Q Energy Infrastructure & MLP Strategy

Transcription

1 Q Energy Infrastructure & MLP Strategy 1360 East Ninth Street, Suite 1100 Cleveland, Ohio 44114

2 MAI Capital Management Overview MAI s heritage dates back to 1973 Privately held, independent SEC registered investment advisor Manages more than $3.7 billion in client assets* Headquartered in Cleveland, Ohio with offices in the Boston, Jacksonville, and Los Angeles areas Team of 80+ employees *AUM as of December 31, 2015 Page 2

3 Investment Team John Zaller, CFA Chief Investment Officer Portfolio Manager Strategy Highlights Strategy AUM $16MM* Mike Wagner Managing Director Portfolio Manager Strategy Inception December 2009 Jason Putman, CFA Managing Director Portfolio Manager Jerry Gray, CFA Managing Director Portfolio Manager *AUM as of December 31, 2015; Firm-wide total MLP allocation is greater Page 3

4 Energy Infrastructure & MLP Universe MLPs are broadly categorized in three segments: Upstream, Midstream and Downstream The MAI Energy Infrastructure & MLP Strategy focuses primarily on the Midstream segment through publicly traded MLPs, GPs, & C-Corps. The Energy Value Chain Upstream Exploration & Production Midstream Transportation, processing, and storage Downstream Refining and distribution to the end user Page 4

5 The Investment Opportunity: U.S. Energy Renaissance Previously untapped shale reserves have caused a surge in production and boosted the U.S. economy Huge investments are required to move domestic oil and gas from these new sources to end users 1 April 13, Source: IHS report for American Petroleum Institute. Oil & Natural Gas Transportation & Storage Infrastructure. December IHS analysis estimates that between $85 $90 billion of direct capital will go towards oil and gas infrastructure in 2014 and more than $80 billion annually between 2014 and *All costs are reported as real 2012$ values Page 5

6 MAI s Investment Focus: Midstream Energy Companies Midstream Companies with hard assets with increasing replacement value Operate as toll-road businesses for the commodities they transport, process, store and gather which generates revenue on volume moving through their system Typically long-term, take or pay contracts with inflation escalators Involved in natural gas, LNG (Liquefied Natural Gas), and crude oil Securities that trade on major US exchanges Of 143 MLPS currently trading, 43% are Midstream* *Data Source: National Association of Publicly Traded Partnerships, As of December 18, Page 6

7 Why MAI Focuses on Midstream Energy Co s & MLPs We believe Midstream MLPs have been battered in the broad energy sector sell-off but our long-term thesis remains intact: 1. The U.S. Energy Renaissance will continue as the U.S. has become a key incremental supplier to the world. 2. Midstream MLPs have attractive total return potential. 3. MLPs have low correlation with other asset classes. 4. Midstream MLPs often provide distributions that are primarily tax deferred. 5. Even midstream firms with operational insulation from commodity prices are likely to face short-term stock price volatility given elevated correlation with commodity prices. 6. Midstream MLPs often provide inflation protection. 7. MAI s nimble approach to active management is a significant advantage. Page 7

8 Why MLPs are attractive to MAI MLPs have a history of attractive total return 90% 70% Alerian MLP TR Index 7% Yield Index Growth 50% 7% 7% 30% 6% 69% 6% 6% 10% -10% 37% 8% -12% 38% 6% 10% 7% -1% 20% 6% 6% 12% 30% 6% 8% 7% -2% 22% 6% -1% 8% -30% -49% -41% -50% Source: Alerian; Annual yield and index growth. Data as of December 31, This chart does not show the performance of the MAI Energy Infrastructure and MLP Strategy it merely shows the historical total return of the Alerian MLP TR Index. Further, this performance is not a guarantee of future results. Current performance of the Index may be lower or higher than the performance data shown by this graph. The Alerian MLP Index is the leading gauge of large- and mid-cap energy MLPs. The float-adjusted, capitalization-weighted index, which includes 50 prominent companies and captures approximately 75% of available market capitalization, is disseminated real-time on a price-return basis (AMZ) and on a total-return basis (AMZX). Investors cannot invest directly in an index. Page 8

9 Why MLPs are attractive to MAI MLPs have historically offered low correlations to traditional asset classes Correlation Energy MLPs (Alerian MLP AMZ ) To Equities 1 To Fixed Income 2 To REITs Source: Zephyr StyleADVISOR; Correlation of returns. Data for the period January 2006 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 S&P U.S. REIT Index defines and measures the investable universe of publicly traded real estate investment trusts domiciled in the United States. Please note an investor cannot invest directly in an index. Page 9

10 Demand growth for Natural Gas Electricity generation End users of energy are converting from coal-fired generation to natural gas Electricity generation by fuel in the reference case, (trillion kilowatthours) Chart Source: Annual Energy Outlook 2015 with projections to US Energy Information Administration. April 2015 Page 10

11 LNG (Liquefied Natural Gas) Export Opportunity A large spread exists between the price of natural gas in the U.S. and overseas LNG export terminals are being constructed to ship cheaper gas to foreign markets U.S. LNG Export Terminals Approved & Under Construction U.S. - FERC Export Terminal Parent Target Begin Date 5. Sabine, LA: 2.76 Bcfd Cheniere 4Q Hackberry, LA: 1.7 Bcfd Sempra Cameron Freeport, TX: 1.8 Bcfd Freeport Cove Point, MD: 0.82 Bcfd Dominion Late Corpus Christi, TX: 2.14 Bcfd Cheniere Source: FERC. Approved LNG terminals as of October 20, , Page 11

