Two former associates of billionaire shipping and rig tycoon John Fredriksen are delivering out-sized returns by snapping up distressed and shunned oil-related assets. And they say it is a bet that has plenty of room to run.
Titan Opportunities Fund, set up by Espen Westeren and Fredrik Halvorsen, has returned 46 percent in its first nine months. Now, they want to step up their bets by raising as much as USD 175 million. The goal: double or even triple the money in the next three to five years, with an annual return of at least 30 percent, before returning it to investors.
"The opportunity is now," Westeren, the fund’s chief investment officer, said in a phone interview.
We've had an almost unprecedented down-cycle, which has been very brutal. We believe we will see an upturn that will last a few years."
"We've had an almost unprecedented down-cycle, which has been very brutal. We believe we will see an upturn that will last a few years."
Battered by the collapse in crude prices due to a global glut, oil companies reduced investments by more than 40 percent from 2014 to 2016, dragging the industry into the deepest downturn in a generation. Valuations dropped for both producers and the companies that provide them services ranging from engineering to drilling, and forced many to the brink of bankruptcy or beyond.
The crash laid the ground for Titan, which Westeren, 38, and Halvorsen, 43, started in June with almost USD 50 million. By the end of February, the fund had grown to more than USD 72 million, according to the latest monthly report.
"We believe we’ve just passed the bottom and that 2017 will be the first year of rising activity," Westeren said.
"We’re investing in the companies that will benefit from a recovery in oil investments."
Besides picking cheap energy stocks and bonds, the London-based investment team will rely on its network to gain access to private placements and other deals.
Westeren, a Norwegian, worked for Fredriksen -- known as “Big Wolf” in the industry -- from early 2010 to late 2015, managing the billionaire’s private investments from the group’s Sloane Square offices in London. He now heads an investment team of four that includes John Dellanoce, who worked with distressed investing at Goldman Sachs Group Inc. for 10 years up until August 2015.
Halvorsen is the fund’s biggest investor through Ubon Partners Ltd., which he co-founded in 2013. He has worked for several of Fredriksen’s companies, most recently as chief executive officer of Seadrill Ltd., the offshore-rig company that used to be the jewel of the Norwegian-born billionaire’s business empire and is now in talks with creditors about restructuring a crushing debt load.
Westeren and Halvorsen declined to comment on their departures from the Fredriksen sphere or their current relationship with the billionaire.
Titan’s biggest holding, accounting for 22 percent of its assets, is Borr Drilling Ltd., the rig company set up by Tor Olav Trøim, Fredriksen’s closest adviser before the two fell out in 2014. The company, which raised USD 800 million to buy 15 jack-up rigs, has seen its stock more than double after the initial equity issue in December. Halvorsen is a board member.
Titan also participated in the recapitalization of Eagle Bulk Shipping Inc. last year and got a 85 percent return on its investment before selling most of its position. The fund’s second-biggest holding is a bond issued by Norwegian oil company Aker BP ASA, and it also has 5 percent of its capital in Teekay LNG Partners LP, a company which Westeren expects to boost dividends over the next couple of years.
The fund’s intention is to have 50 percent to 70 percent of its capital in bonds, leaving it up to the remaining stake in equities to generate a "spectacular return," Westeren said.
Westeren plans to market Titan to new investors in the coming months, raising the capital to as much as USD 250 million by the end of the year, he said. Ubon, which had about USD 65 million in the fund at the end of February, plans to invest more, Halvorsen said in an email.
Westeren is the fund’s second-biggest investor, followed by Tor Dagfinn Veen, a founder of Skagen AS, who entered in November.
"I have all my liquidity invested in it, and I believe in it," Westeren said.