Energy Infrastructure & MLP Strategy

Transcription

1 Q Energy Infrastructure & MLP Strategy 1360 East Ninth Street, Suite 1100 Cleveland, Ohio MLP Strategy 2014 Q4

2 MAI Firm Overview Independence and Innovation Who We Are Heritage dating back to 1973 Privately held, independent SEC registered investment advisor Manages more than $3.7 billion in client assets* Headquartered in Cleveland, Ohio Team of 80+ employees Multi-Family Office Customized Investment Advice and Family Office Services Wealth Management Proprietary Alternative Strategies Unique Risk-Managed Solutions MANAGE. ADVISE. INNOVATE. *AUM as of December 31, 2014 Page 2

3 MAI Energy Infrastructure & MLP Strategy Strategy Highlights Mike Wagner Managing Director, Portfolio Manager Strategy AUM $48MM* Strategy Inception December 2009 John Zaller, CFA Co-Chief Investment Officer, Portfolio Manager Performance % year-to-date 24.46% annually since inception Volatility lower than the Alerian Infrastructure Index 2 Jerry Gray, CFA Co-Chief Investment Officer, Portfolio Manager *AUM as of December 31, 2014; Firm-wide total MLP allocation is greater 1 Performance figures are preliminary, unaudited and net of fees and expenses and include dividends. Past performance is no guarantee of future similar results. Information on this page is supplemental to the full Annual Disclosure found at the end of this presentation. 2 Volatility measured as standard deviation of monthly returns. Page 3

4 MAI s Thesis We believe: 1. Midstream MLPs may potentially offer double digit total returns 2. Midstream MLPs may provide cash flow that could be tax deferred 3. MLPs have low correlation with other asset classes 4. The U.S. Energy Renaissance is in early stages 5. North American midstream operations are likely insulated from global shocks 6. Midstream MLPs may potentially offer inflation protection 7. MAI s nimble approach to management is a significant advantage Page 4

5 MAI s Focus: Midstream Midstream Transportation, processing, storage and gathering Toll takers with long-term contracts Counterparties are typically investment grade credits Insulated from commodity price swings (equals less volatility) History of cash flows paid to investors & potential to grow cash flow (with inflation protection) Comprises approximately 45% of the 147 MLPs currently trading* *Data Source: National Association of Publicly Traded Partnerships, As of December 31, 2014 Page 5

6 Total Return Opportunity Midstream MLPs have a history of attractive yield and growth Alerian MLP Infrastructure Index 100% Yield 80% 7% Index Growth 60% 7% 6% 40% 20% 0% 47% 8% -10% 47% 6% 17% 7% 2% 6% 29% 6% 5% 13% 78% 6% 29% 6% 11% 6% -2% 6% 24% 6% 2% -20% -52% -40% 12/31/01 12/31/02 12/31/03 12/31/04 12/30/05 12/29/06 12/31/07 12/31/08 12/31/09 12/31/10 12/30/11 12/31/12 12/31/13 12/31/14 Source: Alerian; Annual yield and index growth. Data as of December 31, 2014 The Alerian MLP Infrastructure Index is comprised of 25 energy infrastructure Master Limited Partnerships (MLPs) that provides investors with an unbiased, comprehensive benchmark for this emerging asset class. Investors cannot invest directly in an index. Past performance is not indicative of future results. Page 6

7 Correlation Midstream MLPs have historically offered low correlations Correlation To Equities 1 To Fixed Income 2 To REITs 3 Energy MLPs (Alerian MLP Infra.) Source: Zephyr StyleADVISOR; Correlation of returns. Data for the period January 2005-December The S&P 500 Index is widely regarded as the best single gauge of large cap U.S. equities. 2 The Barclays U.S. Aggregate Bond Index is a broad-based bond index comprised of government, corporate, mortgage and asset-backed issues, rated investment grade or higher, and having at least one year to maturity. 3 The FTSE NAREIT All REITs Index is a headline index that consists of all publicly traded REITs in accordance with Rule It is not free float adjusted, and constituents are not required to meet minimum size and liquidity criteria Page 7

8 MAI Investment Process Dynamic process to intimately analyze, construct and manage the risk-balanced portfolio Intimate Analysis Nimble Management Portfolio Construction Risk Controls Page 8

