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63 Kercheval Avenue, Suite 222, Grosse Pointe Farms, MI 48236 | 313.882.7100
250 Park Avenue, New York, NY 10017 | 212.572.6401
www.pointecapital.com
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2Todays Agenda
What is a Master Limited Partnership (MLP)?
MLP Investment Opportunity for Public Retirement Plans Summary
Crude & Natural Gas Market Review Weak Prices Now, Higher Prices Later
MLP Asset Class Overview MLPs are a Major Beneficiary of North
American Infrastructure Build-out
MLPs A Misunderstood Asset ClassFact Versus Fiction
Investment Process
Conclusion & Questions
Dawn of a New Era for US Energy
-
3Oil Discovery and the Need for Infrastructure
-
4Modernization of Midstream Energy Infrastructure
Image: Fuel Terminaling and Transportation, Source: www.transmontaignepartners.com
-
5What is an MLP?
A Master Limited Partnership (MLP) is an entity structure of limited partnerships andlimited liability companies, with publicly traded and therefore liquid partnership interests.
MLPs are pass-through entities and consequently are not taxed at the corporate level,eliminating double taxation of traditional corporations. This structure often enables
MLPs to return a high percentage of free cash flow to unit holders.
Source: Alerian
MLP Asset Class Overview
-
6MLP Asset Class Overview
What are the requirements to be an MLP?
90% of income must be derived from qualifying sources1. A qualifying source is income derived from the following activities related to any mineral
or natural resource:
Exploration
Mining
Production
Development
Processing
Refining
Transportation
Marketing
Upstream Midstream Downstream
1 Section 7704(a) of the Internal Revenue Code of 1986
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7MLP Asset Class Overview
Toll Collectors of the Energy Industry
Ambassador Bridge
Paying Toll to Cross
Oil Pipeline
MLP operators receive revenue (incoming fees)
to use the infrastructure
Paying Fee to Cross
Only concerned with the volume of use, not the
value of what crosses
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8MLP Asset Class Overview
Operating Asset
Toll Collector MLP operator earns a fee for
service
Cash Flow
Limited Partners
(Public Unit Holders)
25% Interest
NYSE: PXS
75% Interest
Example MLP Structure
$$$Oil company pays
pipeline company to
transport its oil
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9Why Create an MLP?
MLP Asset Class Overview
Energy Company View
Monetization of assets at fair market value
Lower cost of capital
Sponsor retains control over assets
Tax benefits
Further monetization potential through sale of the general partner
Government View
To create a path to energy independence
Increase capital investment in energy exploration and infrastructure
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10
Who are MLP Operators?
MLP Asset Class Overview
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11
US oil production likely to rise ~5 mm barrels per day (bpd) from 2010 through 2015 as multi-decade effort to optimize new oilfield technology takes hold
By 2030, North America may be energy independent
An $8 trillion infrastructure expenditure required in North America through 2035
Global oil and natural gas prices likely to recover due to higher demand and slow supply growth
MLPs are among the best asset class to benefit from this long term secular trend
Recent crude oil and natural gas price collapse create great entry opportunities in MLPs
There are significant misunderstandings about MLP investing and a lack of investment expertise among investment professionals
MLP Investment Opportunity for Public Retirement Plans - Summary
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12
Crude & Natural Gas Market Review
Image: The famous Lucas Gusher Spindletop, 1901
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13
Global Oil Market Corrects, Price Rebound Likely
Investor misunderstanding of the MLP asset class presents an opportunity
Causes of Steep Drop in Global Oil Price
Stagnant Europe and weaker non-OECD demand
Increasing North American supply
Rising global inventories
Cure for Low Oil Prices is Low Oil Prices
US oil demand responding to low price
QE3 heads overseas to Europe and Asia
Global oil supply additions likely to slow due to low price
