Beware the privately traded partnership
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Dear Mr. Berko:
My broker wants me to invest $35,000 in an infrastructure equipment leasing partnership that is guaranteed to pay 9 percent annually. The equipment will be leased to Triple-A lessees. Because the general partners are using leverage of 5 to 1, all the equipment would be completely paid off in 10 years when the leases expire. At that time, the equipment would be sold on the market, and the limited partners would get back about twice what we invested. This sounds like a very smart investment, because for 10 years I’d be getting 9 percent on my $35,000, which totals about $31,500 and is not taxable, because the depreciation exceeds the income. I trust this broker, because all the numbers seem to check out. He sold this limited partnership to three friends of mine who are very smart investors, and they also checked this out backward and forward. So what do you think?
— R.W., Durham, N.C.
Dear R.W.:
I haven’t read the prospectus you enclosed (I’m not going to), because the fact sheet tells the whole smelly story in all its delusive factitious glory. I don’t like privately traded, public-limited partnerships. It’s been my experience that the only folks who make money with sordid products like this are the lessors, the lawyers who write the prospectus, the accountants who put the numbers together, the general partners who put the deal together, the brokerage firm that does the underwriting and the brokesters who sell this junk. The customers (you) are the suckers who are supposed to get the shaft, because you’re the only folks putting up the money. How else will the lessors, general partners, accountants, lawyers, brokerages and brokesters get paid?
Wall Street customers often get the short stick, because they’re too gullible and too dumb to know they’re getting screwed. I don’t know a soul who made money in past limited partnerships that promised profits in oil, precious coins, movies, cattle, Section 8 housing, shopping centers, multi-family rental units, etc. The investor is always last in line when the money is passed out. That’s the way Wall Street works.
Forget this thing. I can tell you from experience that the 9 percent income will be paid for the first year and maybe even for six months into the next year. Then the quarterly payments begin to decline because some of the lessees went out of business and the general partners can’t re-rent the bulldozers, tractors and cranes. In three to five years, the payments may stop altogether.
And I can tell you that the 5 to 1 leverage (for each dollar of equity, the general partner borrows $5) is too bloody high or the general partner is paying twice the equipment’s market value. And I’m certain as death and beer that the general partner, 10 ways from Sunday, will make a bundle on this equipment (under the table), and not a penny will be shared with you.
Meanwhile, the quarterly fees to run this partnership will knock your socks off, and in the end, when the 10 years have passed, there won’t be bupkis left for you. Most civilians I know who invested in a Wall Street limited partnership have lost money. Although I’m not exactly a pilgrim, I’ve lost money — twice! In fact, the LPs in which I invested were put together by people I trust and still do. Losing money was good for my self-esteem, because it’s a painful reminder that I’m not as smart as I thought I was.
I’m sure that your friends are profoundly pleased with their brilliant investment. But a year or two later, their enthusiasm will decibel down, and in another couple of years they will be talking to an attorney about suing the brokerage, the broker and the GP. So hide your checkbook, decline the invitation to become a limited partner and in a couple of years you can tell your friends: “I told you so.”
Oh, I forgot to tell you that I know the two general partners who are promoting this garbage. One of them has a checkered legal history and was forced to close businesses in Dallas three years ago. The other … well, why don’t you check him out yourself?
Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, Fla. 33775 or e-mail him at mjberko@yahoo.com. © 2009 Creators.Com
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