Steelpath Team Risk Management
The MLP sector is made up of a number of businesses that range from petroleum products pipelines to natural gas compression. Our portfolios are constructed based on rigorous research and due diligence. Our investment process is designed to identify midstream MLPs with low underlying business risk, the ability to maintain consistent and growing distributions, and attractive total return potential. Our primary tool for detecting such investments is our scenario analysis process through which we test the partnership's ability to withstand various commodity price, volume, and interest rate environments. We believe that focusing on these attributes will allow us to provide favorable long-term performance.
Enterprise Risk Management
Risk Management is an independent control function at OppenheimerFunds responsible for multiple areas of risk including investment risk, counterparty risk, enterprise risk and performance attribution. The team is headed by the firm’s Chief Risk Officer, who reports directly to the CEO. This structure ensures that the entire Risk Management team is independent from the investment process, allowing us to avoid conflicts of interest and providing a valuable second set of eyes on both investment and enterprise-wide risks.
Core Responsibilities of Risk Management Team
- Performs comprehensive portfolio reviews with all investment teams
- Monitors individual security holdings across the entire firm
- Works with investment teams to set specific maximums for the active weights of securities and sectors, as well as for predicted tracking error and other risk metrics
- Independently monitors specified team risk metrics
The aim of our Risk Management team is to enable the portfolio managers to make informed decisions on the risk/reward tradeoffs at play in their respective portfolios.
We believe that risk management is not only a responsibility of the firm, but a critical component of our success.
Investing in MLPs involves additional risks as compared to the risks of investing in common stock, including risks related to cash flow, dilution and voting rights. Each Fund's investments are concentrated in the energy infrastructure industry with an emphasis on securities issued by MLPs, which may increase volatility. Energy infrastructure companies are subject to risks specific to the industry such as fluctuations in commodity prices, reduced volumes of natural gas or other energy commodities, environmental hazards, changes in the macroeconomic or the regulatory environment or extreme weather. MLPs may trade less frequently than larger companies due to their smaller capitalizations which may result in erratic price movement or difficulty in buying or selling. MLPs are subject to significant regulation and may be adversely affected by changes in the regulatory environment including the risk that an MLP could lose its tax status as a partnership. Additional management fees and other expenses are associated with investing in MLP funds.
The Oppenheimer SteelPath MLP Funds are subject to certain MLP tax risks. An investment in an Oppenheimer SteelPath MLP Fund does not offer the same tax benefits of a direct investment in an MLP. The Funds are organized as Subchapter “C” Corporations and are subject to U.S. federal income tax on taxable income at the corporate tax rate (currently as high as 35%) as well as state and local income taxes. The potential benefit of investing in MLPs generally is their treatment as partnerships for federal income tax. Many MLPs accrue deferred income taxes for future tax liabilities associated with the portion of MLP distributions considered to be a tax-deferred return of capital and for any net operating gains as well as capital appreciation on its investments. This deferred tax liability is reflected in the daily NAV and as a result a MLP fund's after-tax performance could differ significantly from the underlying assets even if the pre-tax performance is closely tracked.
To the extent that a Fund obtains leverage through borrowings, there will be the potential for greater gains and the risk of magnified losses. Investing in debt securities involves additional risks including interest rate risk, credit risk, duration risk, and duplication of advisory fees and other expenses. High yield securities involve more risks than investment grade securities and tend to be more sensitive to economic conditions. Private equity investments may be subject to greater risks than investments in publicly traded companies due to limited public information and lack of regulatory oversight.