Billionaire hedge fund manager Marc Lasry on Monday backed a junk bond mutual fund hemorrhaging assets at his Avenue Capital Group as jittery investors exit high-yield bonds amid a market rout.
Investors have taken note that Lasry's $884 million Avenue Credit Strategies Fund is run by the same portfolio manager who in 2009 helped launch the Third Avenue Focused Credit Fund, which abruptly shut down last week and blocked investor redemptions, fund disclosures show.
In January 2012, Jeff Gary joined Lasry from Third Avenue, where he once ran the now defunct fund. Gary left Third Avenue in December 2010. Despite some similarities, Lasry sought to draw distinctions between the two junk bonds in a telephone interview with Reuters.
“We have a diversified and well-positioned portfolio and our illiquid assets are in the single digits,” Lasry said about his fund.
By contrast, Third Avenue's fund had an estimated 20 percent of its assets in illiquid, hard-to-trade securities.
And Lasry's Avenue Capital, a powerhouse in the distressed investing sector, has about $12 billion in assets, compared with less than $10 billion at Third Avenue Capital.
"I think overall redemptions at some point are going to slow down across the market," Lasry said. "I'm not sure if that will be tomorrow or next week, but people are going to start putting money back into the market at some point."
The Avenue Credit Strategies Fund's total return is minus 10 percent this year, underperforming the 3.83 percent average decline in the junk bond category, according to Morningstar Inc. And investor withdrawals have accelerated since March, cutting the size of the fund from $2 billion to $884 million, according to Lipper Inc.
By contrast, Third Avenue's junk fund was down nearly 30 percent before it closed with about $800 million in assets. Both funds bet on debt issued by companies in stressed situations. Third Avenue, though, focused some of its investing on bankruptcy-related claims, which are considered extremely hard to trade even during good times.
Brad Alford, chief investment officer of Alpha Capital Management in Atlanta, who had invested in both the Avenue Capital and Third Avenue funds, said Third Avenue's liquidation shocked the mutual fund industry. Alford sold out of both the Third Avenue and the Avenue Capital funds earlier this year.
"It has shaken to me to the core. Who else can do this?" he said.
