It's been quite a summer for the managed limited partnership provider SteelPath. The firm announced in July it would be acquired by mutual fund behemoth OppenheimerFunds, something Brian Watson, the firm's director of research and portfolio manager calls "validation," not only for SteelPath, but for the MLP space as a whole.
Once thought of as an area for qualified, sophisticated investors who knew the underlying investments well, it's headed downstream to the investing masses, like so many other alternative investment asset classes recently.
"It was time for this sector to have product offerings that were attuned to the fact that it's no longer a teeny, tiny niche," Watson (left) says. "It's beginning to become more of a mainstream asset class."
Watson sat down with AdvisorOne to discuss the Oppenheimer deal and its larger implications for the industry as a whole.
Where are we with the development and adoption of alternative investments, especially in light of 2008 and the correlation the markets experienced?
Watson: Investors are willing to look at an asset class that they hadn't previously looked at. Master limited partnerships still get blank stares from a lot of investors, but the fact that the asset class has gotten a bit more attention is indicative that they're willing to look beyond traditional equity. We benefit relative to other alternatives because they really get more exotic mean. Once you explain the basics of what we offer, it really doesn't require much more education. Also, the OppenheimerFunds announcement we made recently suggests that investors are looking for something different.
MLPs were known for their exclusivity and being very illiquid. Is that loosening up? Are you starting to see a perception change among those investors that know MLPs?
Watson: What's really changed about the MLP marketplace is it's gotten to a market cap and flow that is needed in order for institutions to get interested. If you go back just a few years, market cap and flow was half of where we are today. In the mid-1990s, they began to really develop into its own asset class. It was once a niche; now institutions can really look at them.
