Master limited partnerships (“MLPs”) are complex investment vehicles that have become massively popular in the past few years during the low interest rate environment. A MLP is a publicly traded limited partnership with two types of partners: the general partner, who is responsible for managing the MLP and is compensated for performance, and the limited partner, the investor who provides the capital to the MLP and receives periodic income distributions. Unlike most partnerships, shares of MLPs can be bought or sold on a stock exchange. Just like any partnership, the problem with being a limited partner is that such a partner has no role in the management of MLP.
Unfortunately, MLPs can be very risky investments, as they fluctuate greatly with the price of oil and gas. Usually reserved for sophisticated and high-net-worth investors, these investments are not suitable for the average investor. However, a number of financial advisors sell them to their clients anyway, without fully disclosing the potentially catastrophic risks associated with these investments.
Most MLPs invest in the natural resources infrastructure. This is usually a risky area, given the swings on energy and commodity prices.
These investments tend to be highly illiquid and require long holding periods. This can render an investment unsuitable for a particular investor, if they are at an age or place in their lives where access to cash is important, or if the investor actually told their financial professional that liquidity was important to them.
Oil and gas limited partnerships, like other alternative investments, also tend to be high-commission products, giving brokers an incentive to recommend and sell to unsuspecting investors without making the necessary suitability analysis required of them by FINRA Rules and applicable securities laws.
The structure of a MLP mandates that most of the income be distributed to investors. This often forces MLPs to borrow funds to be able to pay dividends. The added risk is thus the leverage created by the MLP borrowing funds, especially in downturns in the economy.
According to a number of reports, many oil and gas MLPs have lost more than 60% in the past twelve months. These include:
- EMES Emerge Energy Services LP -88.88%
- LNCO LinnCo -83.00%
- LINE Linn Energy LLC -81.69%
- BBEP BreitBurn Energy Partners LP -80.39%
- HCLP Hi-Crush Partners LP -78.80%
- MCEP Mid-Con Energy Partners LP -76.07%
- EVEP EV Energy Partners LP -75.15%
- LGCY Legacy Reserves LP -74.32%
- MEMP Memorial Production Ptrs LP -73.48%
- VNR Vanguard Nat. Resources LLC -73.23%
- SDLP Seadrill Partners LLC -64.67%
- PAGP Plains GP Holdings -63.98%
- KMI Kinder Morgan Inc -62.68%
- ETE Energy Transfer Equity LP -61.01%
Protect Your Investments with Skilled Legal Advocacy
Investing in complex vehicles like Master Limited Partnerships (MLP) carries significant risks that many investors are not fully warned about, often due to broker negligence or inadequate disclosure. At The Frankowski Firm, we understand the intricacies of securities law and the fiduciary duties brokers owe to their clients. If you or a loved one has suffered losses from unsuitable MLP investments or other securities-related issues, our experienced team is ready to thoroughly evaluate your case and fight for your rights through FINRA arbitration or court proceedings. Don’t let broker misconduct go unchallenged, contact The Frankowski Firm today at 888-741-7503 or fill out our contact form to schedule a free consultation and explore your legal options.