ShippingWatch

Tufton Oceanic's returns are based on simple business logic

Tufton Oceanic, whose investments include Hafnia Tankers, has been able to sustain a – for the shipping sector – unusually high level of returns. The business model is very simple, partner Andrew Hampson tells ShippingWatch.

Photo: Hafnia Tankers

While many shipowners have been struggling for years and would be enthusiastic just to return to black figures on the bottom line, one corner of shipping is still celebrating its heyday and paying decent dividends to owners.

And the party seems to continue. At least for some players.

Container had an awful 2016 and a slightly improved 2017. Bulk may well see the light at the end of the tunnel after years of massive losses and folding companies.

Our long-term yield in shipping has been 7 percent. In this figure depreciations are excluded. Otherwise, the number is higher and around 12 percent"

Andrew Hampson, partner, Tufton Oceanic

And the investors behind the tanker industry still do not really understand why the ever-increasing global oil consumption has not resulted in better financial results.

However, among the asset owners and marine investors, one can find stakeholders who are delivering more than three or four times the current market interest rate, although they basically operate in the same depressed environment as any shipping company.

7 percent returns

London-based Tufton Oceanic does not want to present its official figures, but Partner and Managing Director, Andrew Hampson, maintains that the investment firm has been and is still able to deliver a seven percent return every year to its customers, mainly European pension funds.

In addition to the investment arm, there are hedge fund related investments, of which Hafnia Tankers is perhaps the most well-known.

"Our long-term yield in shipping has been 7 percent. In this figure depreciations are excluded. Otherwise, the number is higher and around 12 percent," Hampson says in an interview with ShippingWatch.

The usual market fundamentals, unbalanced supply and demand, which have been the major barriers for shipowners and operators to restore a decent business for a while, are not necessarily key words or drivers for Tufton Oceanic, which has a rather simple model for profits.

"Get in and get out at the right time," explains Hampson.

Record-low asset values

Last year, the three managed funds were completed, as they were fully invested and neither new capital nor more vessels will be added. In late 2017, Tufton launched its new investment vehicle, and USD 1 million was raised in a London IPO with predominantly UK-based funds among its shareholders.

Today, on average, a container ship can be acquired at 60 percent of its depreciated replacement value"

Andrew Hampson

The target here is again second-hand vessels, and the current price level makes these ships interesting, says Hampson.

"Prices of container vessels are at an all-time-low. Today, on average, a container ship can be acquired at 60 percent of its depreciated replacement value. People tend to look historically on prices, which is not what matters. What is interesting is the replacement cost of a vessel," he argues.

About ten vessels will be purchased for the new investment project, and more IPOs could be in the pipeline.

Positive when the market is strained

One could argue that a company such as Tufton has a reverse perception of ups and downs in shipping as the investors see opportunities when the shipping markets are down because of too many vessels on the water and low rates, which ultimately leads to pressure on asset prices.

This is often where Tufton's investment circle starts.

Hampson does, however, project a couple of market pick-ups the next couple of years, which he hopes will support Tufton's business case.

"We believe most shipyards are loss making. Either they must seek out subsidies or they have to raise their prices. Otherwise, they cannot take huge orders. Consequently, the supply side must slow, or new big orders will be at higher prices."

Tufton Oceanic's Asset Backed Investment group was launched in 2006 and has a combined managed capital base of around USD 1 billion, which is invested in 60 ships, Container, Bulk and Tanker.

Hampson does not want to comment on the Hafnia Tankers investment apart from stating that "any investment is a long-term commitment."

Buts he adds that an option obviously could have been to off-load the assets. Which has not happened. In that respect, Hafnia, although one of the hedge fund-based investments, is ruled according to the same principles of timing:

"Getting in and getting out at the right time."

Hedge funds increase shipping investments

Tufton Oceanic buys container fleet from German Hartmann

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