For alternative investment managers, it's full-steam ahead into maritime investments, for everything from shipping companies to port development.
The moves are being made to take advantage of a shipbuilding industry that is near the bottom of its economic cycle and a switch to private financing from municipal bonds to modify ports for the new, larger ships expected to be delivered in the next 18 months.
Shipping is not your average business. It's akin to the early Wild West days of the real estate industry. Shipping is still mainly controlled by wealthy families that have been in the business for a very long time — some for centuries. The market moves from white-hot to stone cold very quickly. Traditionally, it has been highly leveraged and capital intensive.
But unlike real estate — in which leases are fixed — ship charters are constantly re-set and the revenues generated can be highly erratic, said Marcel C. Saucy, senior partner in Zurich-based Fincor Finance SA, a corporate finance and asset management firm that has been involved with shipping since the 1970s.
Money managers say this is the right moment to “institutionalize” the shipping business. Private equity, real estate and infrastructure managers are rushing into shipping and port investments, committing billions of dollars to the strategy.
Andy Dacy, portfolio manager for the maritime strategy at New York-based J.P. Morgan Asset Management, said: “History has provided two favorable entry avenues into shipping. Many ship owners made their fortunes during ... the recent boom in China growth. Meanwhile, others have entered after an asset price collapse typically driven by over-ordering, such as in the early "80s and today.” J.P. Morgan recently closed a $750 million fund to invest in the strategy.
And the firm is not alone. Managers and institutional investors with recent investments in shipping include Oaktree Capital Group LLC; Invesco Ltd.'s distressed private equity arm; WL Ross & Co. LLC; Carlyle Group LP; Blackstone Group LP; Apollo Global Management; and the C$117.1 billion (US$119.5 billion) Ontario Teachers' Pension Plan. All are investing in ailing ship companies.