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Credit Fund Moves to Liquidate, Suspends Redemptions

In a letter to shareholders released last week, Third Avenue Management announced that the board of the Third Avenue Trust adopted a plan to liquidate the Third Avenue Focused Credit Fund. Under the plan, the shareholders received a distribution “of the Fund’s cash assets not required for the expenses of the Fund and its liquidation,” and all remaining assets were placed into a liquidating trust. As a result, the firm announced that it had suspended redemptions as of December 9. The management company explained that it believed that the fund “would have been able to realize investment returns in the normal course,” but that “[i]nvestor requests for redemption . . . in addition to the general reduction of liquidity in the fixed income markets, have made it impracticable for [the fund] going forward to create sufficient cash to pay anticipated redemptions without resorting to sales at prices that would unfairly disadvantage the remaining shareholders.” Third Avenue Management announced this week that CEO David Barse would be leaving the firm.

The Wall Street Journal explained that the development may be “a sign of how much the market for corporate debt is deteriorating following a long boom.” The article notes that assets in high yield bonds had increased following the financial crisis as investors sought higher returns; however, investors have recently begun to cash out.  According to traders interviewed by the Wall Street Journal, the fund had difficulty because “it purchased investments that have become much harder to trade and have been steadily losing value as investors fled energy and other kinds of riskier debt in recent months. That squeezed the fund as redemption requests rose sharply this year.”