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A hedge fund run by a former associate of billionaire John Fredriksen has gained 69 per cent in two years betting on shunned oil-related assets – and it’s not nearly done exploiting the recovery.

The Titan Opportunities Fund, which now manages about US$100-million, started investing in June, 2016, after a collapse in crude prices had decimated stocks and bonds issued by oil-related companies. It has benefited from an historic deal between OPEC and other producers to cut output, supporting an oil price rally that’s been reinforced by increasing geopolitical tensions this year.

Yet, the recovery still has much more to run, according to chief investment officer Espen Westeren.

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U.S. shale production has made a spectacular comeback, but is capped by insufficient pipeline capacity. And we’re only now starting to see the negative impact on global output of oil companies’ dramatic spending cuts from 2014 to 2017, Mr. Westeren said.

“If investments don’t rise substantially, we’ll have a problem,” he said in a June 6 phone interview. “There’s a good probability” that oil prices will return to US$100 a barrel within a couple of years, he added.

Titan is betting that bottlenecks affecting the Permian region, the most prolific U.S. shale oil area, will boost pipeline companies such as Energy Transfer Partners LP and Energy Transfer Equity LP, which now make up about 10 per cent of the fund’s assets.

It’s also shifting positions in offshore drilling, cutting its holding in Oslo-listed Borr Drilling Ltd. by more than half since the third quarter. While Borr was still the fund’s biggest asset at the end of April, Titan has now also established an ownership stake in Transocean Ltd. and Fredriksen’s new rig company Northern Drilling Ltd., while boosting investments in Ensco Plc bonds.

The Philadelphia Oil Service Sector Index, which includes Transocean and Schlumberger Ltd., still hasn’t recovered after halving from a high in 2014 and is trailing Norwegian oil-service stocks.

“It will soon be clear to the market that there’s a recovery also in offshore capital expenditure,” Mr. Westeren said. “We’ll then get a repricing of a lot of offshore-related investments, whether that’s bonds in large U.S. offshore drillers or equity in drillers, supply-vessel companies or subsea construction.”

Titan is also betting on shipping, where the amount of ordered vessels as a portion of the global fleet is at the lowest level since the 1990s, Mr. Westeren said. After a 10-year slump, that’s a “very interesting setup for an up-cycle,” he said.

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In May, the firm started Titan Credit Fund with capital of US$20-million, mostly from existing Titan investors. It aims to generate annual returns in the “mid-teens,” lower than the Opportunities fund’s ambition of 30 pe rcent and with a longer time horizon. Titan aims to attract more capital to both funds, Mr. Westeren said.

The 39-year-old Norwegian managed Mr. Fredriksen’s private investments from 2010 to 2015. Westeren and Fredriksen have since had a conflict over the former trader’s bonuses. An arbitration court is yet to consider the matter. Mr. Westeren declined to comment.

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