H2O fund downgraded over risk control concerns
H2O, the London-based asset management arm of French investment bank Natixis, has seen its global macro fund downgraded due to concerns over risk controls.
Ratings agency Morningstar downgraded the Allegro fund from “bronze” to “neutral” following concerns about its exposure to illiquid, high-risk bonds linked to controversial German entrepreneur Lars Windhorst.
Read more: Asset manager H2O says redemptions are falling after it was hit by a wave of outflows
The firm has to “regain investors trust” after the bond investments were revealed, Morningstar said.
Natixis will next month launch an audit of the asset management firm’s processes.
“H2O Allegro is run by an experienced team adept at making top-down calls on government bonds and currencies,” said Morningstar analyst Mara Dobrescu.
“But this team’s decision to invest a sleeve of Allegro’s portfolio in illiquid, high-risk corporate bonds, all linked to German entrepreneur Lars Windhorst, raises concerns about the robustness of the security-selection process applied here.”
Dobrescu also raised concerns about a potential conflict of interest as until recently H2O chief executive sat on the board of Windhorst’s holding company Tennor. He stepped down and was replaced by chief investment officer Vincent Chailley.
Read more: H2O assets fall over liquidity concerns
Yesterday the asset manager said there had been “substantial inflows” of funds in recent days and redemptions had fallen to five times less than they were at their peak last Friday.
In a statement this afternoon H2O said: “H2O confirms that it is considering medium term solutions to re-organise its holdings in non-rated corporate bonds, in order to eliminate entirely any liquidity concerns in H2O’s UCITS funds.
“In the meantime, H2O sees value in these bonds and will not dispose of them at the current discounted price.”