The SS Edmund Fitzgerald in 1971. Photo by Greenmars, "Edmund Fitzgerald, 1971, 3 of 4 (restored; cropped)," via Wikimedia Commons, licensed under CC BY-SA 3.0. Restored and cropped from the original.
On Wednesday night I gave a presentation on alternative investments to a group in Columbus. The timing wasn't lost on me. The night before marked the 51st anniversary of the wreck of the SS Edmund Fitzgerald, which went down in a Lake Superior storm on November 10, 1975, taking all 29 men aboard with her.
That coincidence gave me the chance to share a case study I'd been building, about a side of the Edmund Fitzgerald story few people know: the ship wasn't just a famous freighter. It was an alternative investment.
A question I've carried for years
I've long had a keen interest in maritime history, and Great Lakes history in particular. The lakes have produced some of the most remarkable ships and stories in American commerce, and the Fitzgerald is the most famous of them all.
One detail has always nagged at the financial side of my brain. The ship was owned not by a steel company or a shipping line, but by a life insurance company: Northwestern Mutual of Milwaukee. Why would an insurer own a cargo ship? How was the deal structured, and what did it earn? I finally sat down and worked through it as a case study.
The deal behind the "Mighty Fitz"
In 1957, Northwestern Mutual paid Great Lakes Engineering Works $8.4 million to build what would become the largest ship on the Great Lakes. It was reportedly the first investment of its kind by an American life insurer. The company didn't run the ship itself. It signed a 25-year charter with Oglebay Norton of Cleveland, which operated the vessel, paid the crew and upkeep, and carried the day-to-day business risk under what's known as a triple-net lease.
For 17 years the arrangement worked. The Fitzgerald set cargo records hauling iron ore, and Northwestern Mutual collected its rent. Then, on November 10, 1975, the investment ended in a single night.
The actual lease payments and insurance recovery were never made public, so I built a hypothetical model. Priced the way insurers priced long-term corporate credit in the late 1950s, the position would have returned roughly 4% to 7% a year, depending on the assumptions, with the base case near 4.8%. Plotting the cumulative cash flows produced something every private markets investor will recognize: a J-curve. The investment sat underwater for about 15 years before the rent paid back the original cost.
It's also worth remembering the rules of the era. State insurance laws at the time confined life insurers mostly to high-grade bonds and mortgages, with only small allowances for anything else. A ship didn't fit neatly in any category, which helps explain why the deal looked the way it did: a fixed rent from a creditworthy operator resembled the bonds regulators favored.
What the Fitz teaches about private equity and private credit
The more I worked through the numbers, the more the Fitzgerald looked like a hybrid: a private credit investment with a private equity cash-flow profile. A few lessons stood out.
1. Know which return engine you own. Economically, Northwestern Mutual made a 25-year secured loan to Oglebay Norton, with the ship as collateral. Its return was set by the lease terms on day one, much like a private credit coupon. Private equity returns come from improving a business and selling it for more. The Fitzgerald had the J-curve of private equity but none of its upside.
2. Structure is the return. In private credit, the terms often matter more than the asset. Here, the lease and the hull insurance decided the outcome. In my model, the catastrophic loss barely dented the base-case return, because insurance repaid the balance still owed. Without that protection, the same event cuts the return from about 4.8% to roughly 2%.
3. The J-curve demands patience. Every year after the build brought in rent, yet cumulative cash stayed negative for about 15 years. Private equity investors live with the same pattern: capital goes out early, distributions come later. Illiquid alternatives suit only money that can wait, and they should be judged over their full life, not on interim marks.
4. Alignment matters when someone else runs the asset. Northwestern Mutual owned the ship; Oglebay Norton operated it. When the operator doesn't own the asset, its incentives to maintain it may not match the owner's. That's the same agency question limited partners ask of a general partner, and lenders ask of a borrower. Covenants, reporting and inspection rights only help if someone actually uses them.
5. Concentration turns a tail event into the whole story. One asset, one operator, one storm. Diversifying across managers, strategies, borrowers and vintage years is how today's investors keep a single bad night from defining the portfolio.
Remembering the 29
It's easy to reduce a ship to a spreadsheet, and I want to be careful not to. The Edmund Fitzgerald is first a story about 29 men who didn't come home, and about the families who still mark this week every year. The changes it brought to Great Lakes shipping, from mandatory survival suits to depth finders and more frequent inspections, are part of its legacy too.
But the financial story behind the ship holds lessons that are as relevant to today's private markets as they were in 1958. Every alternative investment has a structure, an operator, a cash-flow pattern and a tail risk. Understanding all four, before you commit capital, is what separates a sound investment from one you only understand in hindsight.
If you'd like a copy of the case study, feel free to reach out.
The return figures in this post come from a hypothetical model built for educational purposes. Northwestern Mutual's actual lease terms, insurance recovery and returns were never made public. This post is not investment advice or a recommendation of any security or strategy, and past performance does not guarantee future results.