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Last time...
...we talked about how a major reason for the development of so-called KG funds has been the need for a sustainable model of ship finance. We also mentioned how Aristotle gamed the system to make money.
Now Today...
In a previous post I talked about how the shipping derivatives market could provide an effective way to mitigate heavy fluctuations in demand and supply in the shipping market. But the increasing importance of derivatives in the shipping markets have affected the industry in many ways. Derivatives provide a means for shipowners to mitigate the risk inherent in uncertain freight-rate-based revenues.
There is another important way in which derivatives are used to make profits from the shipping industry. Hedge funds that use arbitrage strategies can capitalize on differences between spot prices and projected future prices. They look for ships where most trading is done on the spot market.
This is why these hedge funds generally seem to invest in financial instruments and objects that are more related to dry-bulk market than the container market. In dry-bulk vessel operation many of the volatile characteristics of previous periods in the ship finance industry are retained. Hedge funds contribute to the sustainability of the shipping industry and the ship finance industry because they allow shipowners to hedge against all kinds of risk by letting them invest in uncorrelated funds.
References:
M2M Management 2007a. Interview 2007, in London and by e-mail.
Stopford, Martin, 2005. Marine Investments Financing Forum. Shipowners versus capital providers "a tango for two" 31st October 2002 the Grand Hotel, Amsterdam Setting the Scene, Identifying the Objectives, Fifty years of ship finance
Swart, Petrus, 2007. Masters Dissertation. Hamburg School of Logistics.
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