This past Wednesday, July 31, Frazer co-hosted a presentation with Thomas P. Lâ€™Helias and Bill Cooper of the law firm Andrews Kurth LLP entitled: â€œA Primer on Master Limited Partnershipsâ€ (a class of investment products commonly known as â€œMLPsâ€). The event, attended by roughly 40-50 investors and banking professionals, took place at 350 Park Avenue.
During both formal remarks and throughout an animated Q&A session, the speakers emphasized four key points in explaining why many investors should consider adding MLPs to their portfolios:
(1) High Yield: Investments with a competitive yield are hard to come by these days.Â Therefore, MLPs are an extremely interesting alternative product within the equity space given that they have consistently outperformed most other types of investments since (at least) 1999. According to the Alerian MLP Index, for example, MLPs outpaced the S&P 500 at rate of 865% vs. 52% during this period.
(2) Infrastructure, Energy and Interest Rates: MLPs are playing an ever greater role in financing the redevelopment of Americaâ€™s infrastructure and energy sectors. With economic growth gradually improving, domestic US energy production on the rise, and because of todayâ€™s highly unpredictable ultra-low interest rate dynamic, MLPs are likely to offer investors a unique source of continuing high yield â€“ especially when contrasted with fixed income alternatives.
(3) Liquidity with TaxÂ Benefits: MLPs are fundamentally equity investments. Investors should be aware, however, that they also possess specialized features with regard to taxation, governance and cash flow distribution. In many ways, MLPs can most easily be understood as offering the tax benefits of a traditional limited partnership while retaining most of the liquidity offered by common stock.
(4) A Changing Legal Landscape: Because the legal/regulatory environment surrounding MLPs is constantly evolving, investors considering an entry into the MLP market should seek out the highest quality legal and financial counsel available. Nevertheless, as one portion of an otherwise well-balanced portfolio, and due to their liquidity characteristics, there are extremely sound reasons why MLP investments have been sparking significant attention both from yield-seeking investors and the media.
Existing and prospective investors interested in learning more about MLPs are encouraged to reach out to Mr. Rice, Mr. Cooper and Mr. Lâ€™Helias who would be happy to offer further information. Please feel free to do so directly or to use the “Contact” button on the homepage menu bar to express interest. Comments also welcome – as always.