Spooked by Fishy Smells & Regulators, Investment Bank Natixis Dumps its 50% Stake in Formerly-$36-Billion Hedge Fund H2O

Blackstone Group, BNP Cardif, Crédit Agricole, and others have also unwound or suspended their relationship with H2O.

Embattled London-based hedge fund H2O Asset Management — with €20 billion ($24 billion) of assets under management, down from €30 billion ($36 billion) last year — has a big new problem on its hands: its majority investor, French investment bank Natixis, has decided to sell its 50.01% stake. The decision comes after an FT investigation last year revealed that the hedge fund had invested substantial funds in highly illiquid assets, and it raises serious questions about H2O’s future.

H20 “will no longer be considered a strategic asset,” said Natixis in its third-quarter earnings statement. “Natixis IM and H2O AM have entered into discussions with a view to unwinding their partnership in a gradual and orderly fashion.”

One way of achieving this, the bank said, would be through an incremental sale of its stake in H20. The alternative would be for H20 to gradually take control of the distribution of its own funds during a transition period lasting until the end of next year. Either way, the result is the same: Natixis is calling it quits on a partnership that goes back 10 years, to H2O’s inception.

Natixis has not given concrete reasons for its decision to cut ties with H2O, apart from as part of a broader de-risking exercise. But it comes after H2O’s recent brush with market regulators in France and Belgium.

At the end of August, H2O was forced by France’s market regulator to gate a number of its funds, due to “valuation uncertainties” resulting from their exposure to high-yielding unlisted securities. Those securities are linked to the scandal-tarnished German financier Lars Windhorst, whose business dealings over the past two decades have left a long trail of bankrupt companies, stiffed investors, and unpaid debts.

Continue reading the article on Wolf Street

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