Junk bond fund rattled markets Friday
The risk aversion in markets Friday was kicked off when Third Avenue Management announced it was suspending redemptions from a junk bond fund as it liquidated.
CEO David Barse had led the firm since 1991 and was the public face of the announcement. Evidently the board wasn't impressed. The WSJ reports that a security guard at the firm's New York headquarters said Sunday that Mr. Barse had been let go and isn't allowed back in the building.
One ticker you will see frequently in the next year is the S&P US high yield corporate bond index total return.
Third Avenue used an unusual legal strategy to effectively halt redemptions without obtaining an order of authorization from the U.S. Securities and Exchange Commission, a person familiar with the matter said. The firm paid out all redemption requests through Dec. 8, the night before it closed the fund, then transferred all of its investments to a liquidating trust, which issued interests to be distributed to shareholders in the now-defunct fund.Third Avenue argued that the distribution of the shares in the trust would count as a full redemption, meaning the fund wouldn't legally have halted distributions, the person familiar with the matter said. Shareholders in the trust will have no redemption rights and will be repaid as-and-when Third Avenue decides to sell assets in the trust.The firm presented the strategy to the SEC hours before announcing it publicly and didn't obtain the regulator's approval, the person said.
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