A good money manager is precious commodity these days.

Some of the longtime greats (like George Soros and Stanley Druckenmiller) have ditched outside investors and now invest only their own money.

Others (Steven Cohen comes to mind) have lost most clients under the glare of government investigations into insider trading.

And still others (hello, Bernie Madoff) can now advise only fellow prisoners.

No wonder indexing is all the rage. Hedge funds demand seven-figure net worth, charge 2 percent of assets and 20 percent of annual gains and can make it difficult to withdraw one’s funds. Better a low-cost ETF than all those headaches; and even a mediocre mutual fund charging 1% annually starts to look OK given most hedgies’ disappointing performance this year.

Fortunately, one of the most successful tycoons is paying all comers a 6.6 percent yield for the privilege of multiplying their money. He boasts a long-term record that’s left Warren Buffett in the dust, and plays the media like the veteran showman that he is.

I’m describing, of course, Carl Icahn. The well-preserved corporate raider is raiding cash-rich and mismanaged companies still, only now instead of making off with a quick greenmail payoff all the time he’s shown the occasional willingness to take control and patiently build value.

Icahn’s savvy picks (and those of underlings, of course) are working out great for investors in his Icahn Enterprises (Nasdaq: IEP). Better still, IEP is a master limited partnership, with all the tax-deferred benefits of a boring pipeline company.

Icahn Enterprises isn’t boring, not with the old man pulling off coups like buying Netflix (Nasdaq: NFLX) at $58 and then making Mr. Market green with envy and regret. Icahn made a large long bet on controversy magnet Herbalife (NYSE: HLF) and so far is burying longtime foe and self-appointed Herbalife undertaker Bill Ackman. Lately he’s taken to Twitter in an attempt to wring a higher dividend from Apple (Nasdaq: AAPL).

The man can’t seem to live without drama, whether it’s dressing down Ackman on CNBC or trying to take Dell (Nasdaq: DELL) away from Michael Dell.

But the truth is Icahn Enterprises has turned into a cash machine because Icahn bought on the cheap less famous companies throwing off underappreciated profits.

He paid $30 a share for refiner and fertilizer maker CVR Energy (NYSE: CVI) and that stock has appreciated 43 percent in 18 months, earning Icahn a total return of $2.9 billion through June.

More than a decade ago, Icahn paid pennies on the dollar for the unsecured bonds of Federal-Mogul (Nasdaq: FDML), an auto parts supplier then mired in an asbestos-related bankruptcy. Today, his 81 percent equity stake in the revived manufacturer is worth nearly $2 billion, including $1.2 billion held by Icahn Enterprises.

A majority stake in casino operator Tropicana Entertainment (OTC: TPCA) also began with a Chapter 11 restructuring.       

From Jan. 1, 2000 to June 10, 2013, Icahn Enterprises has averaged a 20 percent annual return, multiplying investors’ money nearly 12-fold. Berkshire-Hathaway (NYSE: BRK-B) has managed “only” a triple over the same span.  With typical modesty, Icahn let slip earlier this year that he’s felt underappreciated relative to the Oracle of Omaha.

Plenty to Brag About

Source: Icahn Enterprises presentation

Maybe that’s why Icahn Enterprises, which has traditionally paid a piddly distribution, ramped it up to a  $1 per share per quarter earlier this year and $1.25 more recently. At the current share price, that works out to a 6.6 percent yield. Not bad coming from a guy who’s beaten Buffett pretty consistently.

The stock is up 70 percent year-to-date and 36 percent since April, when it was still selling at a discount to the partnership portfolio’s net asset value. That discount is now history, replaced by a modest premium (of 5.6 percent to net asset value as of July 31.)

When the New York Post dared lump Icahn with some less successful shareholder activists last week, the financier tweeted that the IEP fund is up 19 percent just since July 1. Icahn’s Twitter bio makes clear that he hasn’t mellowed much after 77 years, including several decades spent terrorizing entrenched corporate managers. “Some people get rich studying artificial intelligence,” Icahn writes. “Me, I make money studying natural stupidity.”

It’s a pretty good living. Icahn still owns 90 percent of Icahn Enterprises, and Forbes pegged his net worth earlier this year at $20 billion.

And despite the generous dividend yield and the big gains this year, Icahn Enterprises has a lot of unspent firepower. It earned $331 million in net income attributable to the partnership during the first half of the year, and adding back $224 million in depreciation and amortization suggests minimum cash flow of $555 million. At the current $1.25 per quarter distribution rate, distributions for six months amount to $288 million. So the distribution coverage is roughly 2. Cash and investments exceed debt, which fell in the most recent quarter even as the cash balance rose.

All this, including the suddenly large yield, is part of Icahn’s plan to unlock even more value he claims is being held hostage by self-interested corporate executives and boards.

“Mr. Icahn believes that he has never seen a time for activism that is better than today,” a recent investor presentation claimed. “Many major companies have substantial amounts of cash. We believe that they are hoarding cash, rather than spending it, because they do not believe investments in their business will translate to earnings.”

Enter Icahn, flush and not afraid to raise hell.

