Most investors acquaintance booms and busts over their careers. Tyler Rosenlicht, now 33, accomplished bliss and agitation in two altered sectors over his aboriginal decade on the job.
There was the banking crisis, during which time Rosenlicht formed as an advance broker focused on absolute estate. Then he aing Cohen & Steers as an analyst accoutrement activity aback the hydraulic-fracturing bang started active up prices of adept bound partnerships, or MLPs, which store, transport, refine, and bazaar oil, accustomed gas, and gas liquids—all of which are accepted as “midstream” businesses.
A few years later, he became a co-manager of the $164 actor Cohen & Steers MLP & Activity Opportunity armamentarium (ticker: MLOAX) aloof in time for oil prices to collapse. The fund, which Rosenlicht manages with Robert Becker and Benjamin Morton, alone 39% in 2015. It has aback recovered and ranks in the top quartile of its Morningstar activity bound affiliation class in the years since, and is assault 88% of its aeon over the accomplished three years.
“The two things that absolutely amount for midstream companies are activity volumes and counterparty risk,” Rosenlicht says, aback best midstream companies accept abiding affairs with activity companies. “In 2015 and aboriginal 2016, both of those were actuality alleged into question; volumes declined, and there was affair over activity apropos activity broke and those affairs actuality ripped up and befuddled away.”
Today, Rosenlicht says, we’re in the bosom of addition tectonic shift. “We’re seeing a affecting about-face of North American activity infrastructure,” he says. “We’re activity from a abode area we anticipation we would charge to acceptation all of our oil and gas, to a abode area we will be a net exporter in the not-so-distant future.”
The companies themselves are additionally in the average of change, as abounding of the bigger names are alteration their anatomy to what Rosenlicht calls MLP 2.0. The aboriginal bearing of midstream oil companies about comprised at atomic two entities: a bound partnership, which owns the assets, and a accepted partner, which operates the MLP. “That archetypal formed absolutely able-bodied for a continued time, but it isn’t sustainable,” says Rosenlicht. Among added issues, acceptable MLPs are incentivized to administer all accessible banknote to investors, acceptation that it charge accession funds or booty on debt to armamentarium new projects.
Now, midstream goliaths are rolling up operations into distinct entities, convalescent governance, and arch boards to booty a abiding appearance on how they administer assets and banknote flow. Among the fund’s top 10 holdings—which annual for about 59% of assets—all but one accept confused to the new archetypal or are in the action of accomplishing so. (Because of MLPs’ abnormal structure, best alternate funds, Rosenlicht’s included, authority no added than 25% of assets in them.)
One archetype is Kinder Morgan (KMI), the fund’s bigger holding. Kinder, which owns and operates added than 80,000 afar of pipelines in North America, formed itself into a distinct commodity in backward 2014. “They are absolutely a free-cash-flow-generating business, and are altered in that they’re one of the few companies in the midstream cosmos currently affairs aback stock,” he says.
While MLP investors accept commonly focused on yield, Rosenlicht and his aggregation attending at net asset value, or what a business would be account if awash for the sum of its genitalia at fair bazaar value. Kinder, like abounding of its peers, is trading beneath NAV, he says. Private-equity funds accept been affairs midstream companies at 12 to 13 times balance afore interest, taxes, depreciation, and amortization, while accessible markets are appraisement them at 11 times Ebitda.
This action is guided by top-down decisions from the firm’s Best of Activity group, or BOE, which additionally stands for of equivalent. Twice a month, Rosenlicht and 15 analysts and managers accoutrement commodities, resources, and added activity areas, accumulate to anatomy a atypical appearance on all-around energy.
Their accepted thesis: The dynamics that aching midstream companies a few years ago accept about flipped. Population advance accompanying with able economies about the apple are active activity use, but, as a aftereffect of the downturn, new projects accept been apathetic to appear online.
Enterprise Articles Partners (EPD) is benefiting from such a bottleneck. The company, which adopted the distinct commodity archetypal in 2011, owns and operates basement that finer takes accustomed gas “from the bubbler to the dock,” says Rosenlicht, who has been architecture the position aback aboriginal 2018. Of accurate value, is EPD’s adeptness to fractionate accustomed gas liquids (NGL) into altered products. Ethane, he says is in aerial demand, and processing plants can’t accumulate pace. Consequently, the amount of ethane per gallon has added than doubled. The banal afresh traded at $28 a allotment against what Rosenlicht pegs as a mid-$30s fair value.
While the armamentarium invests alone in midstream companies, altered business models assignment bigger in altered environments; for example, some are added or beneath allowed to oil-and-gas amount changes, while others are correlated. Likewise, some midstream players are bigger positioned to account from a about-face to exporting U.S. activity products, as against to importing.
Case in point: Cheniere Activity (LNG), which specializes in abounding accustomed gas for exporting and re-gasifying LNG for importing. The aggregation was set up to catechumen alien gas but auspiciously pivoted its operations to liquefying gas for export. “They were a aboriginal mover,” says Rosenlicht, acquainted that this is a cogent advantage, accustomed the aerial amount and time bare to get accessories operating.
The BOE accumulation saw the abeyant for exporting U.S. energy, bidding Rosenlicht and his aggregation to body a position in Cheniere through 2016. The banal afresh traded a $60, but the midstream aggregation still sees incremental upside, decidedly aback factoring in approaching projects.
Cheniere is additionally abnormal because it doesn’t pay a dividend, reinvesting its chargeless banknote into new accessories instead—and architecture abiding amount for shareholders.
Corrections & Amplifications An beforehand adaptation of this commodity afield declared that Enterprise Articles Partners fractionates liquified accustomed gas. The aggregation fractionates accustomed gas liquids.
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