Securities Lawyers Blog
The investment attorneys of Gana Weinstein LLP are investigating potential recovery options for investors in the Third Avenue Focused Credit Fund (TFCIX) managed by Third Avenue Management LLC. According to the Wall Street Journal, the mutual fund halted redemptions and announced plans to liquidate effectively freezing investor’s $789 million in investment assets that was supposed to provide mom and pop investors with easy access to their cash. Now investors in the Third Avenue Focused Credit Fund may not receive all their money back for months, if not longer while the fund liquidates.
According to Third Avenue’s Chief Executive David Barse the fund took the unprecedented step of halting redemptions because it needed to act quickly to preserve remaining assets. Third Avenue blamed poor bond-market trading conditions that made it almost impossible to raise sufficient cash to meet redemption demands from investors without a fire sale of remaining assets. As the Third Avenue fund began to collapse traders at hedge funds shorted and bet against the mutual fund’s holdings adding pressure to Third Avenue’s investor withdrawals and forcing the sale its holdings. The fund was down 27% this year through mid-December.
As regulators and industry analysts conduct the postmortem on the fund, it appears that a large part of the reason the Third Avenue fund ran into deep problems is because it purchased illiquid and difficult to trade investments that have been steadily losing value as investors fled energy and other kinds of riskier debt. According to Reuters, the fund, when compared with other junk bond funds, carried an elevated amount of risk. For instance the fund disclosed that 20 percent of the assets it carried were hard to value and trade. This amount was higher than any other U.S. junk bond fund with at least $500 million in assets.