9 MAI Intimate Analysis Midstream universe of MLPs, GPs, & C-Corps Greater than $500M market cap Consistent Yield Consistent Growth Consistent Projects Analysis Debt to EBITDA Projected 5-year distribution growth rate Strong general partner Distribution coverage ratio Enterprise value to EBITDA Management Transparency Price-to-cash flow/long-term growth Visibility of contracts Page 9

10 MAI Portfolio Construction High conviction portfolio with meaningful positions (target 15 names) Maintain a watchlist of about 10 names Portfolio Diversity of contract length (ladder)* Geographic dispersion Balance of yield and growth Balance of oil/gas companies *We evaluate the underlying MLP(s) Page 10

11 MAI Risk Controls Regular portfolio monitoring Minimum quarterly portfolio rebalance Risk Controls Category MAI Control Quantitative # Holdings Max position size Equal weight at cost; 5% min, 7.5% max Cash position Max 10% Qualitative Projects Long-term contracts Re-rate Risk Visibility of contracts Balance Yield/Growth, Oil/Gas, Geography Page 11

12 MAI s Nimble, Active Management Liquidity to typically move in and out of positions in less than one day Strategy is not constrained by company format (GP, LP, C-Corp) Greater flexibility to invest in smaller cap Midstream MLPs Page 12

13 MAI s Nimble Investment Approach Components of the Alerian MLP index have had significant dispersion MAI s nimble management seeks to take advantage of opportunities and reduce risk % Alerian MLP Index Constituent Total Returns 3/28/13-3/31/ % 85.00% 65.00% Alerian MLP Index: AMZ Total return: 8.54% 45.00% 25.00% 5.00% % % PSXP EQM ENLK NMM NGL ACMP SXL ARLP FGP MMP MPLX SEP NGLS MEMP BPL EPD MMLP GEL RGP EXLP TLLP WES TOO SDLP VNR DPM ETP QRE NS MWE BBEP AMZ TGP TCP WPZ PAA APU SPH APL CMLP OKS LGCY EEP GMLP ARP KMP LINE CLMT NRP EPB EVEP Source: Bloomberg, Alerian & MAI Capital Management; Data as of March 31, 2014 The Alerian MLP Infrastructure Index is comprised of 25 energy infrastructure Master Limited Partnerships (MLPs) that provides investors with an unbiased, comprehensive benchmark for this emerging asset class. Investors cannot invest directly in an index. Past performance is not indicative of future results. Page 13

14 MAI s Nimble Management: An Example Format flexibility to sell MLP and purchase GP Liquidation of MLP position took less than one trading day Cumulative Return Sold: MLP format Performance plateau Total time to liquidate: 1 trading day Purchased: General Partner Projected greater distribution growth rate MLP GP #1 MLP # Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7 Month 8 Month 9 Month 10 Month 11 Month 12 Month 13 Month 14 Source: Bloomberg & MAI Capital Management Past performance is no guarantee of future similar results. Performance is net of fees and expenses; returns include dividends reinvested. Page 14

15 MAI Energy MLP Composite Performance MAI Energy Infrastructure & MLP Strategy Composite Performance Update: December 31, 2014 Annualized Returns Risk Metrics Q4 YTD 1 Year 3 Year Since Inception 1 Volatility 1 Beta vs. Market 1 Sharpe Ratio 1 MAI MLP Composite % 19.98% 19.98% 23.49% 24.46% 13.15% Alerian MLP Infrastructure Index % 7.61% 7.61% 13.24% 18.06% 13.39% S & P % 13.69% 13.69% 20.41% 15.45% 13.00% Calendar Year Performance MAI MLP Composite % 21.68% 9.88% 42.85% Alerian MLP Infrastructure Index % 16.99% 4.21% 29.48% S & P % 2.11% 16.00% 32.39% Notes: 1 Calculated from market close on December 31, Volatility is measured as standard deviation of monthly returns. 2 Performance figures are preliminary, unaudited and net of fees and expenses and include dividends. Past performance is no guarantee of future similar results. 3 Index data provided by Zephyr. The S&P 500 Index is presented for information only as a proxy for the U.S. equity market. Information on this page is supplemental to the full Annual Disclosure found at the end of this presentation. Page 15

16 Strategy Risk/Return January 2010 December 2014 MAI Energy Infrastructure & MLP standard deviation is 13.15% since inception MAI Energy Infrastructure & MLP annualized return is 24.46% since inception Past performance is no guarantee of future similar results. Performance is net of fees and expenses; returns include dividends reinvested. Performance for 2013 is preliminary. Calculated with monthly data since inception unless noted otherwise. Information on this page is supplemental to the full Annual Disclosure found at the end of this presentation. Page 16

