This period, from 2013 to 2015, was one of tremendous fundraising success for private natural resources resulting in an influx of over $100 billion during that period.
The results that followed were, in retrospect, not altogether surprising. The combination of capital availability, along with improving drilling and completion techniques, led to a period of “growth at all costs” and created conditions for a classic boom-bust. Rig counts (the units used to drill wells) and well spuds (the commencement of drilling a well) went from hugely elevated levels in 2014 to a series of quick collapses and modest recoveries in the ensuing half decade.
Growth at all costs was not solely fueled by the influx of equity capital, but also a heavy reliance on debt capital. As United States production grew, and an OPEC-led price war unfolded, producers found themselves with excessive levels of leverage.
Debt levels for North American upstream businesses rose significantly post-Global Financial Crisis and peaked in 2016. The froth in fundraising and emphasis on production growth over profitability had laid the groundwork for a collapse, the oil price war tipping the market.
All this combined to generate a decade of poor returns, as depicted below.
The combination of this bust coupled with decisions by some institutions to eschew exposure to fossil fuel investments resulted in a significant decline in capital available to the upstream market.
Returning to the present, we similarly sit at a moment where the global economy is a few years removed from a contraction in global GDP – this time driven by the COVID pandemic and ensuing shutdowns. Again, significant fiscal stimulus followed to support economic recovery. However, many investors – still smarting from a challenging decade for natural resources investing – continue to allocate their capital to other segments of the market.
Capital formation in natural resources private markets rebounded modestly in 2024 but remains well below even the depressed levels of capital formation in the latter half of the 2010s. The poor performance of that prior decade is certainly a major culprit. This evacuation of capital coincided with a period of inflationary pressure, historically a factor that led institutional investors to incorporate more natural resources exposure in their portfolios.
Companies with over-levered balance sheets were often wiped from the market in the latter half of the 2010s and, even as COVID lockdowns drove a commodity price dip in 2020, the trend toward far healthier balance sheets remained evident.
The result? Valuations, as expressed in the public markets, compressed during the period heading into COVID and remained muted (as seen in the multiples in the chart below). Simultaneously, free cash flow yields rose as upstream companies heeded investor pressure for discipline and continued to prioritize distributable cash over re-investment (as seen in the chart below).
At a time when many institutional investors had pivoted their real assets allocations to real estate at the expense of natural resources, financial performance recovered meaningfully in the space. In fact, natural resources returns led private markets in 2022 and 2024.
Commodity markets, despite significant geopolitical volatility directly involving key crude producers (such as Russia and Iran) remain relatively muted on an inflation adjusted basis as demand has recovered from pandemic-related declines.
Taken together, these dynamics yield an interesting set of market conditions. Capital access remains constrained in the natural resources space relative to historic levels. Commodity pricing is not overly elevated (relative to historic levels, as depicted above) despite the risk for, and in the case of Russian sanctions, the actual existence of, disruptions to supply. Valuations are significantly below levels seen a decade ago as cash yields remain robust. Many investors remain cautious, and some continue to retreat from the space, creating dislocation. One place where this dynamic expresses itself is in the secondary market. Jefferies recently noted in their Global Secondary Market Review that “the GP-led real assets secondaries market, estimated to be ~$15 billion in 2025, continues to grow and mature, driven by energy and infrastructure sponsors’ demand for tailored liquidity solutions…Year-to-date, several sponsors have used [Continuation Vehicles] to monetize top performing energy assets, achieving strong returns and providing liquidity at attractive valuations.”1 Jefferies similarly noted a meaningful volume of energy and infrastructure Limited Partner (LP) stakes transactions in the first half of 2025, accounting for 9 percent of the LP stakes market.2
In our view, this dynamic suggests a compelling entry point for natural resources investing in the private markets – one where secondaries are poised to play a unique role as dislocation persists.