Monday, August 3, 2009

German shipping KG funds in crisis

I am not sure what the KG stands for, something in German I suppose, unless it stands for Kilogram. Anyway, it is a type of investment fund set up in Germany about 20 or 30 years ago. It was done as an incentive to keep ships flagged and managed in Germany. I think there might be some tax advantages to owning these funds, if you are a German taxpayer, but I'm not sure.

From Ship Chartering
Under German KG rules, ships must be flagged and managed in Germany, while the owner must establish an operations office in the country.

They were touted as a safe investment, but alas, not so.

From Tradewinds

More than 20 of Germany’s 1,600 KG Funds have been forced in to insolvency or other restructuring, the Financial Times reports.

Up to 100 more could be forced to ask investors for fresh capital if the crisis persists beyond, the newspaper claimed.

About 40 funds have already asked investors for more capital the paper said, quoting Deutsche Zweitmarkt, which runs a secondary market in KG fund shares.

Tobias Konig, managing partner of Knoig & Cie, was quoted as saying that this was the first time a sector crisis had coincided with a banking crisis.

Well, Tobias, not the first time. Just the first time since the KG funds were established.

The problem is these models were set up to just pay out all of the income of the ships, with no thought for a possible downturn, or a possible reduction in the value of the asset.

Peter Dohle Schiffahrts president Jochen Dohle told the newspaper that the experience will “fundamentally change” how KG funds are run in the future.

“We will certainly be going back to the good old times 20 years ago, 25 years ago when things were done far more conservatively,” he said.

click here for link to article

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