Investing in Master Limited Partnerships - Risks and Opportunities

October 3, 2012 / by NEPC

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Master Limited Partnerships (“MLPs”) have attracted increased investor interest in recent years despite being a relatively unknown segment of the global capital markets. This interest has been spurred by strong historical returns, high levels of income yield, and concentration in the energy and natural resources sector. In this paper we describe the MLP segment, assess the relative potential benefits of investing in MLPs along with the associated risks, and place them within the broader opportunity set of energy infrastructure investments.

We find that the MLP segment should not be viewed as a standalone asset class but rather as one component of a natural resources equity or diversified real assets portfolio. MLPs have historically generated attractive returns and yields with the equity-like volatility, increased correlations with other asset classes during periods of market stress, and limited inflation hedging benefits. In this framework, a properly sized MLP allocation may play a role as part of a comprehensive investment approach to the strong expected growth of the energy infrastructure sector.

Topics: Real Assets, White Paper, Research

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