“Valuation uncertainties.” And the trail of the Windhorst bonds.
H2O Asset Management — a UK-based hedge fund, majority-owned by French investment bank Natixis — just gated a series of its funds due to illiquidity of its holdings. On Friday evening, France’s chief market regulator, Autorité des marchés financiers (AMF), instructed the firm to close three of its funds due to “valuation uncertainties” resulting from their exposure to unlisted securities linked to the controversial German financier Lars Windhorst.
Besides the three funds indicated by AMF, H2O closed another five funds containing holdings of similarly illiquid assets, with the result that roughly half of the asset management firm’s entire portfolio of assets — €21.7 billion, according to the company’s website — is now under wraps. Trapped investors cannot access their funds, and will be unable to do so for at least the next four weeks, during which time the company will try to sell off the illiquid assets.
Natixis — itself owned by Groupe BPCE, France’s second largest banking group — insists that whatever happens at H2O will have “no financial impact” on its own balance sheet or income statement. Natixis has enough problems of its own to deal with, having suffered significant trading losses in the second quarter as stocks derivatives bets went awry.
In 2015, H20 began purchasing non-rated corporate private placements. They included bonds issued by companies backed by the German entrepreneur Lars Windhorst, who in 2009 had received a suspended prison sentence for breach of trust. After leaving a trail of bankrupt companies, stiffed investors, and unpaid debts, Windhorst was accused by the German financial daily Handelsblatt of “greed, boundlessness and immoral behavior.”
But H2O couldn’t get enough of Windhorst’s bonds and other illiquid assets. By June 2019, the fund’s unlisted holdings accounted for almost 10% of total assets under management. As FT Alphaville reported at the time, they included a €500 million bond issued by Chain Finance, a vehicle that Mr Windhorst used in 2017 to settle outstanding lawsuits and repay existing debts. Nonetheless, €383 million of the €500 million issued ended up in six of H20’s funds, all of which offered investors the prospect of daily withdrawals.
When the true nature of these private securities was revealed, Morning Star decided to downgrade its rating of the fund. And many of the fund’s investors rushed for the exits. In the space of just over a week, €8 billion — around 30% of the total money parked in the fund — fled the fund.
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Nick Corbishley 