In early 2016, an over-supplied market led oil & gas prices to plummet and created conditions that remained volatile for months. However, as seen in Preqin Special Report: North American Oil & Gas, investors have continued to invest in the industry despite turbulence and poor performance. The report reveals that, as of October 2016, 19 North America-focused oil & gas funds had closed in the year so far, raising an aggregate $33.9bn. Furthermore, there were 51 North America-focused oil & gas funds in market with a collective goal of $28.6bn, of which 43% had already held interim closes and raised an aggregate $8.1bn.
Investor enthusiasm for fossil fuels could continue to grow in 2017 as markets stabilize, prices rise and policies change. OPEC has reached a deal to begin cutting oil production in January 2017 in the hope that it stabilizes the oversupplied market and oil prices will rise. US politics could also contribute to further investment and a possible rally for oil & gas prices in 2017. According to the results of a survey of 125 fund managers for Preqin’s Alternative Assets in Trump’s USA, conducted just after the election result, 62% felt positively about Donald Trump’s $1tn campaign plan for infrastructure, which included measures to approve more private sector energy infrastructure projects – including pipelines, shale energy and coal export facilities – and to attract more private investment with infrastructure tax credits. Nearly half (49%) also approved of his plan to lift restrictions on energy infrastructure projects.
As seen in the chart above, North America-based investors tracked on Preqin’s Natural Resources Online are targeting oil & natural gas-focused opportunities for their energy investments in the year ahead. Still, many investors have reported dissatisfaction with the natural resources asset class as a whole. In June 2016, 65% of the investors surveyed for Preqin Investor Outlook: Alternative Assets, H2 2016 reported that their natural resources investments had fallen short of expectations, and 61% reported reduced confidence in the asset class. However, 72% of surveyed investors said they expected to commit the same amount of capital or more to natural resources in the following 12 months as compared to the previous 12 months.
Despite feelings of disappointment and doubt in the asset class, North America-based investors have continued to commit to oil & gas funds. In Q4 2016, Texas Municipal Retirement System, a $24.3bn public pension fund, invested in Carlyle Energy Mezzanine Opportunities Fund II, an energy fund that pursues privately negotiated mezzanine investments in real asset-based energy exploration and production companies, and independent power projects and companies located primarily in the US and Canada. In Q3 2016, University of Michigan Endowment made a $25mn re-up investment in Yorktown Energy Partners XI, an energy fund that focuses on oil & gas exploration, production and transportation companies in the US. It is possible that factors such as the prospect of new energy policies from the US Government and the new OPEC deal to slow production output have buoyed hopes for improvements in the oil & gas market.