Discussion Paper
Quantifying Potential Spillovers from Runs on High-Yield Funds
Abstract: On December 9, 2015, Third Avenue Focused Credit Fund (FCF) announced a “Plan of Liquidation,” effectively halting investor redemptions. This announcement followed a period of poor performance and large outflows. Assets at the fund had declined from a peak of $2.5 billion in May of 2015 to $942 million in November. Investors had redeemed more than $1.1 billion in shares since April 2015, and the fund’s year-to-date performance as of November had fallen below -21 percent. The FCF “run” highlights the need to quantify the potential for systemic risk among open-end mutual funds and the potential for contagion in the event of more widespread runs on other vulnerable funds. In this post, we first characterize open-end mutual funds that seem vulnerable to redemptions in much the same way as FCF. We then analyze the potential for fire-sale spillovers to other mutual funds if large redemptions in “at-risk” funds were to occur.
Keywords: fire sales; high yield; Mutual funds;
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Bibliographic Information
Provider: Federal Reserve Bank of New York
Part of Series: Liberty Street Economics
Publication Date: 2016-02-19
Number: 20160219b