Lars Windhorst to buy illiquid assets from H2O
Natixis subsidiary saw its clients withdraw more than €8bn from its funds last summer
German financier Lars Windhorst has struck a deal to buy back illiquid stocks and bonds from H2O Asset Management, nearly a year after concerns around these hard-to-sell assets sparked a stampede of investor withdrawals from the London-based investment firm.
H2O, which is a subsidiary of French bank Natixis, saw its clients yank more than €8bn from its funds last summer, after the Financial Times revealed the scale of their exposure to bonds linked to Mr Windhorst, a flamboyant financier who gained attention for his legal troubles in his native Germany.
While the asset manager weathered the storm, it has come under renewed pressure this year after its flagship bond and foreign exchange funds lost more than 50 per cent of their value, as the coronavirus outbreak knocked financial markets in March.
H2O, which managed about €30bn of assets before its recent meltdown, signed an agreement at the end of April with a new investment vehicle set up by Lars Windhorst, which will buy back stocks and bonds linked to the German financier at a discount, according to people familiar with the matter.
A spokesman for Mr Windhorst’s investment company Tennor confirmed the agreement.
The spokesman said: “We are aware that a company linked to our founder Lars Windhorst, with backing from a group of German investors, has signed an agreement to purchase securities linked to Tennor Group from H2O Asset Management LLP.”
H2O declined to comment.
Corporate filings in Luxembourg show that a trust company previously used by Mr Windhorst registered a new entity called Evergreen Funding last month, which one person familiar with the matter said was the vehicle that would buy back the discounted assets.
If H2O’s disposal of these illiquid positions proceeds as planned, it could alleviate pressure on the asset manager to comply with EU rules governing open-ended funds, which place a 10 per cent cap on illiquid assets, often referred to as the “trash ratio”.
Filings show that H2O’s Multiequities fund’s holdings of unlisted stocks exceeded 20 per cent of its assets at the end of March. Its proportion of illiquid assets more than doubled as the fund lost more than 60 per cent of its value that month.
The most recent annual report for the Multiequities fund showed that its only unlisted equity investment was in Mr Windhorst’s medical robotics company Avatera.
In the past year H2O has also breached limits around trading with certain types of counterparties. Its auditor KPMG flagged in February that the firm broke rules governing open-ended funds in large trades on hard-to-sell bonds with a small brokerage linked to Mr Windhorst.
Last month rating agency Morningstar downgraded H2O’s Allegro fund to “negative”, its lowest possible grade, on the back of concerns around its risk management.
“Evidence of poor stewardship and rampant risk-taking at H2O Asset Management has continued to mount even after concerns around illiquid corporate bonds at their funds arose in mid-2019,” said Matias Mottola, an associate director at Morningstar.