Third Avenue CEO Departs

Dow Jones Newswires

Third Avenue Management has parted ways with Chief Executive David Barse, said people familiar with the matter, a move that comes just days after the firm rattled financial markets and the mutual-fund industry by barring withdrawals from its junk-bond fund. 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. On Saturday, emails to Mr. Barse were returned with a message of "undeliverable." A rival bond executive who spoke with Mr. Barse on Friday afternoon said he quickly got off the phone without sharing any details about his departure. Mr. Barse had led Third Avenue since 1991, according to the company's website, and is a large shareholder. He was the public face of the firm's announcement Thursday that it was closing its six-year-old, $789 million Third Avenue Focused Credit Fund and would bottle up investors' money for months or more as it tries to liquidate its assets. The move roiled credit markets Friday and sparked widespread concern about other mutual funds with large holdings of corporate junk bonds. The largest U.S. junk-bond exchange-traded fund closed at its lowest level since 2009 Friday on record trading volume. Mr. Barse didn't respond to requests for comment. Third Avenue and its representatives didn't respond to requests for comment. On Dec. 10, the day the firm announced it was halting withdrawals, traders at Wall Street banks circulated a list of bonds offered for sale by a single seller that matched many of the largest holdings reported by Third Avenue, said several hedge fund managers who saw the list. Most hedge funds passed on the portfolio, which contained deeply distressed bonds and private equity investments that are hard to trade. But Barry Kupferberg, head of research at hedge fund Trilogy Capital, snapped up private equity in Longview Power LLC, a low-cost coal-burning power plant in West Virginia, at a more-than-40% discount to the $8 price at which the shares were quoted. 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. An attorney for Third Avenue discussed the terms of the proposed transaction, among other ideas, with the SEC starting Dec. 3 on a "no-names" basis but didn't disclose the identity of his client until around Dec. 9, an executive for Third Avenue said. The Third Avenue Focused Credit Fund was set up in the summer of 2009, close to the end of the latest U.S. economic recession. It invested in high-yielding loans and securities issued by heavily indebted companies. Its strategy was to build a concentrated portfolio, making large bets on securities that typically traded at deep discounts to their face value. Within a year, the fund had roughly $900 million in investments. Its assets under management topped $3 billion in 2014, as the fund reaped the benefits of an upward march in prices of junk bonds and other risky assets that surged in value as the U.S. economy recovered. By its fifth anniversary in August 2014, the fund had chalked up a five-year annualized return of 11.9%, according to Third Avenue. But its performance swung wildly from year to year. In 2013, its return of 16.5% put it in the top 1% of high-yield funds tracked by Morningstar. By the end of 2014 it had slipped to the bottom 1% of the category following a minus-6.3% return. The fund was managed by Thomas Lapointe, who joined Third Avenue in 2009 from Columbia Management. When the fund's performance deteriorated this year and investor redemptions surged, it started liquidating some of its investments, but its outsized holdings enabled savvy traders to quickly figure out that a large investor was under pressure to sell, this person said. The result was that Third Avenue received lowball bids for some of its assets, which would have caused it to absorb big losses if it sold at those prices.

(END) Dow Jones Newswires

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