Global oil spare capacity remains paltry at 3-4 mm bpd
MLPs are Among the Best Beneficiaries of the Continued North American Energy Infrastructure Build-out
Crude & Natural Gas Market Review
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14
Global Oil Demand Growth Slows Due to Higher Prices, Efficiency Gains, and Weak Economic Growth in Europe
0
10
20
30
40
50
60
70
80
90
100
1994 2004 2013 2014E
Da
ily C
on
su
mp
tio
n m
m b
pd
Rest of World Europe and Eurasia China North America
2013-2014 Compound
Annual Growth Rates
North America 2.0%
Europe & Eurasia -1.5%
1994-2004 Compound
Annual Growth Rates
North America 1.6%
Europe & Eurasia -0.1%
2004-2014 Compound
Annual Growth Rates
North America -0.5%
Europe & Eurasia -0.9%
Source: BP Statistical Review data as of December 31, 2009, Loomis Sayles estimate 2013
China 7.9%
Rest of World 2.3%
China 4.8%
Rest of World 2.2%
China 1.7%
Rest of World 0.5%
Crude & Natural Gas Market Review
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15
Demand Growth Slow Down Coincides with Price Break
$40
$60
$80
$100
$120
0.4
0.6
0.8
1
1.2
1.4
1.6
Jul-13 Sep-13 Nov-13 Jan-14 Mar-14 May-14 Jul-14 Sep-14 Nov-14
WT
I C
rud
e P
ric
e
y/y
ch
an
ge m
m b
pd
IEA Adjusted Outlook for 2014 Global Demand Growth
Source: IEA 2014 World Energy Outlook
2014 Global demand was initially expected to grow by 1.2 mm bpd
Peak expectation rose to almost 1.4 mm bpd
Current expectations are only 0.65 mm bpd after multiple downward revisions
WTI Crude
Price
2014 Global
Demand
Growth
Crude & Natural Gas Market Review
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16
Global Oil Inventory: Builds Ahead
-1
-0.5
0
0.5
1
1.5G
lob
al In
ve
nto
ry B
uil
t (m
m b
pd
)
Q1 Q2 Q3 Q4
2013
Q1 Q2 Q3 Q4
2014
Q1 Q2 Q3 Q4
2015E
Significant Inventory Builds
Source: Evercore ISI Energy Research
Crude & Natural Gas Market Review
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17
US Oil Supply Growth is the Principal Cause of Higher Global Production over the Past 5 Years
80
82
84
86
88
90
92
94
Oil Supply
Oil Supply Growth
US Shale
20
09
US
Canada
Saud
i
Ara
bia
Oth
er
Non
-OP
EC
Oth
er
OP
EC
20
14
E
Glo
bal
Pro
du
ctio
n(m
m b
pd)
Source: IEA, EIA, Evercore ISI Energy Research
Crude & Natural Gas Market Review
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18
US Shale Production Declines with Lower Oil Prices
-1
-0.5
0
0.5
1
1.5U
S C
rud
e O
il P
rod
uctio
n G
row
th (
mm
bp
d)
2015E
2016E
Source: Rystad, Evercore ISI Energy Research
$90 $80 $70 $60 $50
Crude & Natural Gas Market Review
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19
World Oil Demand Likely to Respond to Lower Price, Aggressive Monetary Policy in Europe
0
20
40
60
80
100
2014 2019
Dem
an
d (
mm
bp
d)
OECD Developing Countries Eurasia
2014-2019 Compound
Annual Growth Rates
OECD -0.3%
Developing Countries 2.6%
Eurasia 1.0%
Total 1.1%
Non-OECD demand has been resilient at ~1 mm bpd growth; likely to continue
European economic weakness eventually responds to aggressive monetary policy: approx. 1-1.5% economic growth likely
Demand resumes 1 mm bpd growth post 2014
Lower oil prices act as a demand stimulant
Source: OPEC 2014 World Oil Outlook
Crude & Natural Gas Market Review
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20
OPEC Productive Capacity Stable; Spare Capacity Small (in mm bpd)
November 2013
Production
May 2014
Production
November2014
Production
SustainableProductionCapacity
Spare Capacityvs. November
Production
Algeria
Angola/Cabinda
Ecuador
Iran
Kuwait
Libya
Nigeria
Qatar
Saudi Arabia
UAE
Venezuela
1.13
1.59
0.54
2.71
2.78
0.22
1.89
0.72
9.75
2.66
2.48
1.15
1.62
0.56
2.85
2.80
0.22
1.90
0.70
9.71
2.79
2.50
1.13
1.69
0.55
2.76
2.76
0.69
1.92
0.68
9.61
2.71
2.44
1.17
1.80
0.57
2.90
2.85
0.85
2.00
0.73
12.40
2.90
2.60
0.04
0.11
0.02
0.14
0.10
0.16
0.08
0.05
2.79
0.19
0.16
OPEC-11 26.46 26.79 26.94 30.77 3.84
Iraq 3.10 3.42 3.38 3.40 0.02
TOTAL OPEC 29.55 30.21 30.32 34.17 3.86
NGLs
Crude + NGLs
6.28
35.83
6.36
36.57
6.49
36.80
Source: Simmons & Company International data as of November 2014
Crude & Natural Gas Market Review
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21
Rising Global Oil Demand and Flat OPEC Spare Capacity Suggests that Higher Prices are Likely
0
2
4
6
8
10
12
14
16
0
10
20
30
40
50
60
70
80
90
100
19
75
19
76
19
77
19
78
