A critical component of supply chain logistics and globalization, the shipping industry transports around 90% of world trade, as per the International Chamber of Shipping. Amid global economic slowdown and increasing trade tensions, Danish shipping company Maersk, the largest ship container and supply vessel operator in the world, has recently warned investors of a decline in the growth of global freight. What could this mean for infrastructure investments in the shipping industry?
Bigger is Best
Looking back at the development of the shipping-focused fundraising market in recent years reveals that managers have been closing fewer funds, but at record-high totals. As shown in the chart below, infrastructure funds investing in the shipping industry have consistently secured aggregate commitments of over $30bn each year since 2016, owing in part to an increased number of fund closures at $1bn or more. Prior to this, in 2015, four funds closed on more than $1bn each, the largest of which was the $2.3bn European Diversified Infrastructure Fund I. In 2016, seven funds raised over $1bn, including a $14bn infrastructure core-plus fund, Brookfield Infrastructure Fund III. The largest fundraise of the past decade, Global Infrastructure Partners III raised $16bn in January 2017. While 2018 did not see any double-digit billion-dollar closings, seven of the 13 funds investing in shipping raised over $1bn.
Fewer funds raising huge amounts of capital – often referred to as ‘The Softbank Effect’ – is a trend not unique to infrastructure, having been observed in other private capital asset classes in recent years. In the shipping sector, though, this trend is particularly pronounced: the average size of a fund investing in the shipping sector was $665mn in 2015, which more than tripled to $2.3bn in 2018. Preqin data also shows that experienced infrastructure fund managers attract more of this capital than their first-time counterparts – with an average fundraise of $2.5bn vs. $1.1bn in 2018 respectively – and bring more vehicles to market. Although just two first-time funds closed in the shipping sector in 2018, the only shipping fund that has closed thus far in 2019 is run by a first-time manager: Japan-focused Marunouchi Infrastructure Fund collected $582mn and plans to invest in seaports, among other assets.
Interest in Latin America
While infrastructure funds that invest in shipping are growing larger, the number of deals in the sector has begun to diminish in the past two years. Overall, throughout the past decade, Europe has recorded the most shipping-related deals of any region at 164, followed by Asia (102) and Latin America & Caribbean (54). Fourteen shipping and seaport deals were completed in Europe in 2018, for an average value of $1.2bn. Latin America & Caribbean has been gaining investor interest in recent years, and was home to the second-highest number (7) of shipping and seaports deals in 2018. Deal activity in 2019 for the Latin America region looks poised to surpass that of the previous year, as there have already been six seaport transactions – four of which were for assets in Chile, with DP World and CDPQ each investing in Puerto Lirquen Port and Puerto Central Port.
Maersk’s warning of a slowdown in the growth of the shipping industry stems from heightened trade tensions and threats of tariff increases. While deal activity in the shipping sector has not been as robust as that of previous years, the data suggests there is no real cause for concern. There are currently 52 funds in market targeting investment in the shipping industry, which are aiming to raise a total of $86bn – two of these funds, Brookfield Infrastructure Fund IV and Global Infrastructure Partners IV, are expecting to raise $20bn each. Given the sheer volume of goods transported and the importance of the industry to continued international trade, interest in the shipping sector should continue to prevail.
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