We believe midstream energy companies are changing for the better. After the MLP business model was called into question in recent years for its reliance on capital markets, the industry has now begun to adopt better practices focused on management alignment with unitholders and returns on invested capital. This welcome shift comes at a time of positive trends in midstream fundamentals, which we believe will drive improved performance over time.
- Strengthening midstream fundamentals: Broadly stable energy prices have prompted record production volumes, while exports are creating new sources of demand.
- Shift to MLP 2.0: Whereas the old business model focused on maximizing distributed cash, the new paradigm focuses on return on invested capital—improving long-term growth potential and attracting greater institutional interest.
- Discounts to private-market values: Private equity investors are acquiring midstream assets at cash flow multiples well above current public MLP valuations, signaling potentially attractive values in listed companies.