19
79
19
80
19
81
19
82
19
83
19
84
19
85
19
86
19
87
19
88
19
89
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
Demand (mb/d)
Excess Capacity (mb/d)
Exce
ss C
ap
acity (
mm
bp
d)
De
ma
nd
(m
m b
pd
)
Source: Simmons & Company International
Crude & Natural Gas Market Review
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22
High Correlation of OPEC Utilization Rate to Global Crude Oil Price: OPEC Utilization vs. Quarterly Oil Price (1997-2015)
75% 80% 85% 90% 95% 100%
OPEC Utilization
Source: Bloomberg, IEA, Evercore ISI Energy Research
Crude & Natural Gas Market Review
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23
Global Oil Market Likely to Recover MLPs a Major Beneficiary
Threshold price to grow US production and sustain international production - $65-$90 per barrel
Demand responding to lower US gasoline prices
Global supply additions to slow dramatically in H2 2015
Global oil price likely recovers to $70-$75 per barrel in 2016
MLPs remain a top beneficiary of continued build out of North
American energy infrastructure
Image: Oil rigs in a booming giant oil field in the Los Angeles area (ca. 1900)
Crude & Natural Gas Market Review
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24
Natural Gas - US Supply Growth (Bcf/d)
Source: Williams, Wood Mackenzie North America Gas Service.
Note: Excludes Canadian import volumes of approximately 5 Bcf/d (at 2014 levels).
Crude & Natural Gas Market Review
-
25
Natural Gas - US Demand Growth (Bcf/d)
Source: Williams, Wood Mackenzie North America Gas Service.
Note: Other includes Net Mexican Exports, Transportation, and other miscellaneous demand
Crude & Natural Gas Market Review
-
26
MLP Asset Class Overview
Image: www.naptp.org
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27
MLP Investments for Public Retirement Portfolios
MLP Asset Class Overview
Investment Case for MLPs
The MLP Industry Snapshot
Drivers of Industry Growth
Liquidity & Low Correlations
Image: Salt Cavern Underground Natural Gas Storage Reservoir Configuration
(Source: PB Energy Storage Services Inc.)
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28
Investment Case for MLPs
Growth of US Energy Infrastructure
Stable and Growing Cash Flows
Superior Asset Class Performance
Very Attractive Yield
Growing Asset Class
Low Correlation and Beta to Other Asset Classes
Source: Alerian
MLP Asset Class Overview
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29
The MLP Industry: Three Different Sectors
Source: Pointe Capital Management LLC
Note: Allocations are not targets and the allocation may vary at any time. Please see important disclosures and information at the end of this presentation.
MLP Asset Class Overview
I. CoreII. Semi-core III. Non-core
Characteristics:
Fee based business Take-or-pay long term contracts
(3-7 years)
Low/no commodity risk (less than 10% of revenue)
Participating in build out of North American infrastructure
Primary Business Activities:
Oil & Gas Pipelines Gathering Systems Processing Facilities Liquids Transportation Storage Facilities
Characteristics:
Commodity risk (20%-50% of revenue)
More complex execution risk- Exploration/production risk
- Spread risk in downstream activities
Less fee based operations than Tier I Reduced take-or-pay contracts Participating in build out of North
American infrastructure
Characteristics:
Much higher commodity risk (>50% of revenue)
Typically extends beyond energy infrastructures to include
materials, consumer, industrials,
and other sectors
High execution risks May/may not be fee based models
Primary Business Activities:
Same as Tier I, Plus: Exploration & Production Downstream (marketing, refining) Company business activities
include both Tier I and
Tier II
Primary Business Activities:
Offshore drilling rigs Materials, including soda ash,
aggregates, coal, and other
building block materials
Frac sand manufacturers An expanding list with
limited historical
track records
-
30
Where MLPs Operate in the Value Chain
MLP operators receive revenue for each service in the value chain
MLP Asset Class Overview
-
31
MLP Asset Class Overview
Performance Comparison Across Asset Classes
MLPs have generated a total return of 243% since 2006 (inception of AMZ index). In comparison, the S&P 500 Index generated a cumulative return of 100% during the same
time period.
