Private equity success sees rise of technocrats (August 7th 2013)
An article about Private Equity Players (PEPs) recently published in one of the shipping journals includes the following statement:
“They [PEPs] quickly showed they were no fools, however, by not throwing cash at hungry owners before they believed markets would sustain their business model. Momentum has now picked up and private equity is strong and growing of finance. These investors are not taking large investment decisions based merely on a “nose” for business, as has been the fabled skill of traditional ship-owners. They have brought smart, well-skilled specialists with modern analytical tools to assess both markets and proposed investments.”
No, certainly not fools. One was never in doubt of high caliber PEPs taking adequate measures to make wise business decisions. However, what was not addressed is, are PEPs in for the long haul as traditional ship-owners, or merely present at the low trough market cycle, hoping and betting on catching the right wave before cashing out?
The other question that comes to mind is when will the markets actually improve ? Not just to cover OPEX or just slightly better than OPEX, but actually better enough to pay back capital and interest payments plus make a PROFIT !
We have heard for a few years now that ‘next year’ will be better; these days some ship owners and analysts are touting 2015 as the possible end of seven years of famine. They take comfort from the decrease in the order book (which actually has little relevance to today’s market conditions) or clutch at straws when they see short term market blips. These blips have always existed, for example when vessels and cargoes end up in a mis-match due to port congestion, or weather related issues. We have already seen Wilbur Ross enter the market – possibly a bit early initially. With overall bank debt decreasing, those who jumped into the shipping markets after him are of course welcome participants.
But will the PEPs be able to put up the extra cash during the cash flow massacre that many ship-owners have had to face during the last five years? The answer is yes, of course PEPs have the cash. More importantly, are they ready to face the trials and tribulations that the shipping industry faces as do traditional ship-owners in for the long haul ? Do PEPs have the necessary psychological fortitude and optimism that ship-owners have to have to participate in transporting the worlds commodities around the world ? The jury is out on that question, for the moment at least.