Equity funds more cautious about entering shipping

Is reality catching up to the private equity funds' euphoria about the shipping industry? Equity funds participated in just 15 major transactions during 2014, compared to 30 last year, according to Marine Money International.

Photo: Colourbox

The private equity funds' entry into shipping during the low-point of the financial crisis since 2008 looks to have moved past its peak. Several of the funds seem to have underestimated the volatile and capital intensive shipping industry, which will make it difficult for many of the funds to exit the market within their typical investment horizon of around five years in a market characterized by severe overcapacity and low rates several years into the future.

A survey among numerous analysts, published by South China Morning Post Monday, shows that the private equity and hedge funds filled a major capital demand gap in the shipping industry when many banks hit dire straits following the collapse of Lehman Brothers in 2008, but for the funds expecting a quick exit within 3-5 years and a 15-20 percent return on their investment in ships at historically low prices, things are not looking too good.

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