SEC's White Warns Directors to Be Vigilant for Credit-Market Turmoil

WASHINGTON—Directors of mutual funds should look to the failure of a distressed-debt fund last year and probe how prepared their portfolio managers are for the kind of turmoil that doomed the Third Avenue Focused Credit Fund, SEC Chairman Mary Jo White said Tuesday.

"Directors of funds should also be thinking about and asking fund managers whether these events could happen at your fund, how to prevent them from happening, and how to respond promptly and effectively if they do occur," Ms. White told a conference of independent directors of mutual funds in Washington.

Third Avenue suspended clients from pulling their money from the $788 million fund in December after saying it would have to sell assets at fire-sale prices to meet redemptions. The move rattled credit markets and sparked widespread concern about other mutual funds that invest in high-yield bonds.

Third Avenue Management LLC Chief Executive Officer David Barse left the firm just days after the firm blocked investors from withdrawing their funds.

Ms. White also said that technology glitches that bedeviled Bank of New York Mellon Corp. last year should serve as a warning to fund directors.

BNY Mellon was unable to provide prices for more than 40 mutual funds and exchange-traded funds last August after its technology broke down on August 24, a day when broad market turmoil caused hundreds of ETFs to halt trading. Fund companies affected included Goldman Sachs Group Inc., Guggenheim Investments, Prudential Investments, Federated Investors and Invesco PowerShares.

"As a director, it is incumbent upon you to consider what these and other risk areas could mean for your fund in the future," Ms. White said.

Write to Dave Michaels at [e-mail]

(END) Dow Jones Newswires

March 29, 2016 10:15 ET (14:15 GMT)

Copyright (c) 2016 Dow Jones & Company, Inc.