Source: Pointe Capital Management LLC and Factset
Hypothetical Growth of $10 million2006 2014
$34.3M
$20.5M $20.0M $19.8M
$15.3M
$0M
$5M
$10M
$15M
$20M
$25M
$30M
$35M
$40M
Alerian MLPIndex
Barclays U.S.HY Index
S&P 500 TRIndex
MSCI U.S. REITIndex
Dow JonesUtilities Index
+243% +105% +100% +98% +53%
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32
Asset Class Performance
Utilities
19.9%
IG Bonds
5.2%
MLPs
76.4%
MLPs
35.9%
Utilities
19.2%
Non-US Equity
17.9%
Small Cap
37.0%
Utilities
30.7%
Commodities
16.2%
Hedge Funds
-19.1%
High Yield
63.5%
REITs
28.5%
MLPs
13.9%
REITs
17.8%
S&P 500
32.4%
REITs
30.4%
MLPs
12.7%
Utilities
-27.3%
Non-US Equity
32.5%
Small Cap
25.3%
REITs
8.7%
S&P 500
16.0%
MLPs
27.6%
S&P 500
13.7%
Hedge Funds
12.6%
High Yield
-28.4%
REITs
28.6%
Commodities
16.8%
IG Bonds
7.8%
High Yield
15.4%
Non-US Equity
23.2%
IG Bonds
5.9%
Non-US Equity
11.6%
Small Cap
-34.8%
S&P 500
25.9%A
High Yield
15.1%
High Yield
6.1%
Small Cap
14.6%
Utilities
12.6%
MLPs
4.8%
IG Bonds
7.0%
Commodities
-35.6%
Small Cap
25.2%
S&P 500
15.1%
S&P 500
2.1%
Hedge Funds
7.7%
Hedge Funds
9.7%
Hedge Funds
4.1%
S&P 500
5.6%
S&P 500
-36.6%
Commodities
18.9%
Hedge Funds
10.9%
Hedge Funds
-2.5%
MLPs
4.8%
High Yield
6.6%
Small Cap
3.5%
High Yield
2.1%
MLPs
-36.9%
Hedge Funds
18.6%
Non-US Equity
8.2%
Small Cap
-5.5%
IG Bonds
4.2%
REITs
2.5%
Non-US Equity
3.2%
Small Cap
-2.8%
REITs
-38.0%
Utilities
11.9%
IG Bonds
6.5%
Non-US Equity
-11.7%
Utilities
1.6%
IG Bonds
-2.0%
High Yield
2.5%
REITs
-16.8%
Non-US Equity
-43.1%
IG Bonds
5.9%
Utilities
6.1%
Commodities
-13.3%
Commodities
-1.1%
Commodities
-9.5%
Commodities
-17.0%
2007 2008 2009 2010 2011 2012 2013 2014 Annualized
MLPs
13.3%
Utilities
8.0%
High Yield
7.9%
S&P 500
7.1%
Small Cap
5.5%
IG Bonds
5.0%
REITs
4.8%
Hedge Funds
4.6%
Non-US Equity
2.4%
Commodities
-4.9%
MLP Asset Class Overview
Source: Pointe Capital Management LLC and Factset, 2007-2014
* Returns are based on net asset class returns, represented by the following indices: MLP Alerian MLP Index, S&P500, Non-U.S. Equity MSCI EAFE Index, IG Bonds Barclays U.S. Aggregate Total Return Bond, HY Bonds Barclays High Yield Total Return Index Unhedged, Commodities Dow Jones Commodity Total Return Index, Small Cap Russell 2000 Index, REITs MSCI U.S. REIT Index, Utilities Dow Jones Utilities Average, Hedge Funds Credit Suisse Hedge Fund Index.
