Natural Resources Performance & The Impact Of Investor Sentiment

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Natural Resources Performance & The Impact Of Investor Sentiment by Preqin

Natural Resources Performance

Using data from Preqin’s Natural Resources Online, Alastair Hannah and Joe McGee analyze the performance of unlisted natural resources funds and the impact of recent developments on investor sentiment towards the asset class.

The natural resources asset class has experienced considerable growth in recent years: assets under management* (AUM) reached a record $400bn in September 2015. Despite this growth, fund managers investing in natural resources assets have faced considerable difficulties since 2014, as the prolonged downturn in commodity prices has put pressure on the revenue of firms involved in extracting, processing and transporting natural resources.

Investors are understandably concerned regarding the impact that this may have on their portfolios: among investors surveyed by Preqin at the end of 2015, 43% identified performance as a key issue for the natural resources industry in 2016, making this the second most prominent concern after continued volatility in global markets (Fig. 1). In order to understand these developments, we take a look at natural resources AUM, performance and investor sentiment towards the asset class using data from Preqin’s Natural Resources Online.

Assets under Management & Dry Powder

Unrealized value as a proportion of AUM has remained relatively consistent in recent years, representing approximately 60% of total industry assets each year since 2010.

Funds primarily focused on investment in the energy sector represent the largest fund type in terms of both unrealized value ($179.9bn) and dry powder ($131.3bn as of September 2015, Fig. 3). In terms of geographic focus, North America-focused funds hold the largest amount in AUM ($279.8bn), more than double the total AUM of funds focused on Europe, Asia and Rest of World combined ($48.7bn, $20.5bn and $51.5bn respectively, Fig. 4).


With investment by unlisted natural resources funds primarily focused on the energy sector, the decline in energy prices since 2014 appears to have had a significant impact on returns. Fig. 5 shows the performance of the PrEQIn Natural Resources Index against the PrEQIn All Private Equity Index and the S&P 500 Total Return Index, depicting the average returns earned by investors in their natural resources portfolios.

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This is based on the actual amount of capital invested in these partnerships. Although the PrEQIn Natural Resources Index outperformed both benchmarks in the period from December 2007 to September 2012, it has underperformed since. Following its peak of 135.9 in September 2014, the index declined to 120.2 by September 2015, while the PrEQIn All Private Equity Strategies and S&P 500 Total Return indices reached 159.18 and 154.81, respectively.

Partly as a result of this recent decline in performance, energy funds have a lower median net IRR than both the infrastructure and real estate asset classes for all vintages from 2008 (Fig. 6). The median net IRR for all natural resources funds, including energy, has performed similarly – with the exception of vintage 2010 funds, which have slightly outperformed infrastructure.

Underperformance in comparison with other asset classes has been particularly noticeable for vintage 2013 funds, which began investing capital while commodity prices were relatively high. However, these funds are at earlier stages in their life-cycles and may move closer to historical averages as the fund moves through its investment life-cycle. Crucially, although IRRs are lower for vintage 2013 median and bottomquartile funds, top-quartile funds have performed similarly to recent vintages, suggesting that top-tier managers can identify assets that can perform, despite commodity price volatility.

Fig. 8 shows the risk/return profile of different natural resources fund types; the size of each sphere represents the capitalization across vintage years 2003-2013. Energy funds have the highest median net IRR (+5.9%) but the second highest risk profile, with a standard deviation of net IRR of 14.9%. Unlisted metals & mining funds have the highest risk (19.6%) and the second highest median net IRR (+5.3%). Of the funds examined, agriculture/farmland-focused funds have the lowest risk/return profile for all other natural resources strategies.

Investor Sentiment and Outlook

Of investors interviewed by Preqin in December 2015, 62% felt that their natural resources investments had underperformed over the past 12 months (Fig. 9). In comparison, only 2% felt that their investments had exceeded expectations.

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Nevertheless, it is important to note that although most investors reported disappointment with recent performance, the majority (58%) of investors recognize the effect that recent commodity price declines have had on these funds and tend to view the asset class from a longer term perspective. This proportion of investors reported that their confidence in the ability of their natural resources investments to achieve portfolio objectives had not changed over the past 12 months, and 15% reported that their confidence had actually increased during this time (Fig. 10).

