Private equity firms have been aggressive in putting money into ship bottoms. But with a prolonged industry wide slump, getting a return on the assets has been challenging for the PE companies. Still with money in hand, PE firms remain ready willing and able to keep taking the plunge. Over the past half-decade, private equity has become the most aggressive funding force in shipping. However, it’s been a steep learning curve and often times an expensive one for many PE firms, especially those who invested heavily in dry bulk. “The normal PE playbook is not working,” said Jeffrey McGee, principal at Makai Marine Advisors, an independent shipping research and consultancy, based in Dallas and New York. “They never modeled the possibility that asset prices could stay low.” McGee attributed the rush by private equity as “a case of the herd mentality buying into the sector.” That kind of blind exuberance is largely over. These days, said Brian Devine, a New York-based partner with Norton Rose Fulbright, private equity shows a much deeper understanding of the industry than we saw when they originally came into shipping with the intention of picking up bargains. A few years back, he said, he’d get a call from funds saying ‘I want to invest in shipping. Now, it’s ‘I want to invest in a specific type of ship, built in a specific country, that is X years old.’” Private equity has scaled back its aggressiveness, but it isn’t an across-the-board retreat. “Those that put on dry bulk exposure are probably weary and it’s impacting not just dry bulk investments but probably a lot of other shipping investments as well,” said Tim Gravely, managing director at money management firm Tennenbaum Capital, at a recent New York forum on shipping investments sponsored by Capital Link. But “guys who haven’t invested in dry bulk are taking a hard look at the sector.” Private equity managers raise money from institutional investors for funds that are directed toward specific investment strategies, but primarily aimed at the acquisition of companies and assets. Private equity has hundreds of billions of dollars in raised capital at its disposal, but attempts to mix this money with borrowed funds to expand investing opportunities even more. No one knows how much money private equity has invested in shipping, as many of the deals are private. The veteran investor Wilbur Ross estimated private equity sunk $16 billion into shipping between 2008 and 2013, according to a report by shipbroker EA Gibson. While 2013 marked the peak of PE investment, billions more were deployed last year and the pipeline continues to flow in 2015. Ross’s WL Ross & Co. itself spent more than $1 billion on assembling Diamond S Shipping, which now owns 33 tankers. Ross also owns a 42% in Navigator Holdings, which has a fleet of liquefied gas carriers. Ross has plenty of company. Some of the biggest names in private equity have made significant bets on shipping since the 2008 crisis. These include Oaktree Capital, Blackstone, Apollo and Kohlberg, Kravis & Roberts (Private equity isn’t necessarily new to shipping; Oaktree, for one, has been investing in the sector for two decades. But as the universe of private equity has grown dramatically over the past decade, as have the number of shipping investors.) Private equity has targeted shipping investments in a number of ways. It has bought debt from banks and financed new lending, including higher yield, less secured, so-called mezzanine debt. It has acquired ships, and invested in the shipping companies themselves. “There can be very, very different strategies behind the money,” said Arthur Regan, president and CEO of Principal Maritime Management, an Apollo-owned company that provides advisory and management services to the firm’s tanker fleet. Speaking at the conference, Regan cited time horizons that can stretch from one year and be more like hedge funds, to six years or more. “They’re very patient,” said Joseph Maly, a managing director at investment bank Seaport Global Securities, at the conference. Because private equity poured so much money into shipping, tonnage didn’t contract as expected. That kept charter rates down and delayed a sectoral recovery, many believe. But private equity capital has generally been welcome by the industry. PE’s ability to invest money into otherwise struggling companies stabilizes finances. Funding allows expansion as well. One notable example is Euronav, which has spent more than $1.3 billion over the past 15 months or so on VLCCs, most acquired from Maersk. Private equity investors, led by Blue Mountain Capital Management, held more than 20% of Euronav, before it went public in New York in January, diluting PE holdings. That is the kind of exit strategy private equity seeks. But Euronav has proven much more exception than rule. Ross, for one, had to suspend the Diamond S IPO a year back because of low pricing. Private equity investors “thought they could get a capital markets exit. It didn’t happen,” said McGee However, there’s little evidence private equity is dumping assets at a loss and calling it quits. It’s quite the contrary. “PE raised a lot of money [from institutional investors] and they can double down if they want to,” said Devine. “They’ve got staying power.”