Master Limited Partnerships (MLPs) are publicly traded entities subject to the same accounting, reporting and regulations as a publicly traded corporation. MLP’s are invested in all aspects of energy infrastructure, transportation,
processing, refining, marketing and storage of the nation’s energy resources. These assets include major pipeline systems that deliver products such as natural gas, crude oil and refined fuels. Recent public offerings by master limited partnerships have been made in energy infrastructure including; liquefied natural gas terminals, gas-to-liquids technology, bio-fuel assets, renewable energy assets, and coal gasification projects.
For tax reasons, MLPs are required to distribute at least 90% of their taxable income to shareholders each year from operations. Investors can receive nontaxable income as a result of deductions and depletion allowances which “shelter” the income from taxation. MLPs investment returns have a low historical correlations to other asset classes which can result in an effective investment vehicle to improve a portfolio’s diversification and risk profile.
Master Limited Partnerships are a relatively small, narrowly defined, and concentrated asset class. Even though MLPs have positive investment characteristics, they must be weighed against the potential risks prior to considering any investment:
- Commodity Price Risk
- Correlation Risk
- Liquidity Risk.
A financial advisor can review your current holdings and determine the appropriate investment allocations in this sub-asset class based on an Investment Policy Statement designed to reach your True North.
