Master Limited Partnerships

Master Limited Partnerships
Fact Sheet
october 2014
Background
Master Limited Partnerships (MLPs) trade on major exchanges and earn at
least 90% of their income from qualifying natural resources (crude oil, natural
gas, coal, etc.). MLPs pass through operating earnings and taxable income to
their limited partners which are reported on individual K-1 forms. MLPs benefit
from a lower cost of capital as their earnings (unlike those of corporations)
are not subject to double taxation. In addition, a sizeable portion of quarterly
distributions (typically 70 to 100%) are tax deferred.
More than 80% of MLPs are in the midstream energy sector and may include
pipelines, processing and storage facilities. There are more than 100 MLPs
trading on the major exchanges today with total market capitalization of more
than $400 billion. We expect significant growth in this asset class over the next
decade as dramatic increases in U.S. oil and gas production expand the need for
energy infrastructure.
Strategy TEAM
Marcus McGregor
MLP Investment Strategist
15 years of experience
Kevin Antaya, CFA
Portfolio Manager
14 years of experience
CONTACT INFORMATION
Jack Corroon
Managing Director,
Business Development
+1 860.299.2332
[email protected]
Investment Rationale
• Provides income-oriented investors with the potential for after-tax yield and the
potential for capital appreciation
• Offers potential for strong yields when compared to corporate bonds and high dividend equities
• Allows investors to participate in expected favorable trends in the U.S. energy sector
• Provides potential upside as asset class is “repriced” due to broadening demand
from institutional investors
Asset Class Annualized Returns and Standard Deviations
(December 1995 — september 2014)
18%
MLP
16%
Annualized Return %
14%
12%
Emerging Market Bonds
High Div Equity
10%
Hedge Funds
8%
U.S. Equities
High Yield Bonds
Convertibles
Investment Grade Bonds
6%
Precious Metals
Bank Loans
Commodities
4%
Treasury Bills
2%
0%
0%
5%
10%
15%
Annualized Standard Deviation %
20%
25%
Sources: Bloomberg, Barclays Capital, Conning Analysis
ABOUT CONNING
Conning (www.conning.com) is a leading investment management company
for the global insurance industry, with
almost $92 billion in assets under
management as of September 30,
2014 through Conning, Inc., Conning
Asset Management Limited, Cathay
Conning Asset Management Limited,
and Goodwin Capital Advisers. The
company’s unique combination of
asset management, risk and capital
management solutions and insurance
research helps clients achieve their
financial goals through customized
business and investment strategies.
Founded in 1912, Conning is focused
on the future, providing clients with
innovative solutions, leveraging its
global capabilities, investment experience, and proprietary research.
The company is headquartered in
Hartford, Connecticut, with additional
offices in New York, London, Cologne,
and Hong Kong.
This material is for informational purposes only
and should not be interpreted as an offer to sell,
or a solicitation or recommendation of an offer
to buy any security, product or service, or retain
Conning for investment advisory services. This
information is not intended to be nor should it
be used as investment advice and should not be
copied or distributed without the prior consent
of Conning.
For complete details regarding Conning and its
services, you should refer to our Form ADV Part
2, which may be obtained by calling us.
C11#2980801
Conning • Hartford • new york • London • Cologne • HONG KONG • +1 860.299.2000 • Conning.com
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Master Limited Partnerships
Benefits for Insurance Companies
• Customized, separate account structure allows clients to maximize after-tax returns
• Structure enhances ability to customize strategy to meet individual client needs
• Potential for strong level of investment income
Portfolio Characteristics 9/30/14
Issuer Count
17 names in portfolio
Indicated Distribution Yield
4.85%
Avg 36 mo. Distribution Growth Rate
7.39%
Strategy Description
Avg 36 mo. Beta vs. S&P 500
0.73
• Emphasis on MLPs involved in transportation, gathering and processing, and storage and
Total Mkt. Cap.
$336 billion
• Strong preference for MLPs which benefit from fee-based revenues not vulnerable to
Top Five Holdings Mkt. Cap.
$186 billion
• Focus on larger capitalization MLPs
Top Five Holdings Avg. Mkt. Cap.
$37 billion
terminaling (not exploration and production or refining)
commodity price volatility
• Limit portfolio turnover to maximize after-tax returns
Avg NRSRO Credit Rating
BBB/Baa2
Investment Process
Top Five Portfolio Hldgs by Market
Capitalization (15% Cap)
Quantitative screens of broad MLP universe to identify companies meeting parameters
Enterprise Products
Partners, L.P.
15.0%
Williams Partners.
12.1%
Plains All American
Pipeline
9.0%
Energy Transfer
Partners, L.P.
8.3%
Kinder Morgan
Energy Partners, L.P.
8.3%
Criteria reviewed include leverage metrics, cash flow trends, equity market capitalization,
current yield, valuations, earnings stability and price volatility.
Qualitative analysis eliminates issues with higher risk profiles
Issuers that do not meet Conning’s requirements for strong management, steady and consistent cash flow, investment grade debt ratings, or those overly exposed to commodity price
volatility, are eliminated.
Ongoing monitoring of MLP portfolio constituents
Conning conducts continuous reviews of potential portfolio constituents. Changes in underlying business fundamentals can lead to a conviction sale.
The target universe is reviewed quarterly for the addition of new names and the elimination
of names that no longer meet parameters.
Risks of Investing in MLPs
•
Rising interest rates
•
Continued weakness in U.S. natural gas prices
•
Stranded infrastructure assets
•
Sharp correction in crude oil prices
•
Change in MLP tax code
•
Decline in broad equity market valuation
Conning • Hartford • new york • London • Cologne • HONG KONG • +1 860.299.2000 • Conning.com
Conning & Company is the parent of Conning, Inc.,
Goodwin Capital Advisers, Inc. and Conning Investment
Products, Inc., a FINRA-registered broker dealer, and
an affiliate of Conning Asset Management Limited, and
Cathay Conning Asset Management Limited (CCAM)
(together, “Conning”). Conning & Company’s parent is
a portfolio company of the funds managed by Aquiline
Capital Partners, LLC (a New York-based private
equity firm,). Conning has offices in Hartford, New York,
London, Cologne, and Hong Kong.
Conning, Inc., Conning Investment Products, Inc., and
Goodwin Capital Advisers, Inc. are registered with the
Securities and Exchange Commission (“SEC”) under the
Investment Advisers Act of 1940. Conning Investment
Products, Inc. is also registered with the Ontario Securities Commission. Conning Asset Management Limited
is Authorized and regulated by the United Kingdom’s
Financial Conduct Authority, and Cathay Conning Asset
Management Limited is regulated by Hong Kong’s
Securities and Futures Commission. Conning primarily
provides asset management services for third-party
assets. Conning predominantly invests client portfolios
in fixed income strategies in accordance with guidelines
supplied by its institutional clients.
Conning, Inc. is registered as an Investment Adviser with
the SEC and has noticed other jurisdictions it is conducting securities advisory business when required by law. In
any other jurisdictions where it has not provided notice
and is not exempt or excluded from those laws, it cannot
transact business as an investment adviser and may not
be able to respond to individual inquiries if the response
could potentially lead to a transaction in securities.
All investment performance information included within
this material is historical. Past performance is not
indicative of future results. Any tax related information
contained within this presentation is for informational
purposes only and should not be considered tax advice.
You should consult a tax professional with any questions.
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