What Is a Master Limited Partnership (MLP)?

An investment that the financial industry has been pushing recently as a hot product is Master Limited Partnerships, or MLPs. In a low interest rate environment, many brokers sell Master Limited Partnerships to their customers. Many MLPs have been wrongly sold as a supposedly safe way to earn higher interest rates with little or no risk.

With the recent precipitous drop in oil and other commodity prices, many MLPs have taken a big hit and many investors have seen their returns completely wiped away. What exactly is an MLP? An MLP is a limited partnership that is publicly traded on an exchange. It combines the tax benefits of a limited partnership with the liquidity of a publicly traded securities.

What It Takes To Be Classified an A Master Limited Partnership (MLP)

To be legally classified as an MLP, the partnership must derive most of its cash flow from real estate, natural resources, and commodities. Over the last several years, MLPs have become one of the fastest growing asset classes. In 2007, the amount of money invested in MLPs was about $100 billion. By mid-2014, that number was over $500 billion. With yields approaching 10% or higher, it’s little wonder why investors have taken the bait and bought up MLPs at a record pace.

How To Recover Losses From An MLP Investment

This is particularly so for retirees who may need income but who might be earning only a little over 1 percentage on a one-year CD at a local bank. While brokers loaded up their customers on MLPs, they’ve often overlooked or flat out misrepresented the significant risks associated with these investments. Contrary to many sales pitches, MLPs are not bonds. In fact, MLPs are incredibly sensitive to oil and commodity prices. When oil and commodity prices plunge, as they recently have, MLP prices can drop, yield payments might be suspended, and some MLPs might even become illiquid meaning that you can’t sell or get out of the investment.

If you suffered losses in MLPs that you believe may have been sold to you inappropriately, give us a call. We might be able to help you recover your losses.