A hedge that is sailing through the storm

Date: Monday, March 2, 2009
Author: Sophia Grene, Financial Times

In recent months, market neutrality has seemed both more desirable than ever and remarkably hard to achieve. In shipping, where the Baltic Dry Index, a key indicator, plummeted by 90 per cent in 2008, it might seem impossible.

But one fund, M2M’s Global Maritime Investment fund, returned 18 per cent net to investors last year.

“We may be that rare thing, a hedge fund that is actually hedged,” says Steve Rodley, managing director at M2M. The fund was launched early in 2008, at a time when shipping looked like a boom industry.

“It slowed down with the Beijing Olympics as China slowed industrial production. We all assumed it was temporary but then the credit crunch hit and global trade effectively came to a stop.”

M2M barely faltered. During the summer slowdown, it reopened the GMI fund to take in an extra $300m (£211m, €237m) for a large one-off deal, more than doubling the size of the fund.

In September, M2M launched its second fund, Global Maritime Futures, but this time asset gathering was not so easy. “I’d question whether you could have a worse month to launch a new fund,” says Mr Rodley. With a target of $200m, the fund has gathered just $60m. “I’m quite proud that we’re up and running with that.”

He is hopeful the situation is looking up, as the company is currently marketing a third fund, Global Maritime Assets.

This is not pure wishful thinking, as he explains.

“We’ve had a hell of a lot of cold callers in our lifetime, because there are only about five funds out there with ‘shipping’ in the title. That really fell off in the fourth quarter, but within the last five or six weeks, it’s started kicking up again.”

This is due to a feeling assets are cheap at the moment, he says. “There’s a perception out there this might be a tremendous buying opportunity across all asset classes. People with real money are looking to start reallocating.”

The new fund, GMA, will actually buy ships, unlike its predecessors, which leased ships and played the shipping derivatives market.

“It starts from the angle that I could easily convince my grandmother it’s not a stupid time to buy ships” because the prices have fallen so low, says Mr Rodley. “But that smacks of just going long, which is too one-dimensional for us.”

Instead, M2M plans to manage the ships with an overlay of derivatives to ensure their earnings and resale value do not lose the fund money.