Secretary of State William F. Galvin on Monday launched an investigation of a New York-based junk-bond fund that froze its assets last week, a step that rattled investors and raised fears of a liquidity crunch in fixed-income markets.
Galvin, who oversees the Massachusetts Securities Division, said his office was probing Third Avenue Management's decision to halt withdrawals from its Focused Credit Fund and had sent the firm a subpoena for information. The mutual fund's assets have plunged from $3 billion last year to $789 million, as the value of distressed-company bonds that it owns fell and investors pulled out their money.
"The immediate question is how did this occur," Galvin said, and how many Massachusetts investors have been unable to exit the fund. He also is looking into whether some investors were warned before the fund's closure.
Third Avenue on Monday said its chief executive, David M. Barse, was stepping down. The fund collapse is a significant hit for Third Avenue, which has been losing customers since the financial crisis, and for its majority owner, Affiliated Managers Group Inc., a Beverly-based company that invests in money managers.
Shares of Affiliated Managers fell 5.7 percent Monday to $144.01.
In a statement, AMG chief executive Sean Healey said, "We are confident in the firm's future path, especially given the depth and quality of Third Avenue's management team and their commitment to creating long-term value for investors."
The closure has sparked fears of broader trouble in the high-yield debt market, particularly among energy companies and troubled businesses.
Staffers from the Securities and Exchange Commission were "on site" Monday, spokeswoman Gina Talamona said. "We continue to closely evaluate the fund's efforts to ensure it provides an orderly process that best protects investors."
Meanwhile, billions of dollars have been flowing out of high-yield mutual funds in recent months, and investor Carl Icahn on Friday predicted in a Tweet that there would be more losses in the sector.
The Fidelity Series High Income fund, for instance, has lost 5.2 percent of its value this year, according to Morningstar Inc., a Chicago fund research firm. Investors have pulled $1.5 billion out of the portfolio, which now has $5.2 billion in assets.
Third Avenue has seen outflows of $979 million in 2015.
A Fidelity spokeswoman said the company had not seen any "unusual activity" in its high-income funds.
"We are confident in the positioning and liquidity of our funds," spokeswoman Sophie Launay said in a statement.
"It's been a rough year for high yield," said Sarah Bush, a fixed income analyst at Morningstar. But the firm doesn't see widespread trouble in the near term. "This fund was very concentrated in low-quality, even distressed, names," she said of Third Avenue Focused Credit.
High-yield funds tend to underperform when the economy is in a recession, when companies that carry heavy debt have more difficulty making money and paying their creditors. The economy remains strong, but with the drop in oil and natural gas prices, energy companies that carry a lot of debt are now riskier investments.
Third Avenue managed $8 billion before the fund losses, less than one-third of what it oversaw at its peak.
Beth Healy can be reached at beth.healy@globe.com. Follow her on Twitter @HealyBeth.