JP Morgan Asset Management is launching a maritime strategy this year which will invest in the distressed shipping market.
JP Morgan Asset Management is launching a maritime strategy this year which will invest in the distressed shipping market, a senior manager at the firm said on Thursday. "The shipping business is in worse shape than real estate," said Joe Azelby, chief executive officer of JP Morgan Asset Management's $50 billion global real assets group. "In some cases ship values are down between 60 and 80 percent."
Azelby -- who joined the firm after a brief period playing professional American football for the Buffalo Bills -- told the aim is to acquire vessels from distressed sellers, with operating partners.
Ship values are effectively a derivative of the freight income, so prices have tumbled as the global recession has intensified.
The shipping industry uses financing extensively, and Azelby said that a handful of banks have tended to dominate. "But many of these banks are now de facto government-owned in some shape or form."
This means shipping owners are in need of third party funding at a time when pricing is at an historic low. Azelby sees continued downward pressure on pricing over the next 12 to 24 months and an opportunity to capitalise on this gap.
JP Morgan is currently in fund-raising mode for the strategy, seeking some $500 million to $750 million initially.
Azelby expects to attract interest primarily from institutions, and high net worth individuals, who might be attracted due to the tax characteristics and good cash flow.
"There is also a lot of optionality in the pricing of vessels, so if the economy comes back, ship prices can move fairly quickly," Azelby explained. "If you can get in at a relatively low price and put the vessels on short term charters, there is potential for a lot of upside."
However, this would also depend on the length of the recession, he added.
The strategy will focus on the three main types of vessel -- dry bulk carriers, oil tankers and container ships.
Dry bulk carriers transport raw materials such as iron ore, coal, grains, cocoa and timber, and so have been hit hard by the global decline in world trade. Container ships, which carry finished goods, have also been laid up.
The strategy will be led by Andy Dacy who headed the shipping practice at JP Morgan's investment bank. "He has an unmatched knowledge of that industry," said Azelby.
The aim is to build a team of between six and eight people, with some shared resources on the marketing and financial side.