Incentive distribution rights aren’t gone but prove increasingly rare.
Unlike Triceratops, a few incentive distribution rights still roam the midstream earth—but not many. Source: Ton Bangkeaw/Shutterstock
As master limited partnerships (MLPs) attempt to attract new investors, incentive distribution rights (IDRs) continue to lose popularity. IDRs haven’t totally disappeared from the MLP space, but the majority of the sector has eliminated them.
According to Alerian, which benchmarks MLP performance, about 86% of the companies in its Alerian MLP Infrastructure Index have eliminated their IDRs. These rights provide higher distribution rates to the general partner (GP) of MLPs. The easiest way to think of an IDR is like trickle-down economics, in that it’s designed to push GPs to raise distributions so they can increase their own share.