Similarly, a larger proportion (28%) of investors stated that they planned to increase their allocation to the natural resources in the longer term than those that planned to decrease it (23%), with 49% intending to maintain their current allocation (Fig. 11). Although performance will need to improve for the natural resources asset class to keep growing over the longer term, new capital will likely continue to enter the asset class, while fund managers and investors seek to take advantage of the opportunities created as existing natural resources companies experience the impact of low commodity prices.

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Women in Real Assets

Jeanne Kroeger examines the representation of women in junior, mid-level and senior positions at infrastructure and natural resources firms worldwide, using our extensive contact data.

Key Information – Methodology

The data in this article is sourced from Preqin’s online databases, which feature profiles on over 490 infrastructure firms and 809 natural resources firms, including full contact information.

Over 9,200 staff at infrastructure firms and 15,700 staff at natural resources firms worldwide were analyzed for this study. All administration and other support staff were excluded from the analysis.

Seniority was allocated on the following basis:

  • Junior employees included Associates and Analysts
  • Mid-level employees included Senior Associates, Vice Presidents, Managers, Directors and Principals
  • Senior employees included Managing Directors, Partners, Senior Managing Directors/Advisors, Managing General Partners and C-Suite Executives

Contacts were also split into the following functions: Investor Relations/Marketing, Finance/Accountancy, Operations, Portfolio Management and Investment Team.

Regional Trends

Globally, women represent approximately a fifth of all staff across infrastructure and natural resources firms combined (Fig. 1). This is similar to the proportion of women in real estate firms (21%) seen in Preqin’s analysis of women in real estate from our May edition of Real Estate Spotlight.

The proportions of female employees in infrastructure remain relatively consistent when broken down regionally (North America: 20%, Europe: 19%, Asia: 19%, Rest of World: 20%). However, 21% of employees in Europe-based natural resources firms are women, which is two percentage points more than the proportion of women in Europe-based infrastructure firms. Conversely, in all other regions, natural resources firms have a lower representation of female employees, particularly in Asia, where women constitute only 16% of staff – this is significantly below the global average for both asset classes.

With respect to seniority in infrastructure, 8% of senior employees globally are women, with slight discrepancies by region (Fig. 2). Europe-based infrastructure firms lead with 9%, while only 7% of senior staff in Asia-based firms are women (Fig. 2). Nearly a quarter (23%) of all mid-level roles are held by women in North America-based infrastructure firms, ahead of Asia (21%), Europe (19%) and Rest of World (21%). Asia-based firms have the most significant proportion (41%) of female employees in junior positions; all other regions are relatively consistent, with approximately a third of junior employees being female.

Natural resources firms have a larger share of women in senior roles worldwide compared with infrastructure firms: one in 10 senior employees are female (Fig. 3). In terms of women in mid-level positions, natural resources firms have a smaller proportion than infrastructure firms, although North America-based firms lead again, with over a fifth of midlevel employees being women. Similarly, fewer junior positions in natural resources firms are held by women worldwide compared with infrastructure (27% and 33% respectively).

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In terms of role function as seen in Fig. 4, the largest representation of female employees can be found in Investor Relations/Marketing for both infrastructure (43%) and natural resources (44%) firms. Female employees represent small proportions of Investment Team and Portfolio Management roles across both asset classes. The main differences between infrastructure and natural resources firms in terms of function can be seen in Finance/Accountancy and Operations, where the representation of women in natural resources firms is four percentage points higher in both role functions.

The largest proportion (26%) of female employees in senior roles in infrastructure firms can be found in the Investor Relations/Marketing department, while the Investment Team and Portfolio  Management departments in infrastructure firms have the lowest representation of senior female employees at 8% and 5% respectively. Women hold the majority of junior roles in natural resources firms across Finance/Accountancy and Investor Relations/Marketing functions, accounting for 62% and 52% respectively (Fig. 6). However, the vast majority of mid-level and senior roles across all functions are held by men, although Investor Relations/Marketing has the largest proportion (23%) of senior female employees, three percentage points below that of infrastructure firms. Investment Team and Portfolio Management roles again both show the lowest results, with only 8% and 9%, respectively, of senior roles held by women.


Overall, women account for approximately a fifth of total employees at infrastructure and natural resources firms worldwide. The proportion of women in infrastructure firms remains relatively consistent across all regions, while Europe-based natural resources firms narrowly lead the way with the largest proportion of female employees. Asia-based infrastructure firms have the largest proportion of women in junior roles, whereas Europe-based firms have the largest proportion of senior female employees. In natural resources firms, there is a general trend showing that fewer junior and mid-level positions are held by women globally, compared with infrastructure firms, where a larger proportion of women are in senior roles than there are in natural resources firms.

