Kate Mackenzie Sovereign wealth funds go physical

Another day, another financial player expanding its interest in physical energy assets.

Barclays Capital is planning to expand its investments in natural resources, including mining companies and oil fields, by teaming up with sovereign wealth funds.

Barclays has already been investing in these sorts of assets itself, putting in about $1bn over the past four years, but it would be the first time the Barclays’ resources unit has opened to outside investors. The FT’s Javier Blas reports that BarCap is in advanced talks with South Korea’s Natural Resources Fund about investing another $400m.

Barclays says the interest is coming from its clients:

Barclays aims to build a multibillion dollar fund that would buy assets in Latin America, Africa and Asia valued at $50-$100m before reselling them to other natural resource groups in three to five years.

“Our clients, from sovereign wealth funds to high net worth individuals, want opportunities to invest in physical natural resources,” Mark Brown, a managing director at Barclays Capital who heads the fund, said.

We’ve seen plenty of interest in international resources deals this year, particularly from China – but most have been from Chinese resources companies (a notable exception being China Investment Corp’s $1.5bn stake in Canada’s Teck Resources).  So this move might indicate that appetite among SWFs for commodities generally is increasing.

But at the same time, with the CFTC thought to be introducing more limits on energy futures trading, it’s not surprising to see interest in investing in physical commodities is growing – participating in physical markets may be a way to avoid some of those hypothetical new limits.

Related links:
Deutsche warns on liquidation risk facing commodities
(FT Alphaville, 04/09/09)
Hedge fund plans to seed an oil production company (FT Energy Source, 27/07/09)