Natural Resources Fundraising Sees Capital Consolidation

The 10 largest funds accounted for 66% of capital, up from 48% in 2014.

Fundraising for natural resources is becoming increasingly concentrated among a smaller number of funds, according to London-based research firm Preqin.

A report from Preqin found that the largest unlisted natural resources funds are accounting for a larger proportion of the total fundraising in 2017 year to date. It also said the largest funds are seeing greater fundraising success, and are raising capital more quickly than smaller funds.

As of October, 67 unlisted natural resources funds had secured $50 billion in capital, according to the report. That is down sharply from last year, when 113 funds secured $70 billion, and is nearly half of the 133 funds that raised $65 billion in 2013. It also found that the proportion of capital raised by the 10 largest funds has steadily increased to 66% in 2017 year-to-date, from 59% last year, 52% in 2015, and 48% in 2014.

The report also found that:

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  • The average size of unlisted natural resources funds closed so far this year is up $93 million to $776 million, compared to $683 million for all of 2016. However, it is below the 2015 average size of $883 million.
  • Four-fifths of the largest funds closed since 2012 have exceeded their target size, while 61% of funds of less than $250 million fell below their target size.
  • 91% of funds of $2 billion or more completed their fundraising process within two years, compared to 57% of funds that are worth less than $250 million.

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Morningstar: PIMCO Bounces Back

Performance-based model, new leadership strengthens position.

A new research note from Morningstar analysts Miriam Sjoblom and Eric Jacobson suggests PIMCO is poised to regain its position as the best bond firm on the Street.

 When Bill Gross left PIMCO three years ago, investors went with him. PIMCO’s funds saw significant outflows and many observers wondered if CIO Dan Ivascyn would be able to keep the bond giant afloat. Morningstar says PIMCO has used the past three years to create a more diversified business, backed by a strong track record, and recently upgraded its views to “positive” from “neutral.”

New funds, new faces

Investors are most familiar with PIMCO’s flagship Total Return Fund. At the time of Gross’ departure, the Total Return strategy had faced years of redemptions. Those redemptions have slowed, and the fund now stands at $155 billion as of September 2017, down from $377 billion in 2014. PIMCO Total Return is still a solidly performing bond fund, but it’s hardly the flagship it once was. Now, two new PIMCO funds are capturing investors’ attention and asset flows.

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PIMCO’s Income Strategy has tripled in size since 2014 and is the firm’s largest at $177 billion. The strategy invests in deep value credit opportunities like nonagency residential mortgages. These mortgages took a huge hit in the financial crisis and have rebounded, driving much of PIMCO Income’s performance over the past three years. That track record has put PIMCO Income at or near the top of the US multisector bond Morningstar Category consistently.

Alongside PIMCO Income, the firm’s dedicated investment-grade credit strategy has grown to $167 billion. The growth of these two strategies has helped firm assets rebound—overall AUM was $1.3 trillion by the end of September, up from a post-Gross low of $1.1 trillion in 2015. The analysts note that not only has AUM rebounded, but that PIMCO is now less dependent on the fortunes of a single fund. PIMCO also raised its fees on the Income Fund by 11 basis points, without triggering redemptions—a sign that investors are willing to pay for its strategies.

While Ivascyn continues to lead investment strategy, PIMCO has also taken steps to fill out its C-suite in the wake of several high-profile retirements. In November of last year, Manny Roman took over as CEO from Doug Hodge. Robin Shanahan and Peter Strelow also took over as co-chief operating officers, following the retirement of Jay Jacobs. The new guard intends to keep PIMCO’s performance-based model, which has gone over well with investors. Morningstar analysts note that Roman’s previous role as head of quant firm Man Group could help PIMCO stay relevant as quant funds capture more of the investment marketplace.

Bond king once again?

If PIMCO stays on course, the departure of Bill Gross may just end up being a blip in the firm’s history. Morningstar notes that investors seem to feel comfortable with the leadership of Roman and Ivascyn. Roman has signaled his intent to continue to improve PIMCO’s execution by bringing on quant specialists to fine-tune portfolios and make risk-factor exposures more cost effective. Still, the firm will have to manage its market share—the rise of credit ETFs and asset growth at many of PIMCO’s competitors will make it imperative that the firm continues to outperform in order to regain the throne.

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