“By raising our distribution to our limited partners, and with the results we hope to achieve in 2013, we believe that our depositary units will give us another powerful activist tool, allowing us both to use our depositary units as currency for tender offers and acquisitions (both hostile and friendly) where appropriate, and to increase our fire power by raising additional cash through depositary unit sales.”

Icahn Enterprises has already raised more than $300 million this year via two equity offerings.

Like any complicated business story, this one is not without risks. Start with the fact that Icahn is not young, and while his son Brett, 34, is generally deemed a capable successor–masterminding the Netflix investment, for example–he’s still looking at filling a very large pair of galoshes.

Also, there’s no guarantee that the investment funds that generated 18 percent of the adjusted EBITDA attributable to IEP in the 12 months through March will continue to mint money after this bull market expires, and they do all expire.

Another 18 percent of the adjusted EBITDA was from Federal-Mogul. But more than half came courtesy of CVR Energy, another cyclical business that may find the going tougher later.

Still, IEP reaped $1 billion in cash distributions from its subsidiaries in the first half of the year, and could have offered a double-digit yield if Icahn weren’t husbanding the cash to ruin some “stupid” CEO’s day and career.  Betting against him doing what he’s done for decades for a while longer at least wouldn’t be smart in the least.

There’s no guarantee that 6.6 percent yield will stay around. This is a speculative capital appreciation play and not an MLP you’d want to buy and forget. Still, even an insecure payout this large to invest alongside one of the all-time greats is no chopped liver. We’re adding IEP to the Aggressive Portfolio. Buy below $83.

Oaktree Also Bearing Fruit

It’s another financial MLP with a rich payout and promising future

In many ways Oaktree Capital Group (NYSE: OAK) is everything Icahn isn’t: not personality driven, not confrontational, not at all a one-man show. Unlike Icahn, Oaktree raises most of the funds it invests in companies, credit and real estate from institutional investors including public pension funds, and charges them hedge-like fees for the privilege.

The common thread here is the professed devotion to a value-oriented investing discipline, and a willingness to share the rewards with outsiders.

The rewards have been bountiful lately, partly because Oaktree has been reaping the crop of lucrative returns sown in scarier times.  As it’s cashed out funds raised before the financial crash and deployed in its aftermath, their strong performance has translated into handsome incentive compensation, most of it paid out quarterly to investors.

Over the last 12 months Oaktree has paid out $4.52 per unit in distributions, for a trailing yield of 8.8 percent. Quarterly payouts rose from 55 cents per unit in November, to $1.05 in February, $1.41 in May and $1.51 last month, after a quarter that delivered a 90 percent year-over-year gain in distributable income.

Money Growing on Oak

Source: Oaktree Capital Management presentation

A lot of that is down to the prosaically named but poetically lucrative Opportunities Fund VIIb, the largest ever distressed debt fund that raised $10.9 billion by mid-2008, invested much of it soon after Lehman bit the dust and vultured its way to an annual gross return rate approaching 24 percent before beginning an aggressive liquidation this year.

The resulting cornucopia of incentive compensation is likely not sustainable in the near term, so it’s probably better to think of Oaktree as a 7 percent yielder with strong potential for capital appreciation.

Even as Oaktree enthusiastically harvests investments in distressed debt, it’s raising plenty of dry powder while nibbling on “pockets of dislocation” in Europe, shipping, power generation and real estate. The next time those pockets of dislocation turn into a general bummer, Oaktree will be ready to pounce.

The market certainly didn’t pounce on equity in the asset manager when it came public in April 2012. Units priced at the bottom of the suggested range and in a lower quantity than had been hoped. In the next two months they lost nearly 20 percent of their original value.

They then rallied 65 percent into May before retreating a bit in the course of the summer.

One heavyweight hedge fund that didn’t sleep on Oaktree was David Einhorn’s Greenlight Capital, which reported a 5 percent stake soon after the IPO and still holds nearly 4 percent of units outstanding. Other prominent hedge and mutual funds with strong long-term records are on board as well, including a stake of more than 11 percent for Fidelity funds in the aggregate.

They may be attracted to Oaktree’s own excellent reputation and results – its closed-end funds are up 23 percent in the last year. The firm has been racking up incentive compensation in funds that haven’t yet been liquidated at an impressive rate. That source of future distributions has grown 14 percent in a year’s time to $1.2 billion, even as Oaktree recognized a record $542 million of incentive income.

The balance sheet features $1.1 billion in cash and government securities, and another $1.1 billion in own-fund investments, against total liabilities of less than $1.1 billion. Add in the accrued incentives not yet reaped and it certainly looks like the assets alone are worth all of Oaktree’s $2 billion market cap.

That may mean investors aren’t paying much at the moment for Oaktree’s excellent brand, top-notch clientele and the attractive long-term growth opportunity.

This is a cyclical play without an energy MLP’s depreciation and amortization tax deferral benefit, and with potential for much greater volatility in both distributions and the unit price. But investors are getting paid plenty for that risk, are in great company and can look forward to more paydays set up by clear-headed risk-taking when others are panicking.

We’re adding OAK to our Aggressive Portfolio. Buy below $56.