The natural resources industry has been struggling to generate momentum for some time. Since the crash of oil prices in 2015, even subsequent spikes in commodities prices have failed to generate much enthusiasm for the sector. Q2 has not broken this trend, with fundraising falling further and investor sentiment remaining negative.
Considering the potential variety offered by natural resources funds, it is striking that so much of the capital flowing through the industry is dedicated to one sector in one region: North American energy projects. They account for by far the largest share of fundraising, funds in market, dry powder and investor interest. This may be a holdover from the explosion in the Permian Basin – which has seen the US become one of the largest energy-producing nations in the world – but it remains to be seen if this boom can be sustained over the longer term.
Fund managers coming to market must then consider carefully where the asset class is headed. Investor sentiment is uniquely low among private capital investors, following consistently low performance compared to other sectors. Recent vintages do show strong returns, it is true, and this may spark an uptick in investor interest in the long run, but for the time being securing capital looks set to be a challenging process.
For further in-depth analysis on fundraising, deals, performance and investor data from the quarter, download the newly-released Preqin Quarterly Update: Natural Resources, Q2 2019.
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