First and foremost, Pelagic Partners is a family business with shipping in its blood. We are a family run shipping fund, which co-invests its own money into the ships in our fund. We run our fund in partnership with our co-founders Hartmann Group, one of the biggest family-owned shipping companies in the world. We are very much focused on the family offices of high-net-worth individuals from all around the world, but particularly the Middle East.
I grew up in Hamburg, Germany where my father started his own company in the mid-1990s – mainly focusing on the car carrying trade. He initially had a small car carrier and then gradually grew the fleet, but it was never the plan to be ship owners. My father did not have a shipping background nor did he inherit the trade from his father. As second-generation entrepreneurs, we grew up with shipping and were totally immersed in the maritime world from childhood.
I ended up studying shipping at the Solent University in Southampton. My brother Ahmad, meanwhile, has also completed the famous shipping, trade and finance course at Cass Business School.
Why invest with Pelagic?
H.M. Pelagic Partners RAIF V.C.I.C. Plc is a Registered Alternative Investment Fund (“RAIF”) , registered with the Cyprus Securities and Exchange Commission (CySEC) with Registration Number RAIF30. The RAIF is externally managed by GMM Global Money Managers AIFM Ltd, licensed and regulated by the CySEC, License No. AIFM 33/56/2013.
For high-net-worth individuals, the shipping market offers some interesting opportunities and a way of investing in global seaborne trade.
We wanted to use our own experience, along with the Hartmann Group’s, to reach investors. Hartmann Group, our partners and managers of the ships in the Pelagic fund, is one of the world’s leading shipping companies. They have their own fleet of 150 plus ships and also provide third party vessel management services. They’re also family run and hands on, which makes them the ideal partners to support Pelagic.
Plenty of high-net-worth individuals are investing in real estate and other physical assets. But if people are investing in physical assets, then I think that shipping should also be up for consideration.
For many people, maritime is like another world. It has its own language, acronyms, legislation, technical and operational challenges. From tankers to car carriers, each segment has its own cycle. But a shipping investment can be similar to investing in real estate – or even a bond.
A well-maintained vessel on a long-term planned charter to a good counterparty at good rates? Well, I don’t see the difference between this investment and a B-rated bond that returns six or seven per cent.
Also, look at the fundamentals. Shipping is under-priced today in terms of assets. The stock market for example is in an overinflated position. With a reasonable investment you can buy a vessel that is well maintained and has good cash flow. Make no mistake, thanks to the regular cash flow coming in, shipping is very compelling due to the steady yields.
In the past, money has been invested with the wrong people – and particularly with people who don’t understand shipping. In the last 13 years we’ve seen the rise and fall of KG funds, some private equity funds mis-timing their entrances and exits and the departure of some of the traditional banking lenders to shipping.
Most of the equity funds in the past that had problems were focussed on up-front fees. If you had such a structure, all the fund managers cared about was securing the vessel. They didn’t care what condition it was in or whether it would make money in the long term. The focus was getting an initial commission out of it.
Pelagic’s set up couldn’t be more different. It’s only a one per cent per net asset value to cover the running expenses of the fund and that’s effectively it. Critically, we’re co-investors in the fund.
Diversity – Access to cargo – Right assets
We don’t – and won’t – invest in overpriced or overleveraged vessels.
Pelagic bought a handysize bulk carrier at a good price 9 months ago, but soon enough we would not pay the high prices those assets have reached. Overpriced ships are something we’ll never touch and we won’t get sucked in by hype.
Overleveraging is another aspect we don’t want to experience either.
The LTV limit we have is set to 50 per cent and this is something we want to stick with as a part of our overarching philosophy. We’ve seen big companies go down even when debt was cheap.
We also want something with good fundamentals for the future. For example, promising growth markets, low orderbooks and an overall sustainable investment ground.
We’re also buying vessels that have been looked after by the previous owner. We don’t want to take over vessels that are going to cause technical headaches later down the line.
We believe in a building a diverse range of ships in our fund: it’s a core belief. When the time is right, we want exposure to the dry bulk, tanker, gas, multi-purpose, ro-ro and container markets. But without access to the right charterers and cargoes, the fleet’s potential will never be fulfilled. Thanks to our access to the markets through long-standing relationships and deep connections, we can secure favourable rates where we are exposed to the spot market. We will always pay special attention to assets where we have direct cargo and commercial access.
Building the Pelagic fleet
The first vessel we acquired was a handysize bulker from within the Hartmann Group. It wasn’t just owned by the group, they built the vessel and it had been under the group’s management ever since.
We were there at the right time and with the right structure to purchase the vessel last summer. Prices were especially good because it was as the pandemic hit. We’re on spot charter so have been able to take advantage of the recent buoyant market conditions. According to the Baltic Exchange, handysize rates are at a 10 year high. We’ve already seen a significant increase in the asset’s value over the last seven months.
We’ve also purchased an LPG vessel from the Hartmann Group. It’s a slightly older vessel, but it was a low-cost acquisition with a strong time charter attached. Marubeni, the big Japanese commodity players, are time charterers of the vessel for at least a year and with very healthy rates.
Pelagic also own a car carrier – and of course we have lots of experience with these vessels. We bought the vessel from Hoegh Autoliners with whom I have close personal and respectful relationship. It’s another vessel now on time charter at healthy rates as the car carrier market is slowly but surely touching on charter levels not seen in the past 10 years.
We’re keen to bring in a fourth vessel now and have been looking at a container vessel, handysize bulk carrier, multipurpose vessel (MPP) and a chemical tanker.
We are entering a very exciting phase for maritime investment, given the strong fundamentals after a decade of recovery from the global financial crash.
Another exciting side is the implementation of technology such a sblockchain for shipping operations as well as equity raising which Pelagic is exploring.
Last, but not least, is de-carbonisation which has plenty room for innovation investment.
This sort of investment doesn’t necessarily need to be in a vessel, but rather in the technology that will assist the current trading vessels in cutting CO2 emissions and eventually reach the world target of net-zero carbon emissions merchant fleet.