Preqin cautioned over future growth of the private capital industry in the raw materials sector, after revealing a growing stranglehold over fundraising by energy vehicles, with cash raised for agricultural investment falling again in 2017.
The analysis group in alternative asset management said that fundraising by the private capital industry overall enjoyed a “banner year” in 2017, with $754bn raised by funds which made it closing.
That was up $26bn year on year, a gap likely to rise as further information about successful fund-raises in 2017 becomes available.
“The record amounts of capital being committed to the industry will be an encouraging sign for fund managers,” Preqin said.
However, it cautioned too that there “may be concerns about the twin pressures of fundraising competition and capital concentration in the months ahead”, with 2017 witnessing growth in the number of funds seeking capital, but fewer reaching their target.
Indeed, while “huge amounts of capital are being allocated by investors, fewer funds are reaching a final close than in previous years”, with the industry being marked by a smaller number of vehicles reaching their close, but with larger amounts of money.
Last year, although the amount of cash raised reached a record high, the number of funds this was split between, at 1,420, was down 24% year on year, and the lowest since at least 2010 – although Preqin said that there was scope for the 2017 figure yet to be upgraded to some extent.
‘May hinder growth’
The concentration was particularly evident in the natural resources sector, where the number of funds closing last year, at 85 counted so far, was down 29% year on year, with cash raised flat at $70bn (figures Preqin said could “rise by up to 10% as more information becomes available”).
And of these, energy accounted for 62 funds and $61.3bn, accounting “for 73% of fund closures and 87% of capital raised through the year”.
“Energy-focused funds still dominate the asset class,” said Tom Carr, head of real assets products at Preqin.
“It is challenging for fund managers to attract capital for funds focusing on other resource types.”
In the longer term, “this may hinder the growth of the industry,” he cautioned.
“A diverse and active fundraising market enables fund managers to build up specialisations and performance track records in other resources, and will prevent the industry seeing capital concentrated among a small group of the largest fund managers.”
Farm funds dwindle
In agriculture, the number of funds closing in 2017 fell by four year on year to nine, with cash raised halving to $1.4bn.
Indeed, the fund-raising total was only narrowly ahead of that in timberland, which saw its cash total rise by $400m to $1.3bn, although still representing a small proportion of the natural resources total.
The likes of agriculture and forestry may receive extra cash through funds investing in a range of raw material sector, with cash-raising by diversified natural resources vehicles at $5.1bn, well above the $1.1bn Preqin reported a year ago for 2016.