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Natural Resources Risk/Return: Does Size Matter?

by Jaysul Mistry

  • 08 Dec 2017
  • NR

The natural resources fundraising landscape remained strong over H1 2017: 49 funds reached a final close, securing $42bn in institutional capital commitments. The average size of funds closed in the period increased significantly in comparison to H1 2016 from $553mn to $920mn.

The chart above shows the risk/return relationship for funds of all vintages by fund size using performance data from 348 named unlisted natural resources funds on Preqin’s Natural Resources Online. There appears to be little variation in risk between the fund sizes, with standard deviation of net IRR ranging from 17% to 20%, and funds greater than $500mn in size exhibiting a slightly lower risk profile. This is likely a reflection of the general lack of diversification in smaller fund portfolios and the vast resources at the disposal of the larger fund managers. Funds less than $250mn in size are generating the greatest returns, with a median net IRR of 12%; this contradicts the current trend in the market of increasing fund sizes but also slightly higher risk. However, for all other fund sizes, returns appear to increase with the size of the fund.

Preqin data allows investors to access the risk/return trade-offs of their fund commitments, with fund size one of many characteristics to consider. To find out more, please visit: www.preqin.com/naturalresources

 

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