The dominance of energy within the natural resources asset class continues. Preqin data shows that energy-focused funds accounted for almost all of 2018’s natural resources fundraising activity: inclusive of upstream, midstream, downstream and oil field services strategies, 86 funds raised $95bn. To understand the forces driving this trend, we take a closer look at the individual strategies within energy to see how they have fared in comparison to the rest of the natural resources industry over the past 10 years.
The chart above compares the proportion of upstream and oil field services (UOFS) funds that closed on or above their target size with that of all other natural resources funds closed in each of the past 10 years. Notably, from 2015 to 2017, UOFS struggled to raise capital, particularly in 2015 and 2016 when only 24% and 26% of funds were able to reach their respective targets.
In contrast, the rest of the natural resources industry was able to successfully hit target sizes in these years (48% and 69% of funds closed respectively). Midstream- and downstream-focused funds therefore experienced strong fundraising in those years to bolster the overall statistics. Of all funds to achieve or exceed their target size in 2015, 86% employed an energy strategy; however, only 12% of those funds were focused solely on UOFS, and in 2016, only 16% of funds targeting energy were UOFS-focused. Although Preqin’s natural resources data has shown top-level industry success year on year, looking specifically at UOFS data indicates weaker performance than the macro statistics suggest.
Looking forwards, UOFS may continue to lag behind their midstream and downstream counterparts when attempting to raise capital. Preqin’s 12-Month Mandate Plans on Preqin Pro reveal only 37% of investors targeting energy investments that are looking to allocate to the higher-risk commodity-exploration UOFS funds, leaving the majority seeking capital in the fee-based transportation and processing of midstream and downstream sectors.
For more up-to-date information on 2018’s fundraising statistics and investor mandates, order your copy of the new 2019 Preqin Global Natural Resources Report.