President and CEO of leading master limited partnership index provider discusses how his products work with ETF and ETNs.
“Structure Matters,” by Dan Weiskopf, portfolio manager of Access ETF Solutions, examines issues about ETF structures in a series of interviews with ETF portfolio managers, index developers and other people who affect the structure of ETFs. The goal of the series is to highlight the different operating roles that individuals have that make the ETF structure work well for the investor.
In this installment, Weiskopf interviews Kenny Feng, president and CEO of Alerian, which is an independent provider of master limited partnership and energy infrastructure market intelligence. Its benchmarks include the flagship Alerian MLP Index. More than $16 billion in assets is directly tied to the Alerian Index Series.
Dan Weiskopf: Tell us a little bit about your background, a little bit about Alerian, and of course, why the ETF wrapper is so fitting for what is really a tax-efficient vehicle [MLPs] to begin with.
Kenny Feng: Before joining Alerian, I was a research analyst at Goldman Sachs covering MLPs and utilities. Our company’s vision is to equip investors to make informed decisions about MLPs and energy infrastructure.
We are best known for the Alerian MLP Index (AMZ), which we launched in June 2006 as the first real-time MLP index. We have since launched five additional indexes, provided market intelligence for the MLP stakeholder community, and licensed our indices to third parties for the creation of various funds and investment vehicles that have about $16 billion in assets today.
If you are a U.S. taxable investor who is comfortable building your own portfolio and dealing with state filings and K-1s, you’ll be better off owning MLPs directly, because as you mentioned, MLPs are a tax-efficient vehicle to begin with. For everyone else, there are more than 70 MLP funds now available in the marketplace.
The ETF wrapper is a popular one, because—as is the case with other asset classes—it provides relatively transparent access and intraday liquidity at a lower management fee. With MLPs, it has the added benefit of generating a 1099 instead of a K-1.
Weiskopf: How does Alerian work with exchange-traded product issuers like J.P. Morgan, UBS and ALPS?
Feng: Alerian does not manage any assets, focusing instead on our core competencies of index construction and market intelligence. So we license our indices to exchange-traded product manufacturers for the creation of products that we and our licensees deem useful for the investor market.
After a product is launched, we help our partners tell the MLP and energy infrastructure story, while they devote their time to promoting and selling the product.