There is a saying that investors do not own shipping stocks, they just rent them.
The inherent cyclicality of the industry has proved a deterrent over time to “buy and hold” institutional investors — known as long-only funds — that prefer to stay in stocks for years at a time rather than weeks or months, as is more typical of hedge funds.
So it is probably not a great surprise that one of the most-prominent long-only investors of the past 25 years — former Neuberger Berman portfolio manager Jeremy Kramer — has re-emerged as a shipping advisor to a new hedge fund called West Brow Transportation Fund.
Even in the new capacity, Kramer knows as much as anyone what the long-onlys such as Fidelity and Wellington Management look for in their now somewhat-rare forays into their sector — and just as well what they don’t want to see.
He made such calls for Neuberger Berman starting in around 1999 in the tanker sector and was able to catch the wave of the last shipping “super-cycle” in the succeeding years, making handsome profits for his investors.
Now he’s back with a preference for tankers again. Streetwise caught up with him near his home in Manhattan, New York and talked about his career in shipping investment and his director’s role in three public shipowners in more recent years.
One of the first things Kramer learned about shipping is that supply matters — a lot.
It was one of the things that attracted him to the relatively few existing public tanker companies around 1999, when the industry was still dealing with the fallout from the Oil Pollution Act of 1990 and the advent of double-hulled tankers.
More than 20 years later, supply has been affected again by more regulation, this time aimed at decarbonisation. In this case, green mandates have run years ahead of the technology necessary to determine future vessel propulsion systems, helping to dampen newbuilding orders.
Around the millennium, crude tankers were a natural nexus of Kramer’s research silos in transportation and energy.
He recalls also being prompted by Morton Hyman, former CEO of the old Overseas Shipholding Group, to look into the small tanker peer group that included Teekay, OMI Corp, Stelmar, General Maritime and Frontline.
“It was typical for me to delve into things in great detail, and we did our own work,” Kramer told Streetwise. “What was intriguing at the time was the shift from single hulls into double hulls, and the multi-year supply constraint that created.
“It is very difficult to predict demand and just when it will kick in, but economies do tend to grow over time. So if you know there’s no supply growth, it gives you a certainty that you don’t find in a lot of industries.”
Neuberger’s bets — Kramer’s bets — worked out well at the time, bringing outsized returns in relation to benchmarks such as the S&P 500.
The extended shipping cycle combined with Chinese economic expansion to spawn a wave of shipping IPOs in 2004 and 2005, mostly in dry bulk. Kramer recalls that he didn’t bite easily because he was witnessing a demand story, not a supply one.
“I think I probably missed some big gains early on. But it also means I didn’t own much when the dry bulk orderbook reached 80% of the fleet heading into the world financial crisis.”
Kramer and Neuberger pulled back from shipping after the collapse, then selectively got back into a few tanker names while investing more in the offshore drilling sector. The firm got more singed than burned when that sector tanked in 2014.
“We got caught a little in the last quarter of 2014 and got some scars on the way out, but we avoided the worst — in the aggregate it was a very profitable eight or nine years,” he said.
By 2016, Kramer, 61, decided to retire from Neuberger but wasn’t ready to leave shipping entirely. He began to take board seats with principals he had met along the way, first with Golar LNG Partners, then DHT Holdings and finally 2020 Bulkers.
He remains on the DHT board, and now has re-emerged in the finance sphere with West Brow.
With a long and varied perspective, Kramer gave Streetwise his investor’s eye view of shipping — particularly of the reasons behind the dearth of interest from long-only funds.
“I think it is true that there isn’t as much interest in shipping today by the long-only investors, although you will see a Fidelity or a Wellington show up at times,” he said.
“I think a couple of reasons are market capitalisation and trading liquidity: how do you build a big enough position and how do you make sure you can get out? I think the rapid nature of shipping cycles is another reason.
“One of the things we tried to do was have a long-term orientation. You assume you may own it for two or three years and you’d like to be able to go to five years.
“There aren’t many shipping companies you can own for five or 10 years without something bad happening.”
Kramer also confirmed that because some public shipowners have lagged in meeting best practices for corporate governance, there has been a reputational hit as well.
“I certainly don’t want to get into names, but there have been some bad actors who soured investors on the sector,” he said. “There are individuals and structures that create conflicts with the public shareholders, and I think that’s undermined credibility for the sector.”
Still, as long as there have been public shipowners, there have been management teams talking about luring the long-only types back in. How can companies do this?
“I think you need to have a company that’s built to survive the cycles,” he replied. “A company with lower leverage than in the past. A mix of spot and term business, and a shareholder-friendly return of capital policy. And finally, you want to be transparent and honest, without conflicts of interest.”
There is the blueprint, public shipping executive. And failing that, well, there are always the renters.
More ship finance news
That jolly fellow chortling “ho, ho, ho” through the streets of Connecticut and New York these days is at the helm of a product tanker rather than a sleigh, but Scorpio Tankers president Robert Bugbee is nonetheless bearing gifts for his investors. Click here to read.
Container ship owner Seaspan has gone back to bondholders with a better offer to try to avoid having to buy back its $300m notes series due in 2026. Click here to read.
Belgium’s Saverys family has called for an end to the plan to combine tanker giants Euronav and Frontline. Click here to read.
