The step Third Avenue took is unusual for a mutual fund, which typically offers daily liquidity to investors, and comes after regulators raised concerns that some mutual funds are investing in assets that could be hard to sell in a market rout. David Barse, Third Avenue’s chief executive officer, said blocking redemptions was necessary to avoid fire sales.
‘Liquidity Problem’
The fund, which had $3.5 billion in assets as recently as July of last year, suffered almost $1 billion in redemptions this year through November. The Third Avenue fund lost 13 percent in the past month and is down 27 percent this year, according to data compiled by Bloomberg. Assets have declined to $788 million as of Dec. 8 as clients pulled an estimated $979 million this year through November, according to Morningstar Inc.
"It’s significantly bad news for the market, and another straw on the camel’s back," said Martin Fridson, a money manager at Lehmann Livian Fridson Advisors LLC. "It’s not typical, but it raises the question: Can this happen to the next-worst fund? You just don’t know. It certainly doesn’t encourage people to put money in, and that just exacerbates the liquidity problem there."
The weakness in the market comes as credit quality in speculative-grade debt is falling. For every junk-bond issuer that had its rating boosted this year, two have been downgraded, a ratio not seen since 2009, according to data compiled by Bloomberg.
And companies are increasingly defaulting on their debt. Swift Energy Co.’s failure to make an $8.9 million interest payment last week raised the global tally of defaults to 102 issuers, a figure last exceeded in 2009, according to Standard & Poor’s.