Third Avenue Launches Credit Fund

While the fund is called Focused Credit, it may also hold equity it receives in exchange for debt, along with the bank loans, convertible bonds and high-yield debt that one typically associates with a credit fund.

Due to the latitude offered to the manager and the great team of investment analysts who stand behind all Third Avenue funds, I believe this is a great opportunity for investors who want exposure to the ongoing credit crisis.

Individual investors would need to be extremely well-capitalized and have experience valuing debt securities to carry this out on their own. Even passively investing in this market segment usually requires a high net worth. These types of funds are offered through separate accounts, private equity, or hedge funds. Third Avenue, for instance, already offers a distressed credit hedge fund for institutional investors.

Focused Credit won't be cheap. It will cost 1.71% for retail shares and 1.27% for institutional shares, although during the first year these fees will be reduced to 1.4% and 0.95%, respectively. Good returns will justify those expenses. Since the fund just launched last week, it'll be some time before we see how it performs.

Still, this should prove to be a profitable area of the market for years to come. Banks still have many bad loans on their books, and the unwinding of housing and credit bubbles will mean plenty of distressed credit securities. Third Avenue has distinguished itself as a value investing firm, and one has a hard time finding a better value than distressed securities.

An area of the market that was difficult for retail investors to access is now available via TFCVX. The fund may not be for everyone, since periodic crises could cause big declines in value.

Conservative investors should only consider a very small slice of their portfolio for such an investment, while younger and more aggressive investors, who will not feel compelled to sell during a panic, might consider a larger position as part of a diversified portfolio.

-- Written by Don Dion in Williamstown, Mass.

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