Much like real estate firms, the Investor Relations/Marketing department has the largest proportion of female employees across real assets, while women are least represented in the Investment Team and Portfolio Management roles, which are dominated by men across all seniorities. However, even in these functions, the participation of female employees is skewed towards junior and mid-level roles.

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Real Assets Industry News

Oliver Senchal takes a look at recently completed PPP/PFI infrastructure transactions, as well as Canada-based investors that are targeting new commitments to infrastructure and natural resources over the next 12 months.

Europe-Based Investors Targeting Natural Resources

As shown on above, since the beginning of 2016 there have been 73 PPP/PFI infrastructure deals for an aggregate $22bn; the largest of these took place in May 2016 when the Kunming Municipal People’s Government awarded the Kunming Rail Transit (Line 5) PPP project to China Railway Construction Corporation for a total investment of $3.25bn. This was for a concession period of 15 years for the civil construction and a 30-year concession period for the electro-mechanical equipment and vehicles.

Outside Asia, the largest PPP/PFI project was Georgia’s Ministry of Economy & Sustainable Development award in February for the right to build and develop Anaklia Deep Sea Port PPP to Anaklia Development Consortium, comprised of TBC Bank and Conti Group, for a total investment of $2.5bn. Anaklia Deep Sea Port PPP project is poised to revitalize the Caucasus and Central Asia by opening up trade routes for neighbours and landlocked nations such as Armenia, Azerbaijan, Kazakhstan, Uzbekistan, Turkmenistan, Kyrgyzstan and Tajikistan.

Nineteen PPP/PFI transactions have competed for social infrastructure assets in 2016, for a reported aggregate deal value of $2.1bn. The largest of these was InfraCapital’s acquisition of an 80% stake in Societa’ Italiana Per Condotte d’Acqua PPP Portfolio from Italian developer Societa’ Italiana Per Condotte d’Acqua, for a total consideration of €700mn. The portfolio comprises both operational and greenfield projects in the fields of health, transport and security; in addition, it includes three hospitals (two in Milan and one in Florence), a shuttle train service connecting Pisa Airport to Pisa Centrale station, a trigeneration energy centre serving Careggi University Hospital in Florence and Bolzano prison.

Recent Energy Fund Launches

Page 10 details how energy vehicles – specifically those targeting oil & gas investments – have dominated the natural resources fundraising market in recent years, securing over half the total natural resources capital raised annually since 2011. Preqin’s Natural Resources Online contains information on 157 energy funds in market seeking $103bn in institutional commitments. Since the beginning of May, three energy funds have launched: Merit Energy Partners J, a US-focused fund targeting $750mn to invest in, operate and develop oil & gas assets; Vinci Infrastructure Partnership, which is targeting $500mn for well-positioned infrastructure assets and operating businesses in Brazil; and, Enhanced Sustainable Power Fund 4, which is seeking €250mn to invest in late-stage development projects, construction finance, value added and distressed assets within EU countries.

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Canada-Based Institutional Investors Active in Real Assets

Preqin’s Infrastructure Online contains detailed information on 147 active infrastructure investors that are based in Canada, including their preferences and plans for future investment activity. One Canada-based investor that will be active in the next year is Toronto Transit Commission Pension Society, which expects to commit CAD 40-50mn to unlisted infrastructure funds, with a preference for operational assets in OECD countries.

Also investing in unlisted infrastructure in the next 12 months is Ontario Teachers’ Pension Plan, which will target unlisted infrastructure funds on a global basis in the next year, alongside its direct investment in emerging markets and the UK.

Preqin’s Natural Resources Online currently tracks 70 Canada-headquartered institutions active in the natural resources asset class. One of these is University of Alberta Endowment, which is looking to commit $10mn to one primarily North America-focused unlisted energy fund through a new fund manager.

Infrastructure Investors in Canada

Matthew Bacco and Sam Kivell take a closer look at the current infrastructure investor universe in Canada, analyzing institutions investing in the asset class, including assets under management, investors’ preferred route to market and source of allocation.

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PPP/PFI Infrastructure Deals

Jeremy Lieu provide a breakdown of historical and recent PPP/PFI infrastructure deal activity by transaction value, region and industry.

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Natural Resources: Energy, Oil & Gas

Using data from Preqin’s Natural Resources Online, we examine the current energy-focused fundraising landscape, including funds currently in market, proportion of target size achieved and more.

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