Lasry's High-Yield Fund Held 45% Cash After Third Avenue Freeze

  • Fund raised cash after $150 million redemptions in two days
  • Firm says withdrawals have since eased to `minimal level'

Avenue Credit Strategies Fund, a high-yield fund run by Marc Lasry’s Avenue Capital Management, put about 45 percent of its portfolio into cash earlier this week after another high-yield fund with a similar name, the Third Avenue Focused Credit Fund, froze redemptions last week.

Avenue Capital was worried that clients would confuse the names and pull money from its fund, said Todd Fogarty, a spokesman for the firm. Avenue Credit Strategies suffered about $150 million in outflows in the two days after the $788.5 million Third Avenue Fund, which was run by Martin Whitman’s Third Avenue Management, stopped withdrawals.

“They were being conservative,” Fogarty said about Avenue Capital’s decision to go into cash. Redemptions have since tailed off to a “minimal level” and the fund has begun buying bonds again, he said.

Like other managers who invest in high-yield and distressed securities, Avenue is distancing its product from Third’s Avenue’s fund, which took the rare step of freezing redemptions after it loaded up on hard-to-sell assets. The Avenue fund is managed by Jeff Gary, who helped start the Focused Credit Fund before joining Lasry’s firm in 2012.

In an interview Dec. 16, Lasry said the fund has a “well-positioned portfolio and our illiquid assets are in the single digits.” The fund has about 4 percent of its assets in energy, Fogarty said. High-yield energy bonds have declined 21 percent this year, according to a Bank of America Merrill Lynch index.

Avenue Credit Strategies lost 12 percent this year, trailing 99 percent of peers in 2015, according to data compiled by Bloomberg. Because of the large cash position, the fund lagged behind rivals this week when high-yield bonds rebounded, said Fogarty.

Avenue Capital manages $12.7 billion in distressed securities, mostly in funds with multi-year lock-ups and the ability to wager on falling as well as rising prices. The Avenue Credit Strategies fund is a mutual fund, which are more strictly regulated and required to be able to return investor money on a daily basis. Its assets have declined to about $750 million, from $2 billion in November 2014.

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