There’s $161 Billion For Natural Resource Investments Lurking Here by Dave Forest, Pierce Points
Critical report this week for all project developers across the natural resource space. Showing that investment in the sector is far from depressed.
In fact, available funds for energy, mining and beyond are at all-time high.
Value Partners Asia ex-Japan Equity Fund has delivered a 60.7% return since its inception three years ago. In comparison, the MSCI All Counties Asia (ex-Japan) index has returned just 34% over the same period. The fund, which targets what it calls the best-in-class companies in "growth-like" areas of the market, such as information technology and Read More
And what they found was shocking.
The first major point of note is a marked increase in total assets under management (AUM) for natural resource funds. With AUM hitting a record high of $400 billion as of September 2015.
That’s an increase of 8% since 2014. Showing that money continues to flow into natural resource funds — despite the downturn in commodities prices the last few years.
The really intriguing thing for project developers is that a lot of this fund capital remains un-deployed. With the Preqin analysis showing that natural resource fund managers hold $161 billion in “dry powder” — funds that have yet to be committed to specific investments.
Again, that’s an increase from end-2014 levels — when funds held $146 billion in dry powder. Meaning that there’s another $15 billion out on the street today looking for deals.
Of course, much of this cash is aimed at the North American shale oil and gas sector — which remains an area of high interest, even at lower energy prices. All told, Preqin estimates North America-focused funds hold $116 billion in dry powder.
But there are still significant funds available elsewhere in the world. With Europe-focused funds having $19 billion in available cash, and Asia-focused investors holding $7.2 billion in dry powder.
And if investors need a reason to continue looking at natural resources, the Preqin report provides a powerful reminder of the potential in this space. Noting that the top-performing resource fund in their coverage universe — Europe-focused Aravis Energy I — has generated a stunning internal rate of return of 448% since 2009.
That sort of alpha is why resources will always justify a place in investment portfolios. Watch for more fund deals, deploying dry powder in energy and metals — to see what sectors and project profiles will be favored by these deep-pocketed investors.
Here’s to billions and billions,
Natural Resource – Image Source: Wikipedia