Energy Partnerships’ Record Capital Raising

Master limited partnerships raised $20 billion in debt and $12 billion in follow-on equity in 2010, in addition to initial public offerings—altogether more than in any previous year. Funds that invest in this natural resource niche did well.

Case in point: Kayne Anderson MLP fund, with over $3 billion in assets, returned 43% on net asset value in fiscal 2010, about a percentage point more than the Alerian MLP Index. The fund invests in MLP equity and to a lesser extent debt.

Investors are increasingly interested in the partnerships, no doubt due to the track record. In the past decade the Alerian MLP index returned 19.3% annualized. “We believe that investors are beginning to view MLPs as a distinct asset class,” Kevin McCarthy, chief executive of Kayne Anderson MLP, wrote in a letter to shareholders.

Soaring returns and continuing strong demand have pushed up MLP shares.  Several 2010 deals are trading above their IPO prices.

MLPs sell at a premium to net asset value while other sectors tend to sell at a discount, says Douglas Bond, executive vice president at Cohen & Steers. He advises caution. Last year quite a few MLPs were offered, with shares issued at a premium to NAV, he said, speaking at a webinar.

So far high prices have not discouraged new investment vehicles that specialize in the partnerships-—among new MLP fund offerings is one from Legg Mason.

Another player is Gabriel Hammond,  a former Goldman Sachs energy and MLP analyst, who developed the Alerian MLP index. He left Goldman in 2004 and started his own hedge and mutual fund business.

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One Response to “Energy Partnerships’ Record Capital Raising”

  1. Energy as Coupon « HedgeFundSmarts Says:

    […] risk is that MLP shares can be expensive, with the market price often exceeding net asset value.  But high prices have not discouraged new investment vehicles that specialize in the […]

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