Natural Resources

Natural resources strategies invest in assets tied to commodities and physical production—often with inflation sensitivity and significant cycle risk. Allocators underwrite these strategies through cash-flow durability, commodity scenario analysis, and operator execution, not macro narratives.

How allocators define Natural Resources exposure

Segmentation includes:

• Commodity exposure: oil/gas, power, metals, agriculture, timber
• Structure: private funds, royalties, direct ownership, listed vehicles
• Cost position: cost curve resilience and breakeven economics
• Hedging policy: how price risk is managed (or not)
• Operational risk: operator quality, safety, maintenance, capex discipline
• Regulatory/ESG constraints: permitting, carbon risk, community impact

Allocator question:
“What produces durable cash flow when commodity prices move against us?”

Core strategies within Natural Resources

• Upstream/production: higher commodity sensitivity
• Midstream/infrastructure-like: contract cash flows, lower price sensitivity
• Royalties/streaming: structured exposure with defined economics
• Timber/agriculture: biological growth plus land value dynamics

How it fits into allocator portfolios

Used to:

• Add inflation-linked or real-cash-flow exposure
• Diversify away from financial assets (with clear risk budgeting)
• Seek idiosyncratic returns via operator execution and structure

How allocators evaluate managers/operators

Conviction increases when:

• Cash flows are underwriting-driven, not price-hope driven
• Hedging approach is explicit and consistent
• Operators have proven execution and safety track records
• Capex discipline is enforced across cycles
• Scenario analysis is robust (price down, basis shocks, cost inflation)

What slows allocator decision-making

Common blockers:

• Returns overly dependent on commodity price direction
• Weak transparency on cost curves and hedging
• Operator risk concentrated in a small set of counterparties
• Regulatory/permit risk underestimated

Common misconceptions

• “It’s an inflation hedge by default” → depends on structure and costs.
• “Hard assets mean safety” → operational risk and price volatility still apply.
• “Commodity exposure equals diversification” → correlations rise in stress.

Key allocator questions

• What is the breakeven cost and downside scenario?
• How are hedges used and how do they behave in shocks?
• Who operates the assets and what is their execution record?
• What is the regulatory risk and time-to-permit reality?
• Where do distributions come from: operations or asset sales?