Exclusive: Billionaire Lasry's junk fund stops voluntary reporting of asset levels

BOSTON (Reuters) - A junk bond fund run by billionaire Marc Lasry’s Avenue Capital Management, which has experienced heavy investment losses and investor withdrawals, has stopped voluntarily reporting daily asset figures to the mutual fund industry’s top two tracking firms.

CEO and Co-Founder of Avenue Capital Group Marc Lasry speaks at the Reuters Global Investment Summit in New York, November 17, 2015. REUTERS/Brendan McDermid

Research chiefs for Morningstar and Lipper said on Monday they had not received daily asset under management figures from the Avenue Credit Strategies Fund ACSBX.O since about mid-December. The fund is not required to report the figures, but not doing so is "very unusual," said Jeff Tjornehoj, head of Americas research for Lipper, a Thomson Reuters unit.

Avenue Capital’s decision to stop reporting asset levels to the widely followed research firms happened on the heels of the biggest blow up in the mutual fund industry since the 2008 financial crisis.

People familiar with the situation said outflows from the Avenue Capital fund had become a distraction after an unrelated junk bond fund run by Third Avenue Capital Management imploded in early December. Junk bond investors already were on edge, pulling $3.6 billion from high-yield funds in November, according to Morningstar data.

Avenue Capital’s fund was particularly hard hit after Third Avenue said on Dec. 9th it was liquidating its Focused Credit Fund. Investors reacted by yanking $262 million from the Avenue Capital fund during the first two weeks of December, according to Lipper data.

“Our fund investors receive all key information on the fund, either directly or through our website,” a spokesman for Avenue Capital Management said. The fund also continues to report its daily net asset value to the independent research firms.

But the research firms cannot calculate a fund’s flows - investor deposits and withdrawals - unless they have asset levels.

“We calculate flows in-house so if we don’t have assets, we won’t have flows,” said Annette Larson, senior research analyst at Morningstar.

The Avenue Credit Strategies Fund has lost about 40 percent of its $1.2 billion in assets since the end of October. The fund currently has about $650 million to $700 million in assets, with about 15 percent in cash holdings and less than 5 percent in illiquid investments, according to people familiar with the situation.

The Avenue Capital fund’s total return of minus 13.35 percent in 2015 was worse than 98 percent of high-yield peers, according to Morningstar data. So far in 2016, the fund’s total return is minus 1.49 percent.

But the fund has been able to meet investor redemption requests and has plenty of cash to find some bargains in a battered sector.

It is standard for mutual funds to voluntarily report asset levels to Morningstar and Lipper on a regular basis, as they are seen as independent clearinghouses for calculating investor withdrawals and deposits, and performance figures.

The Avenue Credit Strategies Fund had been reporting assets under management on a daily basis, but then stopped after Dec. 14, Morningstar’s Larson said.

Reporting by Tim McLaughlin and Svea Herbst-Bayliss; Editing by Peter Cooney and Michael Perry