Bruce Kovner is somewhat of a legend in the hedge fund world. Worth an estimated $5.3 billion according to Forbes, Kovner built his wealth managing money for clients at his macro firm Caxton Associates, which closed its doors in 2011. Kovner started at the Commodities Corporation in the 1970s and went on to start Caxton in 1983, a commodities-focused fund itself.

Kovner believes his edge over other investors is the ability to spot trends and connections between industries and markets before others. He is also (it seems) a value investor at heart, according to pioneering mathematical financier Edward O. Thorp, founder of Princeton Newport partners.

In a newspaper column published in 2004, titled “A Mathematician on Wall Street” Throp details a trade he put on with Kovner and some other partners on distressed shipping.

The greatest distressed shipping trade ever?

In the mid-80s, oil tankers were in such oversupply that old vessels were selling for little more than scrap value (a similar situation to today’s dry bulk vessel market) presenting an attractive opportunity for the astute investor.

Kovner and Throp made use of this opportunity by forming a partnership to buy a tanker selling at a distressed price. This was an interesting trade and has many similarities with value investing. As the tanker was brought near scrap value, the downside of the trade was limited. However, tanker prices and rates have historically fluctuated widely, presenting the perfect opportunity for the long-term investor that was prepared to sit back and wait for the next cycle.

tanker photo
Photo by ??, Ting Chen, Wing

The ship acquired by the partnership was the 475,000 Empress Des Mers, which was at the time the largest ship in the world. After a refit, the refurbished ship was generating income for the partnership and with one ship running smoothly, Kovner, Throp and partners decided to purchase the world’s newest largest tanker the 500,000 ton Seawise Giant.

Unfortunately, this trade didn’t go to plan as while the partners were in escrow, the ship was bombed by Iraqi warplanes in the Persian Gulf. (1988 bombed by Iraqi aircraft at Hormuz Terminal (3 dead). Sold as a hulk The tanker sank off the coast of Larak Island, Iran. Seawise Giant was declared a total loss and became the biggest shipwreck in the world.)

Still, this minor setback didn’t stop the Empress, and she continued to generate returns for the partners right up until her scrapping in 2004. The partners were forced to scrap the ship due to severe changes in the tanker market and international regulations. Over 18 years of ownership, the Empress generated around $100 million in trading profits for the partners according to Throp’s column, a return on investment of approximately 30% per annum. The ship produced a handsome return on its sale according to speculation. While the exact figures aren’t available, when the Empress was sold it fetched almost $23 million, which according to the shipping industry publication TradeWinds, was twice the initial purchase cost.

All in all, this distressed shipping trade proved to be a very lucrative investment for its partners.