Crisis-hit H2O chief tells investors ‘we will never gate’ fund

The chief executive of H2O vowed to investors that the embattled fund manager will “never” halt redemptions, in an impassioned video address aimed at calming nerves about the stability of the crisis-hit firm.

The subsidiary of French bank Natixis has seen billions of euros of withdrawals from its funds after the Financial Times revealed the scale of their exposure to illiquid debt linked to a controversial German financier with a history of legal troubles.

Bruno Crastes, the 54-year old co-founder of the London-based asset manager, vowed on Friday that the fund will not have to resort to measures taken by other under-pressure asset managers such as Woodford Investment Management and GAM, even though assets in H2O’s core funds have tumbled by nearly €7bn over the past week.

“We never gated and we will never gate,” said Mr Crastes, in a video filmed the previous day at the firm’s Mayfair offices. “Our current motto is force and honour.”

It is the second such video in as many weeks from Mr Crastes, who last week described Lars Windhorst — a German financier who has presided over several corporate collapses and been declared personally bankrupt in the past — as “extremely talented”.

The fund manager was plunged into crisis after FT Alphaville reported last week that H2O’s latest filings collectively listed investments in more than €1.4bn of illiquid bonds linked to Mr Windhorst. H2O still holds around €1bn of these bonds — having sold €300m last week — but has written down their value to less than €500m.

In the video, H2O’s co-founder and chief investment officer Vincent Chailley described the bonds as “deep value debt”. The companies backing these positions range from a lossmaking lingerie maker to a funding vehicle the German financier used to extricate himself from legal difficulties in 2017.

Mr Chailley told clients on Wednesday that, while no final decisions had been made, the firm is considering the creating a separate entity to ringfence the illiquid bonds at the heart of its recent crisis.

In the video on Friday, Mr Crastes said that 98 per cent of the firm’s positions are “liquid”. Some of H2O’s funds have more concentrated exposure, however. A review of their most recent accounts shows that the Multibond fund, which Mr Crastes personally manages, had more than 15 per cent exposure to companies connected to Mr Windhorst at the end of 2018.

“We love swimming against the tide in order to add value,” Mr Crastes said in the video address.

The video comes a day after Morningstar raised concerns around “loose risk controls” at H2O, after downgrading one of its funds on the back of concerns around the Windhorst-linked debt. The influential fund rating firm also directly questioned the “robustness of the valuation policy” of the Windhorst-linked bonds.

Bruno Crastes on Thursday described Morningstar’s report as a “significant vote of confidence”.

The six funds FT Alphaville flagged as having exposure to Mr Windhorst — named Adagio, Allegro, Moderato, Multibonds, Multistrategies and Vivace — had assets of €17.2bn before the outflows began last week. The latest data shows that by Wednesday they had bled nearly €7bn of assets, and while some of the funds had marginal inflows that day, their holdings have now tumbled more than 40 per cent.

“We have never been as motivated as we are, we feel very stimulated by this challenge,” said Mr Crastes. “This experience will only make us stronger.”