12 Investment Opportunity Recap/Conclusion In conclusion, we believe: U.S. Energy Renaissance is happening right now MLPs are a total return story MLPs have low correlation to traditional asset classes Active management may take advantage of market inefficiencies MLPs have built in inflation mitigation Past performance is no guarantee of future similar results. Page 12

13 Investment Process Midstream universe of MLPs, GPs, & C-Corps Greater than $500M market cap Yield Growth Projects 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/longterm growth Visibility of contracts Disciplined, Repeatable Process: Portfolio Construction Unattractive MLPs Attractive MLPs Watchlist Portfolio Page 13

14 Portfolio Construction High conviction portfolio with meaningful positions (target 15 names) Maintain a watchlist of about 10 names MAI can change weightings to optimize portfolio Optimize for yield and/or growth Optimize to oil and/or gas companies Optimize to companies with staggered long-term contract maturities* Geographic dispersion (no regional bias) *MAI evaluates the underlying MLP(s) Page 14

15 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 15

16 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 Actual daily volume may vary by factors including market conditions and could impact our ability to move in and out of positions. Page 16

17 MAI Energy MLP Composite Performance MAI Energy Infrastructure & MLP Strategy Composite Performance Update: December 31, 2015 Annualized Returns Risk Metrics QTD 1 Year 3 Year 5 Year Since Inception 1 Volatility 1 Beta vs. Market 1 Sharpe Ratio 1 MAI MLP Composite % % 7.22% 10.51% 13.58% 16.39% Alerian MLP Index % % -3.40% 1.47% 6.53% 16.48% S & P % 1.38% 15.13% 12.57% 12.98% 13.09% Calendar Year Performance MAI MLP Composite % 21.68% 9.88% 42.85% 19.98% % Alerian MLP Index % 13.88% 4.80% 27.58% 4.80% % S & P % 2.11% 16.00% 32.39% 13.69% 1.38% 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 17

18 Strategy Risk/Return MAI Energy Infrastructure & MLP standard deviation is 16.39% since inception Risk / Return January December 2015 (Single Computation) 14% 12% MAI Energy Infrastructure & MLP annualized return is 13.58% since inception Return 10% 8% 6% 4% 2% 0% 0% 2% 4% 6% 8% 10% 12% 14% 16% 18% Standard Deviation Past performance is no guarantee of future similar results. Performance is net of fees and expenses; returns include dividends reinvested. Performance for 2015 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 18

19 ANNUAL DISCLOSURE PRESENTATION Year Ending Dec. 31 (unless noted otherwise) MLP Composite Annual Performance Results MLP Composite Benchmark For Information only Total Firm Assets Assets # of Non-Fee Alerian MLP Alerian MLP (USD millions) (USD millions) Accounts Paying Gross Net Index Infrastructure Index , % 21.17% 19.98% 4.80% 7.61% , % 44.24% 42.85% 27.58% 29.48% , % 10.97% 9.88% 4.80% 4.21% , % 22.88% 21.68% 13.88% 16.99% , % 31.58% 30.30% 35.85% 34.98% Past performance is no guarantee of future similar results. Performance for MAI and the indices includes dividends reinvested. MAI Capital Management, LLC ( MAI ) 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 12/31/03-9/30/15. 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. The MAI Energy Infrastructure & MLP Strategy Composite ( MLP Composite ) has been examined for the periods 12/31/09-9/30/15. The verification and performance examination reports are available upon request. Standard deviation of monthly returns for the 3 year period ending December 31 Annual Composite Dispersion % ($ wtd. standard deviation) MLP Composite 14.18% 12.43% 11.53% Alerian MLP Index (benchmark) 13.73% 13.62% 13.56% Alerian MLP Infrastructure Index 13.59% 13.34% 13.04% The 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 December From inception to December 2013 the composite was named the Energy MLP 15 Strategy Composite. 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. In 2010, <5 accounts were in the composite the full year so composite dispersion is not presented. Standard deviation of monthly returns is not shown prior to 2012 as that was the first three year period available. Page 19

20 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. In 2014, the composite contained one non-fee paying account comprising 7% of year end assets. Composite returns are presented net of 1%, therefore the net of fees presentation is not affected by this account. 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. Benchmark history: MAI s disclosure presentation for calendar year 2010 compared the Composite to the Citigroup MLP Index. Lack of transparency into the index constituents and construction methodology led MAI to seek a better benchmark. During 2010 the index provider Alerian eliminated a conflict of interest in by spinning off its asset management business to focus on index administration. In 2011 MAI selected Alerian s MLP Infrastructure Index as a new benchmark. Effective June 30, 2015, MAI retroactively applied the parent Alerian MLP Index as the composite benchmark. The energy industry has been in rapid evolution as assets are being shifted via M&A, dropdowns from integrated firms to limited partnerships, structural changes by entities. Neither Alerian index includes companies structured as C-corps. However, we believe the broader Alerian MLP index, whose 50 constituents include approximately 75% of available MLP market capitalization, better captures the opportunity set in our universe and provides a more representative benchmark for our investment strategy. The Index is float-adjusted and capitalization-weighted. Detailed information about the Alerian Index methodology is available at Direct investment in an index is not possible. The MAI strategy is more concentrated than the index and may include securities outside of the index and master limited partnership structure. Page 20

21 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 21