17 Outlook Future MLP Environment U.S. Energy Renaissance Multi-year infrastructure growth visibility Infrastructure to support exports Page 17

18 U.S. Energy Renaissance Previously untapped shale reserves have caused a surge in production Significant shale gas, crude oil, NGL midstream infrastructure needs Source: EIA. 2011; U.S. Energy Mapping System Page 18

19 Continued Industry Growth IHS analysis estimates that between $85 $90 billion of direct capital will go towards oil and gas infrastructure in 2014 and more than $80 billion annually between 2014 and U.S. Direct Capital Investments Year by Year $ Billion *All costs are reported as real 2012$ values 1 Source: IHS report for American Petroleum Institute. Oil & Natural Gas Transportation & Storage Infrastructure. December 2013 Page 19

20 Early in Export Opportunity In 2012, the U.S. became a net exporter of liquefied petroleum gases (including NGLs) for the first time. LNG exports: 7 approved facilities, 23 applications In 2011, the U.S. exported more petroleum products, on an annual basis, than it imported for the first time since Source: U.S. Energy Information Administration, Annual Energy Outlook 2013 Page 20

21 Conclusion Conclusion U.S. Energy Renaissance is happening right now MAI has a very nimble approach to management MAI Energy Infrastructure & MLP strategy has exceptional performance Past performance is no guarantee of future similar results. Page 21

22 Appendix Page 22

23 Strategy Performance Analysis January 2010 December 2014 vs MLPs Return (%) Std Dev (%) Downside Risk (%) Beta vs. Market Alpha vs. Market (%) R-Squared vs. Market (%) Sharpe Ratio Tracking Error vs. Market (%) MAI Energy MLP Composite Net Alerian MLP Infrastructure vs Equities Return (%) Std Dev (%) Downside Risk (%) Beta vs. Market Alpha vs. Market (%) R-Squared vs. Market (%) Sharpe Ratio Tracking Error vs. Market (%) MAI Energy MLP Composite Net S&P Past performance is no guarantee of future similar results. MAI performance for the most recent period is preliminary. All performance includes dividends and is net of fees and expenses. Information on this page is supplemental to the full Annual Disclosure provided at the end of this presentation. Source: Zephyr StyleADVISOR Page 23

24 Strategy Performance Analysis January 2010 December 2014 Downside Table Standard Deviation Semi Standard Deviation # of Down Periods Average Down Return Maximum Drawdown Downside Deviation (MAR = 0.00%) Downside Deviation (MAR = Cash Eq.) Sortino Ratio (MAR = 0.00%) MAI Energy MLP Composite Net Alerian MLP Infrastructure 13.15% 9.13% % % 5.76% 5.77% % 9.18% % % 6.58% 6.59% 2.74 Drawdown Table Max Drawdown Max Drawdown Begin Date Max Drawdown End Date Max Drawdown Length Max Drawdown Recovery Date Pain Index Pain Ratio Omega (MAR = 0.00%) MAI Energy MLP Composite Net Alerian MLP Infrastructure % Sept-14 Dec-14 4 N/A 1.54% % Sept-14 Dec-14 4 N/A 1.67% Past performance is no guarantee of future similar results. MAI performance for the most recent period is preliminary. All performance includes dividends and is net of fees and expenses. Information on this page is supplemental to the full Annual Disclosure provided at the end of this presentation. Source: Zephyr StyleADVISOR Page 24

25 Periodic Returns January 2010 (Inception) December 2014 Since Inception (12/31/2009) Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Year MAI Energy MLP Composite Net Alerian MLP Infrastructure S&P Past performance is no guarantee of future similar results. MAI performance for the most recent period is preliminary. All performance includes dividends and is net of fees and expenses. Information on this page is supplemental to the full Annual Disclosure provided at the end of this presentation. Source: Zephyr StyleADVISOR Page 25

