Scandal-tinged H2O funds leak nearly EUR 430M after suspension lifts

October 16, 2020.
View of a Natixis investment bank in Paris, Friday Dec.19, 2008.(AP Photo/Jacques Brinon)

View of a Natixis investment bank in Paris, Friday Dec.19, 2008.(AP Photo/Jacques Brinon)

Investors withdrew EUR 429 million ($503 million) from seven recently unfrozen funds managed by this week, the firm said Friday, after its large holdings in hard-to-sell bonds violated regulatory caps earlier this year.

H2O, which is backed by , said the funds opened on Tuesday and previously held EUR 8.3 billion ($9.7 billion) in assets before the suspension began seven weeks ago. The redemptions H2O reported were spread across 72 hours from Tuesday to Friday, with the last day experiencing the smallest withdrawal orders, the asset manager said.

“This is testament to the great partnerships H2O has built over the years with our investors,” the company said.

Once some of the best-performing funds in Europe, H2O’s funds experienced an $8 billion exodus beginning in June 2019 after a Financial Times investigation revealed that several held significant illiquid assets tied to controversial German financier Lars Windhorst.

In August, France’s stock-market regulator ordered three of its funds to be suspended, and the London-based asset manager voluntarily closed another five with holdings in the Windhorst-tied bonds. H2O revealed in the following week that at least three of them exceeded a regulatory limit of 10% for unlisted holdings, with up to 35% of its Allegro fund consisting of the troublemaking bonds.

H2O said investors cannot deposit or withdraw money from the “side-pockets” it created to separate the Windhorst holdings from the funds’ more liquid assets. They contain about EUR 1.6 billion ($1.9 billion), according to data compiled by Bloomberg.

EUR 333 million ($390 million) of the withdrawals made by investors were from H2O’s Adagio and MultiBonds funds, according to Bloomberg. They are by far its largest funds, having held EUR 7 billion ($8.2 billion) in combined assets at the start of the suspension, and they shrank by about EUR 1.1 billion ($1.3 billion) following the side-pocketed assets and the new outflows.

H2O told investors last month that its plan to sell the illiquid debt back to Windhorst through his investment company Tennor had been delayed and that it could not predict when the debt will be sold off. It also said the bonds had been discounted by about 60% from their face value, an estimate that could be greatly marked down if companies owned by Tennor face difficulties.