Energy Infrastructure

Energy Infrastructure

pipelineWe offer a concentrated portfolio of energy infrastructure Master Limited Partnership (MLP) holdings designed to generate high income with potential capital appreciation.

Overview
Master Limited Partnerships (MLPs) are publicly traded units in businesses organized as limited partnerships. MLPs were largely born out of tax-friendly legislation in the 1980s that allowed mineral and natural resource companies to organize into limited partnerships and avoid corporate taxation in order to encourage investment in these sectors.

Most MLPs are involved in some form of energy transportation, distribution, processing or storage and have little exposure to commodity price fluctuations. The Partnership Agreement generally requires that MLPs pay 100% of available cash flow to unit holders in the form of quarterly cash distribution. MLP’s report taxable income annually on Form K-1. Income is taxed at each unit holder’s individual income tax rates; however, most of the cash distribution is typically tax deferred and lowers the investor’s cost basis in the investment due to MLP depreciation.

Key Points of MLPs

  • Stable cash flows – Revenues are based on long-term contracts
  • Low maintenance – Pipeline infrastructure has relatively low maintenance
  • Long-lived assets – Most pipelines live beyond 40 years
  • Low-cost – Typically the most efficient means of transporting
  • Revenue predictability – Income is derived from regulated fees and tariffs

Investment Rationale

  • Attractive long term returns
  • High income generation, with high current yields
  • Distributions are normally increasing due to organic growth, small rate increases and acquisition growth
  • Low correlation with other asset classes as part of a diversified portfolio
  • Key tax advantages for individuals – tax deferred distributions
  • Greater than 2% historical spread over Treasury Yields

Risks

  • Distributions are not guaranteed
  • Rising interest rates may cause price declines
  • Some partnerships have commodity risk
  • Environmental liability
  • Regulatory risk due to federal, state and local regulations
  • Concentrated portfolio