26 Sample List of Energy MLPs followed by MAI as of January 14, 2015 Est. L.T. Business Description Market Cap ($ mm) Yield Growth Rate Nat Gas Pipeline / LNG $ 27, % 12% NGL/Nat Gas Pipelines $ 61, % 5% Nat Gas Pipelines $ 4, % 15% Refined Products Pipes/Storage $ 17, % 9% Natural Gas G&P $ 10, % 6% Crude Oil Transport & Logistics $ 17, % 14% Refined / Oil Pipes & Terminals $ 8, % 12% Crude Oil Pipeline / Storage $ 2, % 20% Nat Gas G&P, NGL/Crude pipes $ 11, % 18% Natural Gas G&P / NGLs $ 4, % 5% Crude Oil Pipelines / Logistics $ 4, % 8% crude oil/refined prod pipeline $ 5, % 16% Natural Gas G&P / NGLs $ 3, % 10% Crude Oil Gathering / Pipelines $ 4, % 13% Nat Gas Pipelines $ 30, % 10% Average $ 14, % 12% Source: Bloomberg, Prices & Data as of January 14, 2015; Estimated Long Term Growth Rates: MAI Page 26

27 Master Limited Partnerships Team Mike Wagner, Managing Director Mike joined MAI in June Prior to joining MAI, Mike was the Director of Fixed Income at Northern Trust acquired LakePoint Investment Partners where he where was responsible for investment strategies involving quantitative analysis and research, trading, and portfolio management. He then transitioned to a Portfolio Manager managing multi-asset class portfolios for individuals and institutions. Mike earned his BS from Cornell University and an MBA from the University of California at Los Angeles. John Zaller, Co-Chief Investment Officer, CFA John joined MAI in 2006 as an intern in the investment department at MAI where he participated in due diligence on MAI's outside equity managers and researched individual equities. After graduating in 2007, Mr. Zaller joined MAI full-time and now is Co-Chief Investment Officer and Portfolio Manager and a member of MAI s investment committee. John earned his BA from the University of Dayton in Finance and Business Economics. He graduated summa cum laude, ranking first in his class in both degree programs. John holds the Chartered Financial Analyst designation and is a member of the CFA Society of Cleveland. Jerry Gray, Co-Chief Investment Officer, CFA Jerry has been with MAI since Prior to that, he was the Chief Investment Officer of MAI s predecessor. Jerry s previous work experience includes serving as Vice President, Senior Trust Officer and Investment Analyst for National City Bank. He is a member of MAI s investment committee. Jerry earned his BS from State University of New York and an MBA from Georgia State University. Jerry holds the Chartered Financial Analyst designation and is a member of the CFA Society of Cleveland. Page 27

28 ANNUAL DISCLOSURE PRESENTATION Total Firm Alerian MLP for information Assets Assets # of Non-Fee Infrastructure (USD millions) (USD millions) Accounts Paying Gross Net Index only , % 44.24% 42.85% 29.48% 32.39% 0.34 Year Ending Dec. 31 (unless noted otherwise) MLP Composite MLP Composite Annual Performance Results Benchmark S&P 500 Index Annual Composite Dispersion % ($ wtd. standard deviation) , % 10.97% 9.88% 4.21% 16.00% , % 22.88% 21.68% 16.99% 2.11% , % 31.58% 30.30% 34.98% 15.06% NM 1 For the full year, fewer than 5 accounts were in the composite; there is no meaningful measure Standard deviation of monthly returns for of dispersion. the 3 year period ending December MLP Composite 12.43% 11.53% Past performance is no guarantee of future similar results. Performance for MAI and Alerian MLP Infrastructure Index 13.34% 13.04% the indices includes dividends reinvested. MAI Capital Management, LLC ( MAI ) S&P 500 Index - for information only 12.11% 15.30% claims compliance with the Global Investment Performance Standards (GIPS ) and has prepared and presented this report in compliance with the GIPS standards. MAI has been independently verified for the periods 12/31/03-12/31/2013. A copy of the verification report(s) is/are available upon request. Verification assesses whether (1) the firm has complied with all the composite construction requirements of the GIPS standards on a firm-wide basis and (2) the firm s policies and procedures are designed to calculate and present performance in compliance with the GIPS standards. Verification does not ensure the accuracy of any specific composite presentation. The MAI Energy Infrastructure & MLP Strategy Composite ( MLP Composite ) includes separately managed, fully discretionary accounts under management in MAI s strategy to achieve performance through capital appreciation and distributions from investments in publicly traded partnerships particularly those that focus on energy transportation, and related corporations such as general partners. This is a concentrated energy sector portfolio that may have risks, including federal tax policy risks not present in a more diversified portfolio. Each MLP issues an annual Schedule K-1 to characterize the distributions, e.g. how much is a return of capital that impacts the cost basis. Investments in MLPs may result in taxable Unrelated Business Taxable Income (UBTI) that can be problematic for certain tax deferred or tax exempt accounts; seek tax advice for your account type before investing in MLPs. The strategy inception was December 31, 2009; the composite was created in From inception to December 2013 the strategy was named the MAI Energy MLP 15 Strategy. New accounts that have a value of at least $100,000 at the time of funding are included the first full month after they are fully invested; accounts are removed from the composite if they fall 20% or more below the minimum size at the end of a month. Standard deviation of monthly returns is not shown prior to 2012 as that was the first three year period available. Page 28

