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Wealthy Tiger 21 Members Investing in MLPs

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Master limited partnerships, which provide the tax benefits of a limited partnership with the liquidity of publicly traded securities, are becoming more popular among accredited investors.

MLPs have been a favorite investment of ultra-affluent members of Tiger 21, the peer-to-peer investment group, according to a statement released Tuesday by the organization.

Tiger 21 said that although members’ investment holdings were not recorded, many of those invested in MLPs reported having 5% to 20% exposure in their portfolios.

It said members gained exposure through MLP funds, direct investments into individual MLP equities in members’ personal portfolios or via baskets of these equities managed by advisors.

North America’s booming oil and gas industry appears to have contributed to the ascendance of MLPs, which focus mainly on the energy sector, Tiger 21 said.

Many investors are attracted, among other things, to the income yield these vehicles provide in the current low-interest rate environment and the beneficial tax treatment.

“At Tiger 21, we have benefited from presentations early on by leading MLP sector investors and advisors,” Michael Sonnenfeldt, Tiger 21’s founder and chairman, said in the statement.

Sonnenfeldt said he suspected members’ total MLP holdings over the last year had dramatically outperformed the relevant indexes and benchmarks.

“To be blunt, I believe our process has given members an edge. Our members’ MLP exposure remains historically high and there is an awful lot of deep experience and knowledge that members still appreciate they can mine from each other, but given the growth and maturation of the MLP market, it is difficult to predict the value of that edge going forward.”

Following are observations about MLPs by individual Tiger 21 members, as reported by the organization, which said it neither endorsed member observations or opinions nor warranted their accuracy:

  • MLPs are a great bond substitute, attractive because of current yield and tax-deferral advantages on that yield.
  • MLPs have proven themselves to have stable cash flows that grow relatively consistently over time, and as a result, are considered an inflation hedge by some members.
  • Midstream MLPs that gather and distribute oil and gas through pipelines, but do not explore and produce, have limited commodity price exposure.
  • MLPs’ asset value underpinning is stronger than the typical operating company, making MLP companies less likely to go bankrupt.
  • MLPs’ income and cash distributions are less vulnerable to economic corrections. Despite some volatile price moves, particularly in 2008, underlying cash flows have remained constant on an upward trend.
  • MLPs’ yield currently outperforms the S&P.
  • If America is going to develop a serious natural gas export capacity, MLPs will be positively affected as more pipelines will need to be built and serviced to support new export terminals that may also be owned by MLPs.
  • MLP valuations have suffered in the short term when interest rates have spiked because many investors consider them bond substitutes, but historically, they have recovered lost ground relatively quickly.
  • Despite constant rumors about tax law changes that could affect MLPs, most Tiger 21 members consider dramatically negative changes unlikely because MLPs are a very important player in the development of the country’s energy resources.
  • Some members believe valuations in a portion of traded MLPs are at risk because they have underreported maintenance and repair costs on existing pipelines in order to increase allowable cash flow and inflate valuations. Moreover, they believe, these inflated valuations have been sustained by use of new capital raised for expansion to fund maintenance and repairs.


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