Private capital tracker Preqin in a third quarter update outlines “escalated investors’ concerns” for natural resource investment with “geopolitical pressure dictating much of the momentum” in the industry.
The falling returns, high dry powder levels and record-low fundraising in Q3 have done little to alleviate this uncertainty.
Fundraising by unlisted funds for investment in natural resources – oil and gas, timberland, farmland, water and mines – totalled $8.2 billion during the third quarter, the lowest quarterly tally in over five years.
Preqin’s analysis shows energy-focused funds, mainly oil and gas destined for North America as investments in coal have dried up, accounts for almost all activity.
During the September quarter, not a single dollar were committed to the 15 mining and metals focused funds currently in the market.
Together these funds are seeking a collective $6.8 billion from so-called limited partners which include sovereign wealth funds, public and private pension funds, foundations, family offices and other entities.
2019 is shaping up to be a dismal year with a mere $100 million raised during a Q2 and an unsuccessful first quarter.
If there is one ray of light for the sector it’s Preqin’s quarterly survey which showed 27% of investors are looking to target metals and mining over the next 12 months, up from 11% this time last year.
$5 billion on the sidelines
Four metals and mining funds closed in 2018 and raised $2.5 billion with the bulk of the funds destined for North America.
Mining and metals fund managers hold $4.9 billion in dry powder (funds ready to be deployed). These funds also hold $15 billion of investments in the sector that still has to be exited. Oil and gas dwarves the mining sector with assets under management of $569 billion.
Preqin, which has been tracking global private capital flows since 2003, counts 50 active fund managers focused on metals and mining (compared to 751 focused on oil and gas).
Preqin’s Q3 report shows falling returns across all real assets strategies with natural resources funds most affected.
The asset class produced an annualized return of just 5.7% over the one-year period to December 2018.
Despite this, natural resources have outperformed real estate over the three-year period, with an annualized return of 12.6% according to the London-based research company.
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