Catholic University Law Review


In 2016, the Securities and Exchange Commission adopted Rule 22e-4 (the “Liquidity Rule”) under the Investment Company Act of 1940, as amended, and related reporting and disclosure requirements. One industry analyst described the Liquidity Rule’s objective as making sure that mutual funds implement “effective liquidity risk management programs,” especially in light of mutual funds’ prevalence in the economy and in American households. Yet, as one Reuters analyst suggested, the SEC also seemed to have adopted these liquidity regulations, to avoid a “repeat of the kind of problems that surfaced with the collapse of the [mutual fund] Third Avenue Focused Credit . . . in December 2015.”

This Comment takes a closer look at some of the “problems” that Third Avenue Management Focused Credit Fund (“the Fund” or “Focused Credit”) faced and the complex liquidity implications of some of its investments. The Comment then lays out the roots of the SEC's concern over mutual funds' liquidity and the regulatory standards in this area prior to the adoption of the Liquidity Rule. Thereafter, this Comment distills the elements of the Liquidity Rule, and observes how it could apply, in theory, to help prevent other mutual funds from suffering the same fate as Focused Credit. Lastly, this Comment provides thoughts on more recent market events (i.e., related to the COVID-19 crisis) and how they may present a good opportunity to test the effectiveness of the Liquidity Rule.