London-based investment advisory firm Archipelago Investment Partners (AI Partners) has teamed up with Red7Marine, a UK based marine engineering services firm, to launch a unique shipping fund. The new fund will aim to capitalise on the sustained growth in the oil & gas, renewable energy, mining and emerging economy sectors.
The Marine Opportunities Fund will invest in high quality specialist vessels and equipment which are used in offshore infrastructure, marine engineering and drilling. The fund will acquire the vessels and lease them to companies requiring these services, namely major oil and gas companies, offshore mining and renewable firms and marine engineering companies across the globe.
The charter rates on the vessels will provide the returns for the fund, expected to be 15% p.a., while additional returns may be sourced from the sale of the vessels at the end of the fund’s cycle. The fund will primarily invest in existing quality assets which are close to or at residual value. AI Partners and Red7Marine have identified high quality vessels to acquire, and already have a substantial pipeline of interest in the vessels from a global client base across several industries.
The strategy aims to minimise risk to the investor. The vessels will be chartered under standard BIMCO (bareboat) charter terms and thus will transfer the operational risks such as damage to the vessels, non-payment of charter fees, to the charterer. In addition, the fund will reduce risk by allocating different percentages across each asset type (vessels, jack-ups and equipment) to diversify the exposure of the fund and also to offer a complete service to its target client base.
Yannos Hadjiioannou, Partner at AI Partners, commented:
“With the current volatility in global markets, investors are looking for non-correlated, tangible assets that will provide immediate returns and minimise risk. This is a perfect example. The fund would invest in real world assets, and the pre-existing demand for the services means we can immediate deploy funds that will start earning from day one.”
The strategy is built on huge demand for offshore construction. Annual expenditure in the oil & gas and mining industries has been running at over $ 500 billion on offshore exploration and expenditure. Government mandated climate change targets means investment in renewable energy projects – many of them offshore wind and marine projects – is expected to hit $400 billion by 2020. In addition to that is the increased a surge in infrastructure in BRIC economies, a significant amount of it in port and harbour infrastructure to facilitate trade flow. China and India alone are expected to spend $20 trillion on infrastructure projects in the next decade.
Martin Spurr, Group Chairman of Red7Marine, added:
“We see Marine Opportunities Fund as an infrastructure fund, rather than a typical shipping fund. Offshore construction is a huge growth industry, with demand from sectors across markets and across regions. All of this offshore activity requires specialist vessels and equipment, of which there are few providers in the market. This has led to pent-up global demand for services which requires acquisition and deployment of the selected vessels and equipment. Essentially the fund is filling a specialist demand gap in some of the world’s largest markets.”
Red7Marine have long term experience and a strong track in marine engineering. The firm will provide the operational skillset to select, acquire and help manage the newly acquired vessels, while AI Partners will be responsible for structuring and managing the investment proposition. This includes identifying sectoral opportunities, analysing macro and micro economic trends for entry and exit points and negotiating debt financing terms and options.
The fund, which is now open to investors, will target HNWIs, infrastructure funds and private equity investors, as well as shipping and commodity investors. The minimum investment is $250,000.
Source: Archipelago Investment Partners, September 27, 2012; Image: Red7Marine