* Please note this report contains 26 pages

A potential investment case in the shipping sector is based on a strategy of acquisition and redeployment of shipping assets. This opportunity exists as a result of:

• A slowdown in global trade that has caused a collapse in charger rates and an associated reduction in vessel values
• Aggressive use of leverage for new ship building that led to bloated order books
• Dysfunctional maritime lending markets

This is an opportunistic investment strategy that is expected to have a private equity-like return profile, albeit with a significant yield component. It is classified as an alternative investment with the focus on return enhancement, rather than exposure to alternative risk premia. The opportunity exists for new purchasers to buy vessels with lower valuations that reflect lower charter rates. This provides investment managers with the ability to earn a profit and significant cash yield on the ship’s operations while they wait for valuations to improve.

Historically, shipping has not been a particularly attractive opportunity because of the shipping industry’s exposure to the global trade supply/demand cycle, which is highly sensitive to global GDP. While the underlying risk involved in shipping has not changed, we believe potential returns available today – anticipated by investment managers to be in the high teens to mid-twenties – are appealing and may be considered by investors with a risk appetite and an ability to invest in private assets.

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