Over the past few months, we have seen a number of prominent distressed managers dip their toes into shipping:
- Ships Come in as Deals Heat Up (more Ross, Carlyle, Tiger Group, Fairfax Financial, Morgan Creek)
- General Maritime Announces Completion of $200M Oaktree Investment (Oaktree Capital)
"Whenever the debt market collapses, for example, most people say, 'We're not going to try to catch a falling knife; it's too dangerous.' They usually add, 'We're going to wait until the dust settles and the uncertainty is resolved'The one thing I'm sure of is that by the time the knife has stopped falling, the dust has settled and the uncertainty has been resolved, there'll be no great bargains left. When buying something has become comfortable again, its price will no longer be so low that it's a great bargain. Thus, a hugely profitable investment that doesn't begin with discomfort is usually an oxymoron." (my emphasis added).
- 90% of money managers very much care about short term results. The number could in fact be higher. The most precious capital is sticky capital (hence the reason why many asset managers have gone public, why Sardar Biglari took over Steak N' Shake, why Phil Falcone set up Harbinger Group, why closed end funds fight off people like Phillip Goldstein, etc etc). Because in most cases, capital is not sticky, short term results are monitored religiously at the expense of long term value creation. I.E. I can't buy this stock today because it may go lower in the interim.
- There are very few investments in the shipping industry (via the public markets) that offer a meaningful margin of safety.
- Determine an industry that has staying power (i.e. will be around in 20 years) that is under severe stress
- Purchase the senior bonds of a company in that industry at distressed levels
- File the company, and convert your senior ownership to a majority equity share
- Clean up operations