29 ANNUAL DISCLOSURE PRESENTATION (CONTINUED) MAI is an independent investment advisor registered with the Securities and Exchange Commission. It was originally established as Investment Advisors International, Inc (IAI) in 1973, and was an affiliate of International Management Group (IMG). In 2000, McCormack Advisors International, LLC (McCormack) was formed to succeed to IAI s business as a joint venture between IAI and a major integrated financial institution. In 2002, the joint venture was dissolved and the firm returned to its roots as a provider of independent financial advice to its clients. McCormack became fully independent of IMG in On January 31, 2007, BC Investment Partners, LLC (BC), also independently owned, acquired McCormack and renamed the merged firm MAI. MAI has retroactively applied the GIPS calculation and methodology so that it could meet the five year requirement to begin claiming compliance as of December 31, On October 6, 2014 the firm name changed to MAI Capital Management, LLC. For GIPS purposes MAI includes discretionary and non-discretionary accounts in Total Firm Assets; MAI includes assets subadvised by another firm as long as MAI has discretion over the selection of the subadvisor. The firm maintains a complete list and description of composites, which is available upon request. Policies for valuing portfolios, calculating performance, and preparing compliant presentations are also available upon request. Composite returns are presented net of the highest MAI advisory fee charged to any account in the composite, 1% annually. MAI s fee schedule for separate accounts managed in the strategy is 1% annually. Actual investment advisory fees incurred by clients may vary depending on, among other things, the portfolio size and any difference in negotiated fees. The U.S. Dollar is the currency used to present performance. Additional information regarding policies for calculating and reporting returns is available upon request. Individual account performance varies from the composite return. Returns reflect the reinvestment of dividends and other distributions, and are net of commissions and transaction costs. The Alerian MLP Infrastructure Index, comprised of 25 energy infrastructure Master Limited Partnerships (MLPs), is a liquid, midstreamfocused subset of the Alerian MLP Index (NYSE: AMZ). The index constituents earn the majority of their cash flow from the transportation, storage, and processing of energy commodities. The index, which is calculated using a capped, float-adjusted, capitalization-weighted methodology, is disseminated on a total-return basis under NYSE ticker AMZIX. The index was launched on March 20, Data prior to this period is back-tested by Alerian. Data from Alerian is believed to be reliable but is not guaranteed. More information is available at Direct investment in an index is not possible. The MAI strategy may include securities not in the index. MAI s disclosure presentation for calendar year 2010 compared the MLP15 Composite to the Citigroup MLP Index; MAI has changed to the Alerian Index for which information is much more readily available, including transparency into index constituents and construction methodology. The S&P500 Index is presented for information only. It includes 500 companies in leading industries of the U.S. economy. Although the S&P 500 focuses on the large cap segment of the market, with approximately 75% coverage of U.S. equities, is used as a proxy for the total market. S&P 500 is a registered trademark of Standard & Poor s Financial Services LLC., a subsidiary of The McGraw-Hill Cos. Page 29

30 Contact Information Scott Roulston, Managing Director Office: Mobile: This strategy is for consideration by high net worth or institutional investors only after a financial advisor or MAI portfolio manager has reviewed the risk factors and suitability given the risk tolerance and investment objectives of the prospective investor. THIS IS NOT A RECOMMENDATION TO BUY OR SELL ANY SECURITY. This is a concentrated energy sector portfolio that may have risks, including federal tax policy risks not present in a more diversified portfolio. The information contained herein is derived from sources believed accurate but not guaranteed. Prices, yields and availability will change with market movement. There is no guarantee future yields will be similar. This is intended only for the use of the individual or entity to which it is addressed from MAI and contains information that is confidential. If the reader of this message is not the intended recipient, you are notified that any disclosure, distribution or copying is prohibited. Please notify us toll-free at and return the original document to MAI Capital Management, LLC 1360 E. 9 th St. Ste. 1100, Cleveland, OH Page 30