Having worked with some of the largest and best institutional investors in the world, we believe the systemic risks posed by growing resource limitations will require LPs and GPs to rethink traditional investment and diversification models:
Resource technology transition in context
There are strong parallels between the development of technologies to address resource limitations (the "Resource Revolution") and other technologies that have gone through similar phases of entrepreneurial growth (e.g. the IT Revolution, the Communications Technology Revolution, and the Biotechnology Revolution). Each of them followed a path of entrepreneurial activity and investor funding that included phases of:
a) explosive creativity,
b) competitive carnage,
c) inflection points of consumer adoption,
d) insightful phases of secondary creativity, and
e) the development of secondary applications and network effects.
The following White Paper analyzes those trends and highlights the impliocations for investing in the sectors that compriose the "Resource Revolution." Understanding these timelines and the challenges and opportunities they present to the companies involved is fundamental to "resourcient" investing.
Where to Invest Today in Resource Technologies
We believe a subset of resource technologies today represent highly attractive areas for investment and that they are made even more attractive by the interplay between them:
a) Solar PV and advancing distributed generation of electricity;
b) Advancements in energy storage technologies;
c) Proliferation of electric and autonomous driving vehicles and new vehicle sharing modalities;
d) The impact of the "Internet -of-Things" and big data analytics on the management of energy, transportation and cities.
Understanding and Dealing with Stranded Asset Risk
We also believe investors should review their existing portfolios to understand the exposure they have to energy assets that could be stranded due to changes in usage patterns, in regulation, in market perceptions and in commodity prices. Such changes have already begun to meaningfully affect investor returns and we expect those effects to accelerate. Given the scale of investments that are at risk compared to a much smaller scale of assets that are the beneficiaries of the shift, figuring out how to intelligently manage and hedge these risks is quite challenging.
Rethinking Fund Structures to Better Fit Resource Revolution Investing
To best pursue these investment opportunities, investors should consider investment vehicles that are better suited to the nature of the industries being invested in and the likely timelines for change.