The attorneys at Gana Weinstein LLP have been following the collapse of a series of mutual funds managed by Cushing Asset Management. The funds involved include:
Cushing Closed-End Funds
Cushing Renaissance Fund
Cushing Royalty & Income Fund
Cushing MLP Total Return Fund
Mainstay Cushing Mutual Funds
MainStay Cushing MLP Premier Fund
MainStay Cushing Royalty Energy Income Fund
MainStay Cushing Renaissance Advantage Fund
(Cushing Funds). Over the past year the value of the Cushing Funds have plummeted between 20-80% in value and may drop further. Indeed, in the past month alone the funds dropped between 7-20% in value. The Cushing Funds typically describe their investment strategy as investing primarily in securities of energy-related U.S. royalty trusts, Canadian royalty trusts, and Canadian exploration and production (E&P), E&P master limited partnerships (MLPs), and securities of other companies in the same businesses as Energy Trusts and MLPs engage.
Cushing Funds were underwritten by broker-dealers including: Stifel, Nicolaus & Company, RBC Capital Markets, Oppenheimer & Co., Robert W. Baird & Co., BB&T Capital Markets, a division of Scott & Stringfellow, Ladenburg Thalmann & Co., Wunderlich Securities, and Maxim Group.
Another surprising feature of these funds are the cost of ownership for investors. For instance the Cushing Royalty & Income Fund resulted in investor costs of 4.50% sales load fee if they invested at the IPO. Additional underwriting fees brought the total fee for IPO investors up to 6.15%. In addition, every year, the fund expects to charge investors 3.09% in fees for management and other expenses. Such fees and costs are highly unreasonable in light of cheaper alternatives.
As a background, investments in MLPs and energy contain significant risks. These risks stem from the fact that the investments the funds make tend to fluctuate with the price of oil and gas. For example in 2008, when oil plummeted in the wake of the great recession the AMZ MLP Index declined by 36.9% in a single year.
It is important for investors to know that all advisers have an obligation and responsibility to deal fairly with investors including making suitable investment recommendations. In order to make suitable recommendations the broker must have a reasonable basis for recommending the product or security based upon the broker’s investigation of the investments properties including its benefits, risks, tax consequences, and other relevant factors. In addition, the broker must also understand the customer’s specific investment objectives to determine whether or not the specific product or security being recommended is appropriate for the customer based upon their needs.
Investors who have suffered losses may be able recover their losses through securities arbitration. The attorneys at Gana Weinstein LLP are experienced in representing investors in cases of unsuitable investment advice. Our consultations are free of charge and the firm is only compensated if you recover.