Natural Resources

"Natural resources include land, water, timber, oil and gas, minerals, and other hard and soft commodities. Natural resources are exploited and processed through the use of technology into all goods throughout the economy, and therefore natural resources are the foundation of all economic activity. Because we live on a finite planet, all natural resources are also by definition finite. The importance of satisfying human needs for raw resources in a sustainable fashion is rising inexorably as large pools of resources are depleted, as lands are degraded through careless exploitation, and as resource demand outstrips supply.

The excess of demand for natural resources over supply causes prices to rise and creates competition and often conflict over access to them, creating incentives for more efficient use and the development of economical substitutes. This in turn creates myriad attractive investment opportunities, from direct commodity investment, to investment in productive land or restoration of degraded land, to more-efficient processing technologies. Natural resource investments can offer investors a number of benefits, including a more attractive risk-return profile within a diversified portfolio, a hedge against inflation, and strong risk-adjusted returns.

Aquillian Investments has expertise in evaluating funds and companies in a number of areas of natural resources, including currently:

• Timberlands and ranchlands, as well as land investments seeking to monetize ecosystem services. The firm seeks out fund managers that can offer sector-leading returns while also protecting or enhancing ecosystem integrity. In timberlands, that typically means experienced investors who manage to Forest Stewardship Council specifications and have some competitive advantage over their peers such as regional specialization or ability to successfully execute complex transactions. In other land investment categories, we look for unique strategies and a proven ability to execute on both economic and ecological objectives.
  
• Environmental derivatives such as brownfield remediation or natural resource damage credits, habitat mitigation credits, pollution credits, and carbon credits. These derivatives are market-based mechanisms to attach economic value to environmental resources degraded through market failures, and thereby guide economic activity in a more rational manner than strict command-and-control or laissez-faire. Emerging markets for environmental derivatives are growing rapidly and in aggregate amount to trillions of dollars globally. Carbon markets, developing as a tool for combating climate change, are projected by research firm New Carbon Finance to reach $1 trillion in the US alone by 2020.
  
• Precious metals, from the perspective of critical inputs for mass-produced electronic devices such as cell phones and televisions, and environmental technologies such as solar photovoltaic cells, water filtration membranes, catalytic converters in automobiles, catalysts in fuel cells, and others.
  
• Agricultural commodities, from the perspective of feedstocks for biofuels and specialty chemicals for a range of applications. As conventional supplies of oil and natural gas decline, and concerns over global warming increase, we expect research and development into agriculturally-based chemical feedstocks to explode. This area goes well beyond bio-fuels, since oil and natural gas are currently the foundation for production of almost all plastics, fertilizers, vitamins, pharmaceuticals, many textiles, and countless other products.