Third Avenue Management is considering the sale of its Focused Credit Fund, which halted redemptions in December and spurred a selloff in the high-yield market, according to a person familiar with the matter.
Investment bank Houlihan Lokey Inc. is looking for a buyer for the mutual fund, which has assets of about $603 million, said the person, who asked not to be named because the matter isn’t public. The Wall Street Journal reported the possible sale earlier Thursday.
Third Avenue, which was founded by value investor Marty Whitman, shuttered the fund in December after losses and withdrawals left it unable to meet redemptions without selling assets at fire-sale prices. News of Third Avenue’s lock-up triggered a brief selloff in high-yield bonds and stock markets as fears grew that a collapse in the speculative-grade market could cause a global contagion.
High-yield bonds have rallied since February on signs that the U.S. economy is still growing a moderate pace.
The Third Avenue fund, which had almost $3.5 billion in assets in 2014, according to data compiled by Bloomberg, had less than $800 million when it was closed in December. The firm’s chief executive officer, David Barse, was dismissed soon after the fund shut down.
Focused Credit has made two cash distributions since it was closed, according to Third Avenue’s website. As of June 30, the fund had 51% invested in high-yield securities, 29% in equities and 19% in cash. Any proceeds from a sale would go to shareholders in the fund.
In March, the top regulator of mutual funds said the failure of the fund suggested some assets may be too illiquid to be held in large amounts in traditional funds.
“I believe certain investment strategies — such as those focused heavily on distressed debt — may be more suitable as closed-end or private funds, rather than in funds subject to daily redeemability,” said David Grim, director of the division of investment management at the U.S. Securities and Exchange Commission, in a speech.
Dan Gagnier, an outside spokesman for Third Avenue, and Houlihan Lokey declined to comment.
— Check out High-Yield Bonds: The One Place Not to Own an ETF on ThinkAdvisor.