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33
Current Yield Spread Provides Excellent Entry Point
Source: Alerian, US Department of Treasury
AMZ
AMZ- 10 Year Spread
10-Year US Treasury
Average Yield Spread: 3.18%
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%1
99
6
199
7
199
8
199
9
200
0
200
1
200
2
200
3
200
4
200
5
200
6
200
7
200
8
200
9
201
0
201
1
201
2
201
3
201
4
201
5
Current spread 4.26% vs. 3.18% average
Advantageous spread provides some higher interest rate protection
MLP Asset Class Overview
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34
MLPs Provide Superior Current Yields vs. Other Asset Classes
1.9% 2.2%
3.2% 3.5%
6.1%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
S&P 500 TRIndex
U.S. 10-YearTreasury Bond
Dow JonesUtilities Index
MSCI U.S.REIT Index
Alerian MLPIndex
Asset Class Current YieldsDecember 31, 2014
Source: Pointe Capital Management, Factset
MLP Asset Class Overview
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35
Distribution Growth Averaged 7% Over 10 Years
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 AverageAnnual
Alerian MLP Index Weighted Average Annual Distribution Growth
Source: Alerian as of 31 December 2014
Distribution growth provides inflation hedge, increases total return to shareholders
MLP Asset Class Overview
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36
Dramatic Increase in Infrastructure Demand
New Technologies Unlock Resources
A multi-decade oilfield technical effort created horizontal drilling and completion, reservoir description and optimization, and perfected hydraulic fracturing and drilling technologies
US crude production is at its highest level in two decades
US natural gas production is at historical highs, shale gas is expected to grow 40% by 2040
Many existing pipelines are running at or near capacity due to significant, recent production increases
Immediate Demand for Additional Infrastructure
Moving crude by rail is a short-term solution
Pipelines needed for takeaway capacity in the Bakken, Permia, Marcellus, Eagle Ford, and Canadian Oil Sands
New oil produced in Canada and the US Northwest needs to get to the refining centers on the Gulf Coast
INGAA estimates that NA will require over $614B in infrastructure investment over the next 25 years
Potential for Export
Domestic natural gas prices have dropped dramatically while international prices remain high
Four LNG export licenses have been approved by the US government with 18 applications still pending
Panama Canal opening in 2015 will allow competitive access to Asian markets from the US Gulf Coast
Oil Sands bitumen needs to be blended with NGLs (diluent) so that it moves smoothly through pipelines
America Needs More Infrastructure to Achieve Energy Independence
MLP Asset Class Overview
-
37
Global Energy Infrastructure Spending Requirements 2014-2035 ($ in Billions)
Average Annual Investments Cumulative
Investments
Historical New Policy Scenario New Policy Scenario
2000-2013 2014-2020 2021-2025 2026-2030 2031-2035 2014-2035
Energy Supply (billion, year-2012 US dollars)
Total 1,230 1,772 1,759 1,830 1,963 40,165
Oil 427 637 608 613 621 13,671
Upstream 320 510 509 513 520 11,284
Transport 54 50 42 39 46 986
Refining 52 77 57 61 55 1,401
Gas 252 357 388 414 453 8,771
Upstream 152 230 272 297 337 6,138
Transport 100 127 116 116 116 2,633
Source: OECD/IEA World Energy Investment Outlook
MLP Asset Class Overview
Over $20 Trillion to be spent globally, 2014-2035
-
38
OECD Americas, Requires ~$8 Trillion in Energy Infrastructure($ in Billions)
Average Annual Investments Cumulative
Investments
Historical New Policy Scenario New Policy Scenario
2000-2013 2014-2020 2021-2025 2026-2030 2031-2035 2014-2035
Energy Supply (billion, year-2012 US dollars)
Total 263 400 375 387 401 8,616
Oil 95 188 168 168 163 3,813
Upstream 79 168 156 156 150 3,488
Transport 7 8 3 2 4 98
Refining 9 13 9 10 9 226
Gas 64 89 92 88 100 2,019
Upstream 46 61 66 62 74 1,433
Transport 18 28 26 26 26 586
Source: OECD/IEA World Energy Investment Outlook
MLP Asset Class Overview
-
39
New Infrastructure Investment to Spur MLP Growth
Source: INGAA as of 28 June 2014
$614 billion would
need to be invested
in North American
infrastructure over
the next 20 years
Crude Storage Laterals,
$1.5
Crude Storage Tanks,
$1.7
Crude Gathering,
$12.7
Crude Oil
Transmission, $63.3
Crude Oil
Equipment,
