Struggling London fund H2O forced to sell assets
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Right now, it’s not such a good thing to be associated in investors’ minds with Neil Woodford. Since the star stockpicker gated his flagship fund — blocking investors from withdrawing any more funds — the spotlight has been on supposedly liquid funds with illiquid assets, a key problem for Mr Woodford.
Last week, attention turned to the illiquid holdings of a different asset manager. FT Alphaville revealed London-based H2O Asset Management, which is owned by French Bank Natixis, had large holdings of illiquid bonds linked to a controversial German financier, Lars Windhorst (pictured). A day later, Morningstar, whose assessments are a key guide for investors, suspended its rating on one of H2O’s funds, citing concerns over the “liquidity of certain bonds”. H2O saw €1.4bn of outflows across six of its funds withdrawn between Tuesday and Thursday last week.
On Monday, H2O said it had sold part of its holding of non-rated private bonds and, based on a valuation from international banks, marked down the rest. The aggregate market value of the bonds now sits below 2 per cent of its assets under management. H2O laid the blame for the mark down on “press reports which dried up market liquidity and widened bid-ask spreads”. H2O’s funds will now be priced at a discount between 3 and 7 per cent.
The final line of a statement from H2O puts the focus on another thing Mr Woodford has found tricky: fees. H2O is waiving entry fees (though not types of fee) across all funds until further notice. Given Mr Woodford’s Equity Income Fund is suspended, it’s not like he needs to worry about charging investors to put money in. But while Hargreaves Lansdown has waived its own fees for clients invested in the fund, Mr Woodford’s refusal to drop management charges remains one of the key flash points for investors.