Energy sector fundraising dollars are reflecting the investment community’s push for a higher mix of renewables, and hope for a commodities super cycle continues to drive activity. Last year, funds brought in $130 billion across 147 funds to invest in the sector globally. But a dearth of renewable-focused vehicles and changing dynamics in manager fundraising are creating bottlenecks.
“The share of capital secured by the 10 largest funds was its lowest since 2018, as investors spread their commitments across other top-50 funds,” reads Preqin’s 2022 Natural Resources report. “This suggests LPs are increasingly willing to explore relationships with smaller managers that have more attractive fund terms than the mega funds.”
That diversification across managers comes at a price. A surprising 35 percent of funds spent over two years in roadshows raising enough funds to close, about a quarter more time than last year. That group of slow fundraisers is actually in the plurality of funds in 3Q21, with the next most popular closing time in the seven to 12-month range (19 percent).
The sector is also facing difficulties responding to an increasingly ESG-conscious investor base. Funds have yet to keep up with investor interest in precious metals and alternative energy strategies around batteries, renewables, and carbon capture, Preqin data shows. Metals, water, and timberland focused funds are a fraction of total private vehicles raising funds in 2021, as they have been for years.
That could be set to change, however. As investors price in inflation, potentially for a longer period, assets that hedge against its effects like timberland, farmland, and metals could see an investor-led renaissance. For now, though, precious few funds offer the opportunity to diversify.