$192.6
NGL Export, $5.9
NGL
Fractionation,
$21.1
NGL Transmission, $29.0
Natural Gas Transmission, $87.2
Laterals, $45.2
LNG Export,
$43.6
Gathering
Line, $35.6
Gas Lease
Equipment,
$26.9
Gas Storage
Fields, $12.0
Gas Pipeline & Storage
Compression, $11.6
Gas Gathering Line
Compression, $23.5
Natural Gas
Crude Oil
NGL
MLP Asset Class Overview
-
40
Growing Asset Class with Ample and Growing Liquidity
The industry has averaged seven MLP IPOs per year since 2000
The number of energy-related MLPs surpassed 120 in 2014
Industry expansion and adoption creating long term growth and opportunity
Growth in MLP asset class is on par with the REIT industry in market capitalization
$0
$100
$200
$300
$400
$500
$600
2001 2006 2011 2012 2013 2014
Billions
MLP Total Market Value2001-December 2014
Source: Pointe Capital Management LLC and Morgan Stanley, as of December 31, 2014
MLP Asset Class Overview
-
41
MLP Index Correlations with Other Asset Classes Very Low Over Time
Source: Pointe Capital Management LLC and Bloomberg
Note: AMX Index began in June 2006, prior data was created by Alerian through back-testing
MLP Asset Class Overview
Alerian MLP
IndexS&P 500
MSCI EAFE
Index
MSCI U.S. REIT
Index
Dow Jones
Utilities Average
Dow Jones
Commodity Index
Alerian MLP Index 1.00
S&P 500 0.53 1.00
MSCI EAFE Index 0.54 0.90 1.00
MSCI U.S. REIT Index 0.37 0.79 0.72 1.00
Dow Jones Utilities
Average0.45 0.60 0.60 0.48 1.00
Dow Jones Commodity
Index0.44 0.56 0.65 0.37 0.43 1.00
Alerian MLP
IndexS&P 500
MSCI EAFE
Index
MSCI U.S. REIT
Index
Dow Jones
Utilities Average
Dow Jones
Commodity Index
Alerian MLP Index 1.00
S&P 500 0.39 1.00
MSCI EAFE Index 0.38 0.84 1.00
MSCI U.S. REIT Index 0.37 0.78 0.71 1.00
Dow Jones Utilities
Average0.42 0.40 0.38 0.46 1.00
Dow Jones Commodity
Index0.35 0.33 0.45 0.35 0.30 1.00
Index Correlations from 1997-2013
-
42
Date Plan Name State $ Amount Total $ Amount to MLPs % to MLPs
Dec-2013 Texas County & District Retirement System TX $20.8 B $416 M 2%
May-2014 Ohio Police & Fire Pension Fund OH $14.2 B $1.1 B 8%
Jun-2013 Oklahoma Teachers Retirement System OK $11.8 B $826 M 7%
Oct-2014 University of Michigan Board of Regents MI $9.7 B $50 M 1%
Jan-2015 Rhode Island Employees Retirement System RI $8.0 B $160 M 2%
Jul-2013 Detroit Police & Fire Retirement System MI $3.2 B $160 M 5%
Jan-2014 Austin Employees Retirement System TX $2.1 B $105 M 5%
Mar-2013 Denver Employees Retirement Plan CO $1.9 B $133 M 7%
Feb-2013 Tacoma Employees Retirement System WA $1.3 B $38 M 3%
Jun-2014 Central Pennsylvania Teamsters Pension Fund PA $953 M $48 M 5%
Mar-2013 Norfolk Employees Retirement System VA $909 M $46 M 5%
Jun-2014 Grand Rapids Retirement Systems MI $812 M $41 M 5%
Aug-2014 El Paso City Employees Pension Fund TX $701 M $35 M 5%
Mar-2013 St. Louis Employees Retirement System MO $694 M $45 M 5%
Jan-2014 Aurora City General Employees Retirement Plan CO $383 M $19 M 5%
Aug-2014 Lincoln Firemen & Policemen's Retirement System NE $200 M $10 M 5%
Oct-2014 Sarasota General Employees Pension Board FL $143 M $7 M 5%
Oct-2014 Sarasota Firefighters Pension Board FL $136 M $7 M 5%
Aug-2014 Pueblo County Employees Retirement Plan CO $126 M $6 M 5%
Feb-2015 Longboat Key Consolidated Retirement System FL $32 M $2 M 5%
Source: Fin|Daily
MLP Asset Class Overview
Recent Public Pension Fund Allocations to MLPs
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MLPs A Misunderstood Asset ClassFact Versus Fiction
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Fiction
MLPs belong in alternative traunch for institutional investors due to lack of track
record.
MLPs are commodities and belong in hard
asset class due to exposure to commodities.
MLPs A Misunderstood Asset ClassFact Versus Fiction
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Fact
The majority of MLPs have little exposure to commodities and show very low correlation
to commodities or other assets.
MLPs are not materially different than any other equity asset.
Investors are currently allocating MLPs in their portfolios in a variety of ways: Traditional Equity Hard Assets Dedicated Alternative Allocation
MLPs A Misunderstood Asset ClassFact Versus Fiction
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Fiction
The MLP asset class is too small for the institutional investor. Our investment would
be too large of a percentage of MLP AUM
to be properly diversified.
