Plan sponsors began to allocate to master limited partnerships regularly in 2011. There were 50 consecutive hires for more than $3.3 billion without any terminations through 2016, according to P&I data. The unique space in the energy industry seemed more resilient to the ups and downs of oil and other energy price swings. Investors since 2014 have experienced significant losses. What now?
Buy high, sell low: Some pension funds that allocated to MLPs have now pulled the plug. Returns were disappointing to say the least. Based on P&I reporting dates, one pension fund allocated to MLPs in 2014 and sold in 2020. The fund's total return would have been around -60% while the S&P returned more than 40% and bonds returned more than 20%.
Distributions down: After consistent levels, including many years of growth, MLPs have seen an erosion of their distributions over the past year. However, according to Alerian's Stacey Morris, "Most constituents are well positioned to afford their payouts given their strong financial positioning or prudent cuts already made."
Value, or value? MLPs, along with the entire energy sector, have seen valuations and share prices collapse in 2020. If distributions can stabilize at current levels, there is a significant valuation gap in MLPs compared with their history and on an absolute basis.