"Which "Junk" Fund Liquidates Next? After Third Avenue, Here Are The Unusual Suspects"
From ZeroHedge:
The shocking fate of Third Avenue's junk bond fund, which as we reported yesterday,
announced it would gate investors and proceed to liquidate over the
next several months as it sought to unwind its illiquid positions at a
leisurely pace "without resorting to sales at prices that would unfairly
disadvantage the remaining shareholders" is made just modestly less
shocking when one considers that the $789 million fund (down from $2.4
billion earlier this year) was the worst performing YTD fund tracked by
Morningstar, tumbling 27% YTD, but only after placing in the top
1%-percentile in 2013.
It is made less shocking when one considers that the fund, or rather
its holdings, may have been the target of coordinated selling by other
hedge funds who had smelled blood in the water, and decided to short all
of Third Avenue's top holdings, holdings which were particularly
illiquid and thus any attempts to sell in size would very likely be met
by either gaping bid/ask spreads or, more likely, a bidless market.
This is the essence of the WSJ article which
explains that "part of the reason the Third Avenue fund ran into deep
problems, traders said, is because it purchased investments that have
become much harder to trade and have been steadily losing value as
investors fled energy and other kinds of riskier debt in recent months.
That squeezed the fund as redemption requests rose sharply this year."
Among the Focused Credit Fund’s largest holdings is a bond from media
company iHeartCommunications Inc., formerly known as Clear Channel
Communications Inc., according to Morningstar data. The bond traded recently at about 30 cents on the dollar, after trading at 80 cents at the start of the year, according to MarketAxess Holdings Inc.
In recent days, it has been harder to find traders willing to buy
debt the fund holds, including energy company Magnum Hunter Resources
Corp. and troubled Spanish gambling company Codere SA, traders said.
This also means that any hedge funds and traders who were short these names - oestinsibly through CDS just as we explained in How To Profit From The Coming High Yield Meltdown- were making a killing. Hedge funds such as these:...MORE
