David Barse’s letter to Third Avenue Focused Credit Fund for the Fiscal Quarter ended October 31, 2015.
Dear Fellow Shareholders,
I am writing to inform you that the Board of Trustees of the Third Avenue Trust has adopted a Plan of Liquidation for the Third Avenue Focused Credit Fund (“FCF”). Pursuant to this Plan, on or about December 16, 2015, there will be a distribution to all FCF shareholders of the Fund’s cash assets not required for the expenses of the Fund and its liquidation. The remaining assets have been placed into a liquidating trust (the “Liquidating Trust”) and interests in that trust will also be distributed to FCF shareholders on or about December 16, 2015. These two distributions will constitute the full redemption for all shares of FCF and existing FCF 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 is December 9, 2015, so no further subscriptions or redemptions will be accepted. Interests in the Liquidating Trust will not trade and will, in general, be transferable only by operation of law.
We believe that, with time, FCF would have been able to realize investment returns in the normal course. Investor requests for redemption, however, in addition to the general reduction of liquidity in the fixed income markets, have made it impracticable for FCF going forward to create sufficient cash to pay anticipated redemptions without resorting to sales at prices that would unfairly disadvantage the remaining shareholders.
With the S&P 500 falling a double-digit percentage in the first half, most equity hedge fund managers struggled to keep their heads above water. The performance of the equity hedge fund sector stands in stark contrast to macro hedge funds, which are enjoying one of the best runs of good performance since the financial crisis. Read More
In line with its investment approach, FCF has some investments in companies that have undergone restructurings in the last eighteen months, and while we believe that these investments are likely to generate positive returns for shareholders over time, if FCF were forced to sell those investments immediately, it would only realize a portion of those investments’ fair value given current market conditions. We believe that doing so would be contrary to the interests of all of our shareholders, which is why we have taken steps to protect shareholder value by returning cash and implementing the Liquidating Trust to seek maximum value for these investments.
FCF has a distinct and specialized approach to credit investing and has no overlap with other Third Avenue products, which consist almost entirely of exchange-traded equity securities.
Third Avenue will manage the Liquidating Trust in order to obtain the best overall outcome for the beneficiaries. Third Avenue will not charge any fee for those services. Third Avenue anticipates that there will be periodic distributions from the Liquidating Trust as income is received and as assets are disposed of at reasonable prices. Third Avenue anticipates that the full liquidation process may take up to a year or more before a final distribution is made in order to achieve favorable results.
Third Avenue is extremely disappointed that we must take this action. When we launched FCF 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.
If you have additional questions, please contact your sales representative.
CEO, Third Avenue Management