Natixis' H2O funds haemorrhage 5.6 billion euros as crisis deepens

[LONDON] Natixis-backed H2O Asset Management, which until last week defied a slump in the industry with stellar returns, saw assets at a group of its largest funds experience their biggest ever single-day drop.

After almost a decade of near-constant inflows, clients last week started to yank money from some of its funds over concerns about illiquid holdings tied to a controversial German businessman.

The crisis worsened on Monday, the latest day for which figures are available, with assets in six of its funds down more than 5.6 billion euros (S$8.6 billion) over just four days to less than 16 billion euros.

On Tuesday, H2O said in a statement that outflows had slowed, with the money manager seeing some inflows on Tuesday. It didn't provide any further details.

H2O, founded by Bruno Crastes and Vincent Chailley in 2010 with the backing of French investment bank Natixis SA, attempted to stem the decline in assets last week with a series of measures meant to assure investors it can meet redemptions while making it more painful for those seeking to get out. The goal was to avoid a similar fate of Swiss asset manager GAM and famed UK stock picker Neil Woodford which both froze funds amid an investor exodus.

H2O moved hastily over the weekend to contain the crisis, selling some 300 million euros of unrated private bonds and marking down the remaining ones. The firm dropped its entry fees altogether and said it would appoint an independent auditor to restore investor confidence.

The sale and a marking down of the non-rated corporate bond holdings across H2O's range reduced the value of the rarely traded notes to 500 million euros, the company said in a statement on Monday, without elaborating on the size of the previous holdings.

The crisis is also weighing on Natixis' share price, which lost almost 12 per cent last week and has yoyo-ed since Monday. This is partly because the funds have been lucrative for the bank. One strategy, H2O Multibonds, made more than 30 per cent for its investors last year, according to data compiled by Bloomberg.

H2O's crisis started after the Financial Times showed the exposure of several of its funds to companies related to Lars Windhorst, a German financier with a history of troubled investments. Morningstar, an influential research firm used by investors as a guide to buy or sell funds, subsequently suspended its bronze rating on the H2O Allegro fund on Wednesday over concerns about the "liquidity and appropriateness" of some of its holdings.

The move led jittery investors, still reeling from star stock picker Woodford's decision to freeze withdrawals from his flagship fund, to start yanking cash from H2O. More than a dozen of the firm's funds allow clients to invest or exit on a daily basis.

Until recently, H2O had been growing rapidly. Last year, the firm introduced entry fees of as much as 5 per cent to slow the amount of new cash as several funds neared capacity. Between 2017 and the end of April, H2O's assets doubled to US$37.6 billion, according to an investor letter seen by Bloomberg.

BLOOMBERG