The Best MLP Analogue I’ve Heard

A correspondent described to me how he views certain MLPs (with Incentive Distribution Rights); I really like the analogue.

I paraphrase him:

“There needs to be a reorientation of perspective in the MLP space related to LP/GP economics. MLP managers promote their project backlogs as if it is a benefit to the LPs, and that it should drive their stocks higher. What people need to understand is that the project backlog is a liability and not an asset.”

“The analogue is investing in the largest hedge fund on the planet, having them charge 50% carry, only being able to invest in a relatively small pool of assets, the manager having limited fiduciary responsibility to you, and requiring constant capital markets access and leverage. Having to give that hedge fund money is a liability — if that partnership interest traded on a secondary exchange it would trade at a huge discount to book value.”

Yup, sounds about right.

— Kaiser