Fidelity Investments' nearly 12% stake in New York's Genco Shipping & Trading has been well earned by the owner, but the size of the holding also points out the limitations of public shipowners when it comes to market capitalisation and overall scale.
That is the assessment of veteran investment banker David Herman, who once specialised in shipping for Credit Suisse and now heads the finance arm of Connecticut tanker brokerage Charles R Weber.
"Fidelity taking a 12% position in Genco is significant and bodes well for Genco and others in the industry," Herman told TradeWinds. "An investment from Fidelity is like the Good Housekeeping Seal of Approval — it validates a company or an industry.
"That said, given the relative market caps in shipping, the dollar amounts are not huge. On an absolute basis, the $90m investment is less than the cost of two new capesize vessels and would be tiny in the context of better known, more-liquid stocks like Apple or Tesla."
Herman stressed that he was positive on the development for Genco and likes the company, but sought to place the position in the context of the broader investing marketplace.
'Great job'
"Genco has done a great job both operationally and financially, and has created an attractive and investable platform in the dry-bulk space," Herman said. "Year to date, the stock has more than doubled and Fidelity and the other shareholders have benefited."
Still, a market capitalisation of about $660m, while improved, makes it fairly typical of what shipowners can offer large institutions that are used to dealing with bigger players.
"Shipping is a small market cap sector," Herman said. "Outside a couple of large liner companies, the vast majority of shipping companies have a market capitalisation below $2bn and most are below $1bn.
"Large institutions generally have restrictions on the percent of a company they will own, and 10% or more is considered a large position."
As TradeWinds reported in September 2020, Herman was hired by the new leadership at Charles R Weber to head the brokerage house's first foray into ship finance.
