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US-Heavy Investor Appetite for Natural Resources Funds – January 2014

by Harry Young

  • 28 Jan 2014
  • PE
  • NR

The need for diversification within private equity portfolios in order to spread risk, coupled with an evidently substantial appetite among LPs for natural resources funds, lays the foundation for the sustained flow of capital into the natural resources sector of private equity. In fact, Preqin’s data suggests that US-based investors in particular will provide a strong source of capital for GPs looking to fundraise for natural resources vehicles going forward, though there is notable attention from LPs all across the globe seeking to commit to such funds throughout 2014. 

Preqin’s Investor Intelligence online service currently tracks 809 investors that have an appetite for, or have previously invested in, natural resources vehicles. US-based investors make up the vast majority (78%) of those LPs with an interest in such funds, while a further 10% are based in countries within West Europe. 

US-based investors in natural resources vehicles manage aggregate assets of over $14.8tn, and on average, are operating slightly below their target allocation to private equity. Of US-based LPs (excluding fund of funds managers) investing in natural resources, the average current allocation to private equity is 11.8% of total assets, while the target allocation across these investors is, on average, 12.5%. Similarly, the average allocation of investors across all geographic regions in natural resources funds (excluding fund of funds managers) is below that of their target allocation, at 12.4% and 13.1% respectively. 

Foundations make up the highest proportion of investors in natural resources, representing a fifth of those LPs with an appetite for such vehicles. This is followed by endowment plans and public sector pension funds, which account for 18% and 17% of the total LPs that have an interest in natural resources funds. 

Several investors made commitments to natural resources funds throughout the second half of 2013. Minnesota State Board of Investment (SBI), a US-based public pension fund, made a commitment of $200mn to First Reserve Fund XIII, a vehicle that targets investment opportunities on a global scale. A further example is New Mexico Public Employees Retirement Association (NMPERA), which committed $35mn to Lime Rock Resources III, a fund focusing on investments in the US oil and gas industries.

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