“Blind luck” is how Jack Johns characterized his 16 percent profit on something he read about on the Internet called Master Limited Partnerships. Johns, a retired postal worker from Rincon, Georgia, said he sold his MLP investments within a year because he realized he didn’t really know what he’d bought.

“I always assumed when I got to this stage of my life, I’d be investing in Treasury bills and insured certificates of deposit,” said Johns, 65. Because of the Federal Reserve’s record-low interest rates, Johns said he sought higher returns in riskier assets. “MLPs fit into that category,” he said.

MLPs are more popular than ever. They’re tax-exempt, publicly traded companies that own pipelines, storage tanks and other cash-generating energy infrastructure and give practically all their income to investors. In 2013, there were a record 21 initial public offerings valued at $8.8 billion and an all-time high of more than $11.9 billion flowed into funds investing in MLPs, according to Morningstar Inc.

The surge of investment is the second time around for MLPs, which also exploded in popularity in the 1980s before Congress limited their tax-exempt status to partnerships dealing in natural resources. In the 1990s, regulators won settlements against brokers such as Prudential Securities Inc. and PaineWebber Inc. for allegedly understating the risks of MLPs. The companies neither admitted nor denied any wrongdoing.

‘Remarkable Period’

Today, critics are raising warnings about growing dangers even while retirees like Johns are piling in. Almost unanimously bullish commentaries, such as the reports Johns found online, have attracted droves of individuals to a trade even some professionals have said they don’t understand. MLP values have risen with the unprecedented U.S. energy boom, a pace that will be difficult to sustain as production from shale drilling slows.

“We’ve been through a remarkable period where it works really well and the returns have been great,” said Bobby Tudor, chairman and chief executive officer of Tudor, Pickering, Holt & Co., a Houston-based investment bank catering to energy companies. “It just strikes us that it’s likely to be harder going forward than easier.”

Because they distribute income to investors, MLPs rely on borrowing and selling shares, or units, to grow. Wall Street banks love MLPs because they earn fees on those transactions, said Kevin Kaiser, an analyst at Stamford, Connecticut-based research company Hedgeye Risk Management LLC.

In the past year, bank fees for MLP deals totaled $890.3 million, led by Barclays Plc with $126.7 million, Citigroup Inc. with $96.7 million, and JPMorgan Chase & Co. with $78.2 million, data compiled by Bloomberg show.

“MLPs are Wall Street’s dream,” Kaiser said in a phone interview. “They’re fee machines.”

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