Fund Update

Fund Positioning 28_02_2011

Leveraging Technology: The Daily

News Corporation’s “The Daily” was launched today. To access a replay of the launch click here. I thought the demonstration was interesting but have primarily put the link up for questions raised in the Q & A . Unfortunately, being based in Australia I couldn’t download The Daily to give it a proper test run.

Fund Update

Fund Update _ 2010 Review

Interference Discount:

Last year I read Redefining Health Care by Michael Porter and Elizabeth Teisberg. I thoroughly enjoyed the book, I felt there was a lot of substance to the work.

An idea they expanded upon in the book was that health care providers should maintain and publish detailed results of the services they provide and the outcomes of these services. The idea is this disclosure will drive true development of sub specialties, it will also disincentivise providers from offering services they don’t have the expertise or man power to provide. An example highlighted in the book is the detail provided by The Cleveland Clinic. From this site you can download Outcome Booklets containing a vast amount of detail regarding their results.

I received an email this morning with a link to the MyHosptials site. The information contained on the site looks to be a summary of the procedures performed at many of the hospitals nationally and detail around admission numbers and waiting times. I thought this was an initial step in the right direction and something that has the potential to be expanded upon in a manner that could drive meaningful change.

Unsustainable structures

Part of our analysis includes the evaluation of the longer term sustainability of corporate structures – we want to understand any inherent bias in these structures and their consequences over time. Our preference is to avoid contrived structures which disadvantage a particular party. Our view is that at times of stress or over the longer term such structures will come under pressure. The evolution of the MLP structure in the US is an interesting example.

Master Limited Partnerships (MLPs) have been an important vehicle to encourage the development of pipelines, processing facilities and related infrastructure in the US, including in  relation to shale gas. MLPs provide a tax efficient vehicle for infrastructure development and are typically structured as two entities – a general partner (effectively, the manager) and a limited partner (effectively, the asset owner). The asset owner compensates the manager through an increasing proportion of the cashflow it generates – while the proportion starts low it typically rises to 50% of the incremental cashflow generated by the asset owner. Over time this increasing proportion of cashflow being paid to the manager is a material drain on the asset owner’s cashflow. While this is very beneficial to the manager (they capture up to 50% of the incremental cashflow with limited capital contribution), it makes future investment opportunities by the asset owner difficult to justify.

The MLP structure has been very lucrative to the managers / general partners. However, the structure outlives its usefulness once the asset owner matures as the increasing cashflow leakage “forces” the asset owner to buy back the manager (or restructure the partnership terms). These are large transactions – in some cases the capitalisation of the manager is approaching that of the asset owner.

While the MLP structure has worked successfully for many entities in the US, the longer term implications have become particularly apparent over the last 12 months with a number of MLPs reorganising their partnership arrangements.