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 favoured by these deep-pocketed investors.