Investor Interest in Natural Resources Grows
The number of investors looking to gain more exposure to the natural resources sector has increased over the past five months. During the fourth quarter of 2009, there was little to no interest in natural resources from private equity and hedge fund investors. This has changed dramatically. From January through May, the number of private equity mandates for natural resources increased from 6 to 38; hedge fund mandates rose from 11 to 64.
A family office in London whose clients are based in India, is making investments in this sector because it expects high demand by emerging-market countries to lead to shortages. Water, oil, gas, and precious metals were deemed by this investor to be among the most important resources to watch. In the firm’s view, the increasing demand from emerging-market countries is partly due to their efforts to compete globally.
A wealth advisor in the Netherlands also foresees a possible increase in demand for natural resources. The firm anticipates demand to begin rising in early 2011 and then surge over the next five years, especially in emerging-market regions. The high demand will cause shortages and drive up prices, increasing profits for managers with exposure to the sector.
Some fund managers have already begun tapping into the natural resources sector in emerging-market regions. In an effort to take advantage of the commodities boom, a New York-based hedge fund recently made investments in Africa, which it called “the last untouched resource frontier on earth.”1 The firm invested in a mining company and a minerals company, and expects to make more investments.
The natural resources sector has become a hot topic among alternative investors. Managers and investors alike have begun to see the opportunities for profit. It is no surprise that emerging markets are, once again, the focal point for many alternative investment interests, since these regions are expanding rapidly.
1 The Wall Street Journal, “Sometimes It Pays to Be ‘Neutral’,” May 26, 2010, http://online.wsj.com/article/SB10001424052748704032704575268673137384154.
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