Crastes finds himself under the financial guillotine
Back when he was still riding high, Bruno Crastes was happy to hit out at regulation.
When the tanned and silver-haired chief executive of H2O Asset Management picked up an award for his market-beating returns in 2018, the Frenchman used his acceptance speech to assert that his industry had become “corrupted by all this regulation and all this risk management”.
Now, four years later, Crastes is facing the prospect of being banned from the investment industry by his home country’s financial regulator for a decade.
On Friday, France’s Autorité des Marchés Financiers recommended a record €75mn fine for H2O, alongside a €15mn fine on Crastes and a €3mn penalty for the firm’s chief investment officer, Vincent Chailley. It’s also seeking to ban Crastes from managing funds or an investment firm for a decade.
What prompted the downfall of Crastes and H2O, which at its peak managed more than €30bn and was widely feted as one of the top- performing asset managers in Europe?
It all started when the FT decided to carry out a little due diligence.
Back in 2019, DD’s Rob Smith and Cynthia O’Murchu from the FT’s investigations desk pored over H2O’s fund filings and made a startling discovery: the firm had well over €1bn invested in illiquid bonds linked to Lars Windhorst, a German financier with a chequered past that included a criminal conviction.
The reaction was immediate: investors yanked €8bn from H2O’s funds, while billions of euros were wiped off the market value of French bank Natixis, which first seeded the firm back in 2010.
Yet, while H2O withstood the initial fallout — during which Crastes even publicly praised Windhorst as “extremely talented” — the French regulator on Friday laid bare a series of “grave” rule breaches at the firm. An official from the AMF argued at a public hearing in Paris that H2O wasn’t even authorised to hold such illiquid bonds in retail funds in the first place.
Lars Windhorst, a flamboyant financier, made his name in the mid-1990s as a teenage entrepreneur © AP
Despite continued revelations in the FT in the three years since its initial exposé, H2O still managed north of €12bn at the last count. Those loyal clients now face a decision.
On Monday, H2O sought to reassure them that the regulator hadn’t accused it of committing fraud, describing the alleged infractions as concerning “essentially technical matters” in a letter to clients. We’ll discover just how technical the matter was when the AMF finalises its penalties in the coming weeks.
Whatever the outcome, the episode is another reminder of the importance of this newsletter’s namesake: due diligence.
During Friday’s hearing, Crastes said that H2O didn’t uncover any information about Windhorst’s criminal conviction in research it carried out before first investing in bonds linked to the financier.
DD would recommend that all of our readers incorporate a simple Google search into their due diligence process to avoid similar mishaps.