Investments in limited partnerships are considered to be very risky and complicated. These types of deals, also referred to as profit participations, are not for everyone, especially conservative investors, such as retirees. If you are considering investing in a limited partnership or have lost money in one, you need to understand how these investment vehicles work.
The following is a breakdown of the intricacies of limited partnership investments:
- Investors are sold shares in a business venture, such as oil drilling or real estate acquisitions
- A general partner is charged with managing the project
- Profits relating to the business venture are distributed to the limited partners
It is important to mention that there are legitimate opportunities involving limited partnerships. Yet, because there are so many scams out there, it is hard to identify a good deal.
There are many problems associated with limited partnership investments, such as:
- Profit potential is sometimes exaggerated
- Risks may not be disclosed or may be downplayed
- The managing partner may not be forthcoming about the revenue earned
Due to the immense risk of limited partnership investments, many brokerage firms refuse to sell them to their clients. Meyer Wilson regularly investigates claims of investment fraud.