MLPs A Misunderstood Asset ClassFact Versus Fiction
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Fact
The MLP asset class is $600 billion in publically traded securities, roughly
equivalent in size to the REIT industry.
MLPs A Misunderstood Asset ClassFact Versus Fiction
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Fiction
MLPs are only suitable for taxable investors who can take advantage of the
tax beneficial reporting and tax efficient
returns.
MLPs A Misunderstood Asset ClassFact Versus Fiction
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Fact
The tax reporting benefits of MLP investing are a moot point for tax-exempt investors
when considering absolute performance of
the MLP industry. MLP tax exempt
investors have earned returns above most
conventional benchmarks since the birth of
the modern MLP in 1987.
MLPs A Misunderstood Asset ClassFact Versus Fiction
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Fiction
If MLPs were a strong performing asset class they would be more widely
understood, recommended and owned.
MLPs A Misunderstood Asset ClassFact Versus Fiction
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Fact
Investment professionals need to take a fresh look at the MLP investment sector.
There are outdated notions about the MLP
asset class because of substantial industry
growth over the last 5 years.
MLPs A Misunderstood Asset ClassFact Versus Fiction
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Investment Process:
MLP Stock Selection and Portfolio Management
Image: The Detroit City Gas Co. called their gas making/storage locations "Stations". This image shows two
stations in the construction phase in the first half of the 20th century, near the Ambassador Bridge
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Investment Process
How to invest in MLPs
Separately Managed Accounts represent the preferred investment vehicle due to lower fees, favorable tax treatment, and no counter party risk.
ETFs and mutual funds are structured as C-corps and therefore have to pay corporate level taxes on distributions before paying investors. The corporate level tax may present a significant drag on
returns.
ETNs provide similar return characteristics, however they are debt instruments and carry credit risk along with liquidity concerns.
Source: Pointe Capital Management LLC, Factset, Evestment, MLP Data
Active Strategies Passive Strategies
Separate AccountOpen-End Mutual
Fund
Closed-End Mutual
Fund
Exchange Traded
Note (ETN)
Exchange Traded
Fund (ETF)
Investment Tax
StatusPartnership
Taxable
C-corp
Taxable
C-corpTaxable Note
Taxable
C-corp
Taxable at
Corporate LevelNo Yes Yes No Yes
Counter Party
RiskNo No No Yes No
Fee Range 0.75% - 1.00% 1.00% - 2.60% 1.00% - 4.50% 0.56% - 0.95% 0.45% - 0.95%
Avg. Fee 0.90% 1.54% 2.27% 0.84% 0.72%
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Similarly to Traditional Equities, MLP Securities Require a Diligent Research and Selection Process
Investment Process
Sustainable Competitive Advantage
Identify unique, durable elements of the business model
Evaluate barriers, competitor positions, supplier/ buyer positions
Financial Durability
Stress test financial staying power in down economic environments
Measure balance sheet strength and free cash flow generation capability in a variety of economic environments
Management Assessment
Identify managements that effectively allocate capital and utilize transparent financial disclosure practices
Partner with long term management teams who have significant equity stakes
Valuation & Expectation
Analysis
Discounted cash flow analysis to measure investment expectation in current price
EV / EBITDA, relative yield, dividend discount model
Establish base, best & worst case for each security
Revenue & Distribution
Growth
Identify and evaluate sources of longer term growth in revenues and distributions
Emphasis on the identification of long term structural drivers of growth
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What are the Risks?
Limited Capital Markets Access
Broad Equity Market Decline
Sharp Interest Rate Increase
Tax Law Changes
Execution
Investment Process
Image: Natural Gas Piipeline
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Congressional Leaders View MLPs Constructively
Joint Committee on Taxation (JCT)
August 2014 study estimates foregone revenue of $6.3 billion in 2014
Decrease from February 2013 estimate of $7.5 billion
MLP Parity Act
Proposed in House (HR 1696) and Senate (S 795), bipartisan cosponsors
Would grant same tax status to certain renewable fuels
Foregone revenue estimate of $1.5 billion over 10 years
NAPTP Educational Outreach
New revenue numbers are dwarfed by the level of private capital that MLPs have invested to build US energy infrastructure ($113 billion of
infrastructure since 2007) and other contributions to our domestic energy
security.
