Prime Meridians – 4 Surprising Facts About Resource Private Equity Now

This week in Pierce Points:

Iran uncorked 14 billion barrels. The commissioning of the South Pars mega-field is tough news for crude prices

Freeport restarted Grasberg. But the future is still uncertain for the world-leading copper mine.  

Korea went crazy for U.S. coal. New tax rules have already lifted imports by 43% over 2016 levels.

ExxonMobil got hit by global warming. A climate inquiry by U.S. prosecutors is moving ahead… and Canadian regulators are next.

4 Surprising Facts About Resource Private Equity

Big week in natural resource private equity. With PE specialists Preqin releasing their “2017 Natural Resources Report”. 

The volume is perhaps the world’s most detailed assessment of private resource investment globally. Breaking down statistics both on overall worldwide trends, as well as sector- and geographic-specific happenings for energy, mining and agriculture. 

A big thanks to the Preqin folks for providing me an advanced copy. This is a work I always look forward to reading — and this edition is as fascinating as ever. 

A number of important — and surprising — facts about resource private equity jump out from the 2017 survey. Here’s a look at some of the most important takeaways…

Private Equity Is A Surging Force In Resource Markets

Prequin finds that global assets under management for resource private equity funds continue to hit new highs. The most recent figures show resource PE groups now hold $455 billion in assets — a fresh record, representing an increase of 491% over the past 10 years. 

Just look at the upward trend in the chart below. 

Assets under management for natural resource private equity funds globally have risen by 491% since 2006. 

…And Funds Have A Lot Of Cash

The really important point for project developers is that resource PE groups are holding a lot of cash. “Dry powder” stands at some $187 billion — all waiting to be deployed into new projects. 

The bulk of this cash is earmarked for oil and gas, with about $155.8 billion in dry powder held by energy-focused funds. But mining funds currently have $5.5 billion in available cash, with diversified natural resource groups holding another $12.3 billion. 

Resources Are A Favourite For Institutions Right Now

Preqin’s survey of institutional investors found that an overwhelming percentage are now positive on resources. The chart below shows how performance expectations for the next 12 months (horizontal axis) are running high — in fact, natural resources rated better (plotted further right) than any other investment sector. 

Institutional investors see a very positive performance from natural resources for the next 12 months… a sharp contrast to their negative view during the past year.

Asia Is The Fastest-Growing Target

North America still dominates as the target for investments from resource private equity funds — with 72% of the global $455 billion assets under management held by North America-focused funds. Largely a consequence of big investor interest for shale oil and gas. 

But Preqin found a surprise when it came to the fastest-growing market for resource investments. 

Asia. 

All told, Asia-focused PE groups saw their assets under management rise by 26% — marking the highest growth seen for any region globally. 

To be sure, the total amount of private equity targeted at Asian projects is still small. Just $23 billion, as the chart below shows. 

North America is still the largest target market for resource investments… but Asia-focused funds saw the fastest rate of growth

But the recent surge of investment in Asia is an important point of note. Especially in the mining space, where a $3 billion China-focused fund is currently being marketed by Power Capital — which would become one of the largest globally, if completed. 

Bottom line: there’s a lot of money out there looking for quality projects, and management teams. Watch for private equity to continue taking a front seat in resource financings, and for confirmation of the intriguing shifts in geography that seem to underway in this space. 

Here’s to going private,

Dave Forest

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