Paul Myners calls for scrutiny into H2O’s illiquid asset sales
Intervention of former City minister follows asset manager’s sale of assets back to Lars Windhorst
Paul Myners has called on the UK regulator to investigate the value of transactions between H2O Asset Management and entities with links to it, just weeks after the group agreed to sell assets to German financier Lars Windhorst in a deal shrouded in secrecy.
The former City minister, who made his name as chief executive of investment manager Gartmore, said the Financial Conduct Authority should probe H2O’s trades to ensure that assets were sold at a fair price.
His intervention, which was sent as a written question to the UK parliament last week, came after the Natixis subsidiary signed an agreement at the end of April to sell back stocks and bonds to Mr Windhorst, the flamboyant financier with links to H2O’s top management.
H2O has been under pressure to reduce its funds’ holdings of illiquid assets linked to Mr Windhorst since a Financial Times investigation last year revealed the scale of the manager’s exposure, prompting more than €8bn of investor outflows.
Few details were disclosed about H2O’s agreement to sell assets linked to Mr Windhorst to the financier’s new investment vehicle, although people with knowledge of the situation told the FT that the assets would be sold at a discount. H2O took heavy writedowns on bonds linked to Mr Windhorst last year.
Lord Myners did not make explicit reference to the deal, but told FTfm that he was concerned about whether H2O’s transactions with parties related to it had delivered fair value for investors.
H2O chief executive Bruno Crastes previously sat on the board of Mr Windhorst’s investment company, a role that was highlighted by fund rating company Morningstar as posing a potential conflict of interest.
Mr Crastes stepped down from the position following the FT investigation and was replaced by H2O chief investment officer and co-founder Vincent Chailley. Both Natixis and H2O insisted there was nothing wrong with the initial arrangement.
Lord Myners also voiced concerns about whether H2O had engaged in so-called cross trades, shifting investments from one client portfolio to another. Last year, the manager said it was considering moving illiquid bonds into a separate fund.
“Cross trades need to be carefully monitored to ensure they don’t favour one client over another,” said Lord Myners. “The same goes for trades with related parties.”
H2O declined to comment on its transactions. The London-based company managed to staunch the surge in outflows from its funds last year but has come under renewed pressure recently 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.
It is not the first time Lord Myners has brought events at H2O to regulators’ attention. In March, he submitted a written question asking what plans the UK government had to investigate H2O’s “risk control strategies and executive leadership” in light of the manager’s disclosure of “surprisingly large” losses in some of its funds.
The FCA said it would respond to Lord Myners.