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Contact: Ryan Bisch
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2010 - Global - Investment Case: Shipping

 

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* Please note this report contains 26 pages

ShippingMercer's investment consulting business has released its paper on Investment Case: Shipping. Available now!

 

In a global trade where early 90% of goods are moved by ships, the shipping industry has generated annual global revenue in excess of US$600 billion. Although the recent global financial crisis affected owners of shipping assets as much as it affected most other asset classes in some respect, the resulting contraction in the shipping industry in 2008 has resulted in a current opportunity to invest in an extremely niche asset class.

 

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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You should be aware that Mercer's receipt of revenue from an investment manager will not result in any preferential treatment by Mercer when evaluating or recommending managers, their affiliates, products or strategies.

Mercer is a leading global provider of investment services, and offers customized guidance at every stage of the investment decision, risk management and investment monitoring process. We have been dedicated to meeting the needs of clients for more than 30 years, and we work with the fiduciaries of pension funds, foundations, endowments and other investors in some 35 countries. We assist with every aspect of institutional investing (and retail portfolios in some geographies), from strategy, structure and implementation to ongoing fiduciary management.

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Not investment advice
This does not contain investment advice relating to your particular circumstances. No investment decision should be made based on this information without first obtaining appropriate professional advice and considering your circumstances.

 


Released: August 2010

Cost: £5,000 USD

No. of pages: 26

 

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Business contact

 

E-mail Ryan Bisch

Telephone +61 2 8864 6474