Articles Tagged with Focused Credit Fund

Just days after the collapse of Third Avenue Management LLC’s junk bond fund the Focused Credit Fund (TFCVX), the company’s CEO David M. Barse is out, says the Wall Street Journal. The news comes following Barse’s announcement that redemptions to the high yield mutual fund’s investors would be frozen. The media outlet says that Barse was fired and is not allowed to reenter the building.

This week, the Massachusetts Securities Division issued a subpoena saying that it was probing the fund closure and liquidation strategy. Secretary of the Commonwealth William F. Galvin, says he wants to find out to what extent the state’s investors have been affected by this “unprecedented decision.” It was on December 9 that they were sent a letter announcing that the redemptions would be stopped and the assets that were left would be liquidated.
This is an unusual move for a mutual fund. Such funds typically have to abide by tight regulations that mandate that investors be provided liquidity daily.

The reasons for the changed policy are investor net withdrawals and heavy losses in the underlying investments. There is also speculation that the large position that the Focused Credit Fund had taken in what are known as Level 3 assets, which are securities that trade so infrequently it’s hard to know exact prices, were becoming an issue. It reportedly got to the point that Level 3 assets in the portfolios went from 15% of what was held to about 25%, which regulators typically consider too high.

The New York Times reports that the decision to prevent investors from getting their money back has caused concern among the market, which have been getting ready for the Federal Reserve’s anticipated interest rate increase. The fear is that the Focused Credit Fund’s demise is not an isolated incident, and other mutual funds holding a significant number of junk bonds, emerging market debt, and leveraged debt may find themselves in the same predicament.
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