The Marquest Super Flow-Through Offering Memorandum

In my last Post I included the following promotional link to the latest of Marquest’s five presently offered “Super Flow-Through Limited Partnerships.” 

http://marquest.ca/home?path=funds&fund=MAV1405 

The way I look at it, the most hurtful feature of all these funds is the fact that their self-destruction is a built-in feature. In my last Post, I said “they will be liquidated in short order.” I failed to mention it’s worse than simply liquidate “in short order.” Each one of these funds—contained within its very definition—has “its scheduled dissolution date” prearranged. That is to say there is a specific deadline date for all the shares to be sold off. In terms of Fancamp that means “The General Partner” is legally obligated to dump every last share (come hell or high water) within eleven months of the initiation date of the fund. The link to the 113 page “Offering Memorandum” follows. 

http://marquest.ca/products/offeringMemorandum/flowThroughLPs/?f=1566821.pdf 

The applicable tax year is so essential to the logic of the investment that it is even part of the title of this fund as well as the titles of the earlier funds. In other words, their time-defined demise is one of the most important integral features. Earlier funds as well as this one use identical “dissolution” language. You only need to turn to page two, paragraph five (as follows, in its entirety), to get to the “dissolution” particulars. 

“Mutual Fund Rollover Transaction and Termination of the Partnership: 
The General Partner intends to cause the Partnership, prior to its scheduled dissolution date of November 30, 2015, to transfer its assets to the Mutual Fund (as hereinafter defined) on a tax-deferred basis in exchange for redeemable shares of the Mutual Fund, to be distributed to the Limited Partners. The Limited Partners shall be free to redeem some or all of their Mutual Fund Shares (as hereinafter defined) on or after the tax-deferred exchange. The General Partner has been granted all necessary power and authority, on behalf of the Partnership and each Limited Partner, to enter into the Mutual Fund Rollover Transaction (as hereinafter defined) and to implement the dissolution of the Partnership, and after that, to file all elections deemed necessary or desirable by the General Partner to be filed under applicable tax legislation, without any further authorization by the Limited Partners.” 

This is not a question of a holding period, after which it possibly might be advantageous to sell all or part of this or that equity, at some point. Rather, it is specifically spelled out, in advance, that “The General Partner” has the legal obligation to comply with the “scheduled dissolution date.” The fact that the equities in the fund have “short hold periods,” is not only disclosed; it is trumpeted as one of the main advantages. The unstated implication is that long-term commitments are riskier and more onerous than short-term holdings. 

It’s plain how this will play out, so far as the trading activity. First comes Part One, when Fancamp offers new shares, invariably the share price drops (primarily, because Shareholders generally disapprove of dilution). Worse is Part Two, which is defined by the strictly-limited number of days on the calendar that “The General Partner” has to set the detonation charge for the demolition (aka “the dissolution”) of the fund. When all the shares hit the market, all at the same time (or nearly at the same time), the result is what we now have, the obliteration of a rational market price for Fancamp shares. 

All this means to the investors in the Partnership is that their “Unit” has been “rolled over.” As soon as the tax advantage has been nailed down and used up (by the specified date), the General Partner has the authority (without further permission) to roll the money over into the second tax-advantaged fund (described on the Marquest website as a “RRSP-eligible corporate class mutual fund”). 

So far as the original Partnership, there wasn’t even any notice ever given of what stocks were in the fund, in the first place. Bold, all caps, the first sentence of page three reads, “THIS IS A BLIND POOL OFFERING.” So far as the Participants, it is immaterial whether or not Fancamp (or any other named company) was in the offering, or even whether or not there ever existed, on the face of the Earth, such a company as Fancamp. Yet the Participants of all the five active funds (the “Limited Partners” who never heard of Fancamp) are the guys for whose benefit all those tens of millions of Fancamp shares are being sold in such haste and mindless fury.