Third Avenue to shutter Focused Credit Fund, blames market environment

By Wendy Van Sickle

Columbus, Ohio, Dec. 10 – A plan of liquidation for the Third Avenue Focused Credit Fund has been adopted by the board of trustees of the Third Avenue Trust, according to a letter to shareholders from fund adviser Third Avenue Management LLC.

The plan calls for a distribution of the fund’s cash assets not required for the expenses of the fund and its liquidation to be made to all shareholders on or about Dec. 16.

The remaining assets have been placed into a liquidating trust, and interests in that trust will also be distributed to shareholders on or about Dec. 16.

A 6-K filed with the Securities and Exchange Commission lists the fund’s total assets at just over $1.95 billion on July 31.

In the letter to shareholders, Third Avenue Management chief executive officer David Barse said what the fund did not have in its favor was time.

“We believe that, with time, [the fund] would have been able to realize investment returns in the normal course,” the letter states.

The letter continues that investor requests for redemption and general reduction of liquidity in the fixed income markets have made it difficult for the fund to create enough cash “to pay anticipated redemptions without resorting to sales at prices that would unfairly disadvantage the remaining shareholders.”

The fund has some investments in companies that have restructured within the past 18 months that may generate positive returns over time, but if those investments had to be sold immediately only a portion of their fair value would be realized, according to the letter.

“Third Avenue is extremely disappointed that we must take this action,” the letter concludes. “When we launched [the fund] in 2009, we expected not only to add a differentiated product to our fund line-up which complemented our platform but would hopefully provide outsized returns in the credit markets, including investments in special situations. As the fund grew over the years, we were able to find unique and special investments. Unfortunately, the present environment has harmed our ability to successfully implement that strategy.”

The two distributions will make up the full redemption for all shares of the fund, and existing fund shareholders will all become beneficiaries of the liquidating trust, which will make periodic distributions as cash is received for the remaining investments. The record date for these distributions was Dec. 9. Interests in the liquidating trust will not trade.

The fund’s investment objective is to achieve a long-term total return by investing mostly in bonds and other of credit instruments with “a substantial amount of assets” to be invested in instruments that are rated below investment grade, according to SEC filings.

“In making these investments, the adviser will seek to purchase instruments that the adviser believes are undervalued. The fund may have significant investments in distressed and defaulted securities and intends to focus on a relatively small number of issuers,” the fund objective states.

“The fund may also purchase equity securities or hold significant positions in equity or other assets that the fund receives as part of a reorganization process, and may hold those assets until such time as the adviser believes that a disposition is most advantageous.”

Third Avenue will manage the liquidating trust for no fee. It is anticipated that there will be periodic distributions from the liquidating trust as income is received and as assets are sold. Third Avenue expects it may take a year or more for the final distribution from the liquidating trust to be made.

Third Avenue said there is no overlap between the Focused Credit Fund and any of its other products.

New York-based Third Avenue Management LLC is the investment adviser.

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