Vertical Capital Markets Group announced last week the launch of the Vertical Capital MLP & Energy Infrastructure Fund, an open-end mutual fund consisting of midstream master limited partnerships (MLPs), and energy and infrastructure securities that will be sub-advised by MAI Capital Management, LLC of Cleveland, Ohio.MAI was chosen based on its expertise and five years of experience with MLP energy and infrastructure strategies.According to Vertical Capital President Bayard Closser:
“This may be an ideal time for Vertical to enter the energy marketplace. As oil prices have dropped, so have prices of MLPs and MLP funds. But long-term, major investments will be needed in infrastructure to store and process oil and natural gas, and to transport it throughout the country.”
Midstream funds, such as the Vertical Capital MLP & Energy Infrastructure Fund, invest in businesses that provide transportation, processing and storage to the energy industry.
The Vertical Capital MLP & Energy Infrastructure Fund seeks long-term capital appreciation and current income through a diversified portfolio of investments in energy infrastructure and MLPs. It is intended to have low correlation with stocks or bonds, so it can be used to increase diversification, which reduces risk, Closser said.
The benchmark for the fund is the Alerian MLP Index. The fund is structured as a regulated investment company (RIC), as RICs are generally not subject to the 35% corporate tax. However, RIC regulations limit investments in MLPs to 25% of a fund’s portfolio.
An MLP combines many of the tax benefits of a limited partnership with the liquidity of publicly traded securities. Under federal law, only certain businesses – primarily energy-related businesses – can organize as MLPs.
The portfolio management team for the Vertical Capital MLP & Energy Infrastructure Fund includes four professionals with an average of 22 years of industry experience. The team has both equity and fixed-income experience.
“We have confidence that MAI has the right skill set for the fund. The portfolio management team members know and have ongoing contact with midstream companies, which provides them with more in-depth market intelligence than would be available if they relied solely on analyst reports.”