Abolishing structure would be counterintuitive for viability of US energy independence
Source: GovTrack, Joint Committee on Taxation, NAPTP
Investment Process
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Takeaway Points
Recent collapse in global oil prices now provides an excellent entry point into MLP space
Global oil market likely recovers due to lower supply, higher demand
Rising global energy infrastructure investment is a primary driver of MLP industry growth with an $8 Trillion expenditure
likely through 2035
MLP asset class provides superior yield, returns, liquidity, and upside potential for institutional investors
Investment management in MLP asset class requires deep and broad energy expertise
Conclusion & Questions
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Questions?
Conclusion & Questions
Image: Gas storage tank at the Marathon oil refinery. On I-75 near the River
Rouge/Detroit border
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Disclosures
Pointe Capital Management LLC (Pointe Capital Management), is a Registered Investment Advisory Firmregulated by the United States Securities and Exchange Commission (SEC) and is notice filed in the State ofMichigan and various jurisdictions. Pointe Capital Management is limited to providing investment advisory
services to residents of this state and residents of other states where the firm is notice filed or is exempt from
notice filing.
This presentation contains forward-looking statements and are based on management's current expectations
and assumptions regarding our business, the economy and other future conditions and forecasts of future
events, circumstances and results.
The information provided herein is for informational purposes only and does not constitute a complete
description of the Pointe Capital Managements services. Nothing herein is to be construed as individualfinancial, investment, tax, accounting or legal advice. The information contained in this presentation does not
constitute a distribution, recommendation, an offer to sell, or the solicitation of an offer to buy securities.
Investment advice can only be rendered after delivery of Pointe Capital Managements disclosure brochure(Form ADV Part 2) by Pointe Capital Management and after the proper execution of an advisory agreement
between a client and Pointe Capital Management. A copy of Pointe Capital Managements current ADV 2,which discusses Pointe Capital Managements business operations, services, and fees, is available fromPointe Capital Management upon request or is available through the SECs Advisor Information system.
Investment Management is long-term oriented. General investment viewpoints, financial, or other information
shown in this presentation are for illustration purposes only for review and consideration. No strategy is
without its drawbacks and limitations. Therefore, any strategies that you consider implementing or changes in
your financial situation should be brought to the attention of your professional fee only Investment Advisor.
The information in this report has been obtained from sources Pointe Capital Management believes to be
reliable. While Pointe Capital Management has exercised reasonable professional care in preparing this
report, we cannot guarantee the accuracy of all source information contained within.
Pointe Capital Management reserves the right, and at its sole discretion to change, modify, add or remove any
portion of these terms in whole or in part, at any time. Changes to the terms will be effective when notice of
such changes is posted.
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Disclosures
1. Minimum Investment - The minimum investment may be waived for any reason and at the sole discretion
of Pointe Capital Management. There is no minimum investment requirement for subsequent purchase to
an existing portfolio.
2. Concentration Risk The portfolio in general has concentrated holdings in the energy infrastructuresector. The portfolio also concentrates in a particular type of energy infrastructure security known as
Master Limited Partnerships. Portfolios that concentrate in a particular sector or particular type of security
could experience greater volatility than portfolios that invest in a broader range of investments or securities.
3. Turnover Risk Depending on market conditions and frequency of short term investments, highertransaction fees may be incurred by the portfolio.
4. Liquidity Risk MLPs trade on an exchange on those days that the exchange is open. Certain securitiesmay experience limited trading volume as a result of market capitalization size, number of shares floated
by the company, or other macro or micro circumstances. At times where limited trading volume exists, the
ability to acquire or dispose of a particular security may be limited and could result in a unfavorable impact
on the prevailing market price.
5. Industry Risk MLPs and Energy Infrastructure companies are subject to unique risk in the marketplace.1. Commodity price risk
2. Acquisition risk
3. Depletion of natural gas and/or oil reserve
4. Adverse weather conditions
5. Interest rate risk
6. Terrorist attack
7. Changes in the regulatory environment
6. Tax Risk MLPs were created under the Tax Reform Act of 1986 and the Revenue Act of 1987. If MLPswere treated as a corporation for federal income tax purposes, the amount of cash available for distribution
would be reduced. Also, the distribution may experience a change in taxable nature, such as dividend
income, return of capital, or capital gain.
7. Tax Law Risk A change in current tax law or negative legislation could adversely affect the portfolio orMLP and Energy Infrastructure investments resulting in a loss in the portfolio. A change in tax law or
negative legislation could also impact the amount or composition of distributions from MLPs and Energy
Infrastructure investments.
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63 Kercheval Avenue, Suite 222, Grosse Pointe Farms, MI 48236 | 313.882.7100
250 Park Avenue, New York, NY 10017 | 212.572.6401
www.pointecapital.com