The deal of the year to date in the MLP sector is likely getting done next week. That would be the initial public offering of shares in Plains GP Holdings (NYSE: PAGP), a holding vehicle for limited partner interests in Plains AAP, L.P., which in turn is the general partner of Plains All American Pipeline (NYSE: PAA), one of the largest midstream MLPs and the leading shipper of crude oil.

When the first-draft prospectus was filed in late July it listed the intended fundraising at $1 billion, but that was merely a placeholder entry. In fact, an updated filing late Monday indicated 128 million shares will hit the market at an initial price of $22 to $25 apiece. Adding the underwriters’ option to buy an additional 19.2 million shares over the next month PAGP will raise as much as $3.68 billion overall.

That’s an impressive number in its own right, but also a telling one for what it says about MLP investors’ expectations.  PAGP’s sole asset is its 21.1 percent limited partner (and 19.7 percent economic) interest in AAP, which manages PAA in return for a 2 percent general partner interest and hefty incentive distribution rights (IDRs).

The implications are surprising and profound. PAA owns 17,400 miles of pipeline, storage facilities for 96 million barrels of liquids and 93 billion cubic feet of natural gas, 11 gas processing plants, seven fractionation plants and 23 crude and NGL rail terminals. It had $21 billion of revenue in the first half of the year.

And the market currently values the sum of its limited partner units at $17.4 billion. For that you get the current 4.7 percent yield, with a high likelihood that the distribution will increase by approximately 10 percent next year, and a decent one that it will keep rising at that rate for several years thereafter. Over the last 12 months PAA has distributed $823 million to public unitholders.

Over the same period PAA has distributed $400 million to AAP based on its IDRs and GP interest. At $25 per PAGP unit, the IPO values that cash flow at $15.2 billion. This for a mere 2 percent economic interest in PAA plus the IDRs, a fine-print “quirk” many MLP investors are happy to ignore. At a $25 per unit and the initial distribution rate of $0.5962 per unit, the yield is a modest 2.4 percent.

Why is the market valuing distributions from PAGP at nearly twice the multiple of those from PAA? The catch, of course, is that PAGP’s distribution gains are certain to outpace PAA’s as IDRs capture a growing proportion of the larger partnership’s payouts.

PAA has a fairly standard IDR structure: it pays AAP 15 percent of the first $0.2475 in per-unit quarterly distribution, 25 percent of the payout between $0.2475 and $0.3375 and 50 percent thereafter. With the latest quarterly distribution at 60 cents, IDRs amounted to 31 percent of PAA’s distributions over the last 12 months, and that percentage is set to climb in the coming years.

The sponsors of the IPO make that abundantly clear — after all, the faster distribution growth is PAGP’s main, and arguably sole, selling point. Since 2004, PAA has increased its per-unit distributions at an 8 percent compounded annual rate.

Source: Plains GP Holdings SEC filing

Over the same period, distributions from PAA to AAP have increased at a 47 percent compounded annual growth rate.

Source: Plains GP Holdings SEC filing

The disparity arises, in part, because the number of PAA units outstanding has nearly tripled in the last nine years. And as long as the per-unit distributions don’t decline, the more units, the bigger the general partner’s haul of IDRs.

But even assuming a steady unit count at PAA, PAGP investors get a growth sweetener. If PAA increases its per-unit distributions by 10 percent annually in each of the next three years, the cumulative distribution increase would be 33 percent. But distributions to the general partner net of management incentives — the sole source of income for PAGP shareholders —  would increase 67 percent over the same timeframe in that scenario.

Source: Plains GP Holdings SEC filing

PAGP confers a couple of other advantages PAA can’t. As a corporation it will issue dividends and the simpler 1099 forms, making its shares more attractive for mutual funds and retirement accounts. Yet distributions through at least the end of 2016 will not be taxable, qualifying as a return of capital thanks to a $1.1 billion deferred tax asset.

More importantly, it permits investors bullish on PAA to align their interests more closely with its real masters, the five insider groups that, until the offering, owned more than 90 percent of AAP, as shown on this table:

Source: Plains GP Holdings SEC filing

The largest stake belongs to a subsidiary of Occidental Petroleum (NYSE: OXY), followed by the John Raymond’s private equity group and Richard Kayne’s investing empire. Why are these worthies suddenly eager to share their IDRs with mom and pop?

It’s true that Occidental is looking to raise cash, and is in fact selling a much larger proportion of its stake than the other insiders into this IPO. But a cynic might also suspect that these shrewd operators believe optimism about PAA’s growth prospects will never run higher. They’re certainly selling high, even as they retain 80 percent of the economic interest and 100 percent of strategic control.

If at some future point in time the domestic shale boom were to bust as all commodity booms must, PAA’s growth prospects would dim and PAGP would almost certainly lose much of its current appeal.

That’s not particularly likely any time soon, though we still prefer portfolio holdings Kinder Morgan (KMI) and Energy Transfer Equity (EQE) as IDR plays with similar growth potential to the PAGP but a significantly higher current yield.

Which is not to say that it’s time to unload MLPs just because Oxy is looking to raise a little cash. But if GP plays stop outperforming, and if big partnerships start bailing out insiders by buying out their GPs, then it might be time to worry.