04-01-2018

Shipping fund succeeds in slipping away with $91m raise

Shipping investment manager Tufton Oceanic spent much of last year trying to launch a high yielding closed-end fund and succeeded in getting it away just before an increasingly tight new issues market closed for Christmas.

Having begun the year looking to raise $150 million (£120 million) for Tufton Oceanic Assets Limited (SHIP), it had to settle for $91 million (£67 million), just ahead of its minimum target of $81 million.

A Guernsey-based investment company listed on the specialist funds segment of the London Stock Exchange, SHIP aims to generate a total annual return of around 12% from trading in second-hand commercial vessels.

Its main focus will be its quarterly dividends, which it hopes will yield 5% in the first year, rising to 7% thereafter. The portfolio will be re-valued every three months.

It will pay its investment manager, Tufton Oceanic, an annual management fee of 0.85% and a 20% outperformance fee, payment of which will be staggered over a year if earned.

SHIP will be London’s first listed shipping fund since Nimrod Sea Assets delisted last March after it was hurt by the collapse in demand for exploration vessels following the oil price slump in 2015.

Tufton has operated in shipping since 2000 and has $1.3 billion of assets under management, with bases in London, Isle of Man, Dubai and Cyprus. In the past four years it has invested $965 million in 54 vessels, much of it on behalf of pension funds looking to diversify away from shares and bonds. It claims to have generated a 13.6% annual return from its portfolio since 2005.

It says now is a good time to launch the fund as second-hand vessels can be bought cheaply and should see their prices rise as the sector recovers from a long period of oversupply and retrenchment following the financial crisis ten years ago.

According to Tufton, the world’s shipping fleet is valued at $657 billion with second-hand vessels accounting for 3-5%.

Echoing other alternative investment funds, it adds that traditional sources of financing from banks have dried up in the wake of the credit crunch, creating an opening for SHIP as the global economy strengthens.

Andrew Hampson, head of asset backed investments for Tufton Oceanic, said the fund exploits ‘an attractive opportunity in shipping to buy assets at a significant discount to their depreciated replacement cost and lock in long-term employment producing mid-teen cash yields’.

‘This is a strategy we’ve been following with success for the last couple of years and see limited competition due to the lack of capital currently being invested in shipping,’ he said.

Portfolio manager Paulo Almeida added that SHIP offered exposure to ‘a diverse portfolio of ship types with low revenue volatility and low to moderate leverage [debt]’.

SHIP will be overseen by board of three non-executive directors chaired by Robert King, a veteran of the offshore financial world who lives in Guernsey and who also chairs Chenevari Capital Solutions (CCSL) and Weiss Korea Opportunities Fund (WKOF).

According to a stock exchange filing, one of SHIP’s biggest backers is Alder Investment Management, a family office in London. It subscribed for 6.8 million shares at $1 a share in the placing and open offer run by Cenkos Securities, Hudnall Capital and N+1 Singer Advisory.

According to Thomson Reuters data, Alder is an active buyer of investment trusts with stakes inForesight Solar (FSFL), Scottish Mortgage Trust (SMT), Bankers (BNKR), Target Healthcare (THRL), Tritax Big Box (BBOX), Law Debenture (LWDB) and Alliance Trust (ATST).

Source: CityWire

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