London - A growing number of hedge funds are moving into shipping debt, an asset class few have invested in before, looking to buy up loans and bonds as banks cut their exposure to the troubled sector.
World economy worries and cost pressures are dampening prospects for a proper recovery in many segments of the shipping sector, which has struggled with tough markets for a decade.
Meanwhile European banks, particularly German lenders, are trying to offload distressed and performing loans to the industry which attracts high capital requirements. The European Central Bank’s banking supervisor has flagged troubled non-performing loans in 2019 as “a concern for a significant number of euro area institutions”.
In one of the first deals to have been concluded in recent weeks, finance sources said hedge and private equity firm Avenue Capital together with asset manager King Street Capital Management bought at least $100 million of loans from investment groups Varde Partners and Oak Hill Advisors.
In June last year funds managed by Varde and Oak Hill purchased $1 billion worth of legacy shipping loans - which sources said included mainly performing but also some distressed assets - from Deutsche Bank. Varde and Oak Hill declined to comment, while Avenue Capital and King Street did not respond to requests for comment.
Hedge funds clocked up hundreds of millions of dollars in losses from investments in mainly equities when the shipping industry first turned sour a decade ago – and have made limited forays for the most part since. Last year some equity-focused funds bet on a recovery for the global shipping industry through the stock and futures markets but many are now retrenching after heavy losses in the fourth quarter.