: Powering Australian Renewables Fund is targeting $2.1bn in investor capital to focus on large-scale wind farms in Australia.

Ongoing volatility and uncertainty has affected institutional investor appetite for  natural resources; only 28% of respondents to Preqin’s most recent survey intend to increase their allocation to the asset class, and 62% stated that their investments in 2015 fell short of expectations (see Preqin Investor Outlook: Alternative Assets H1 2016 for full survey results). With five funds closed in 2016 so far collectively raising $7bn, there appears to be a continuation in fund managers raising larger funds, with investors placing their faith in fund managers with longer track records.

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