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Neuberger Berman: Third Avenue Fund Managed Like Private Equity

The Third Avenue Focused Credit Fund, which was recently shut down, was managed more like a private equity fund, not a 40 Act mutual fund, said Bradley Tank, chief investment officer of fixed income at Neuberger Berman.

“That particular fund was a bit of an anomaly from the standpoint of it was really a wolf in sheep’s clothing, so to speak,” Tank said, speaking on a conference call about his firm’s 2016 outlook. “You have a fund that has traditionally been invested in a way that’s probably more consistent with what a distressed investor would do in a private equity-like framework, with lockup provisions and so on—not necessarily consistent with managing a 40 Act fund that requires daily liquidity.”

Third Avenue announced plans last week to shutter its Focused Credit Fund, which invests in high yield bonds and had about $789 million in assets. The fund had suffered lately from poor performance, having lost 27 percent for the year through Dec. 9, and net outflows of $1.3 billion through November, according to Morningstar.

Tank said Neuberger Berman looked at the fund’s holdings through time, and determined that it was really investing in distressed securities.

Out of some 400 high yield funds tracked by Morningstar, Third Avenue’s fund almost always had the highest yield, Tank added. And the fund is currently sporting a yield more than double that of Neuberger’s high-yield funds.

“Yield is often an indicator of risk.”

Overall, Neuberger is modestly oriented to equities over fixed income. In particular, the firm sees 2016 investment opportunities in high-yield credit, once we get through some of the year-end volatility, and master limited partnerships. Althought MLPs have been beaten up lately given concerns about the energy sector, Neuberger believes there are attractive values in select issues. 

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