Kinder Morgan Inc (KMI), Kinder Morgan Energy Partners LP (KMP), El Paso Pipeline Partners, L.P. (EPB): Four Things Hedgeye Got Wrong

4. Limited partner investors are not naive and unimformed
As part of his larger argument that the general partner, owned by Kinder Morgan Inc (NYSE:KMI), is taking advantage of limited partners, he asserts that Kinder Morgan Energy Partners LP (NYSE:KMP) is primarily owned by retail investors.  According to CapIQ, that’s true — ownership of Kinder Morgan Energy Partners LP (NYSE:KMP) is 73% public investors. He then implies only uninformed retail investors would be naive enough to invest in Kinder Morgan Energy Partners LP (NYSE:KMP). This statement shows a complete lack of understanding of MLPs. Most MLPs are owned by individual investors for structural reasons. Tax treatment and ownership rules make it difficult, foolish, or impossible for many institutions to invest in MLPs. Thus, it’s only natural that KMP is primarily owned by individuals. And, its because of tax treatment and ownership restrictions on institutions, not because “dumb money” retail investors are being hoodwinked. If fact, numerous institutions have expressed interest in investing. To meet that need, a special security was created — Kinder Morgan Management, LLC (NYSE:KMR). Its shares are pari passu with Kinder Morgan Energy Partners LP (NYSE:KMP) with the same distribution, except KMR’s distribution is paid in additional shares instead of cash. No K-1 is required, and there is no unrelated business income tax (UBTI).  As you might expect, Kinder Morgan Management, LLC (NYSE:KMR) is majority owned by institutions.

Foolish Bottom Line
Don’t put too much stock in this latest bit of research from Kevin Kaiser and Hedgeye. It’s slickly packaged and full of confident assertions, but the conclusions miss the mark. It seems like a typical Wall Street tactics — use hype and salesmanship while skimping on substance. In truth, the Kinder Morgan companies are well-managed, boast solid assets, and will play a big role in meeting America’s future energy infrastructure needs. Of course, it has its risks, like higher interest rates, frozen credit markets, or changing regulations.

The article 4 Things Hedgeye Got Wrong originally appeared on Fool.com and is written by Brendan Mathews.

Brendan Mathews owns shares of Kinder Morgan. The Motley Fool recommends El Paso Pipeline Partners LP and Kinder Morgan. The Motley Fool owns shares of Kinder Morgan.

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