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H2O Asset Management will make a €70mn repayment to investors who have had their funds trapped at the once high-flying asset manager since 2020, as it continues to make limited progress in returning €1.6bn it invested in illiquid assets.
Once a star of European investment that oversaw more than €30bn at its peak, H2O was plunged into crisis in 2019 after the Financial Times revealed it had substantial exposure to illiquid securities tied to the controversial financier Lars Windhorst.
H2O froze €1.6bn of investor funds the following year after the French financial regulator raised concerns about the valuations of its hard-to-sell assets. The Autorité des Marchés Financiers levied a record €75mn fine against H2O last year as punishment for “serious” rule breaches related to the illiquid investments while banning the firm’s co-founder Bruno Crastes from managing funds for five years.
H2O said the roughly €70mn would be paid in the “coming weeks” to investors that had had their money frozen in funds set up to house the illiquid securities.
The payment will be the second to these investors after H2O said last year that it had received a €250mn repayment from Windhorst’s investment firm Tennor Holding. Investors later received a smaller distribution of about €144mn, however, and fund disclosure then showed that a significant portion of the €250mn was repaid with new bonds rather than cash.
The announcement of a second payment comes a week after an FT investigation revealed the extent of the firm’s former chief executive Crastes’s personal entanglements with Windhorst, which included going on a family holiday to the Caribbean with the financier on his superyacht. It also revealed that H2O’s chief investment officer and co-founder Vincent Chailley strongly objected to many of the Windhorst-linked investments for years before the firm was plunged into crisis.
H2O said that the planned distribution had led to an “upwards” revaluation of its so-called “side pocket” funds, which were previously marked down to less than €200mn at the end of November. The asset manager cautioned that “valuation uncertainty” remained, however, and that “only liquidation will allow an exact valuation”.
Despite the slow progress on returning money to the side-pocket investors, H2O’s core funds — which primarily invest in government bonds and currencies — have strongly outperformed their benchmarks in recent years. H2O recently told investors that its flagship fund ended 2023 up about 26 per cent, which it described as “almost identical” to its 2022 performance despite a “radically different market context”.
In December, H2O was hit with a lawsuit filed by more than 6,000 aggrieved investors claiming €700mn in damages in relation to the illiquid asset scandal. The investor group argues that H2O, as well as its former majority owner Natixis Investment Managers, the auditor of its funds KPMG, and the funds’ custodian CACEIS, are jointly liable for the losses that investors incurred.
H2O earlier this month said that the lawsuit contained “arbitrary, unfounded and even fabricated allegations” and that “we will continue to defend ourselves, with conviction and without artifice”.
Windhorst has spent much of the past year battling a fresh raft of lawsuits in London’s High Court from aggrieved creditors. In the summer of 2023, he was found in contempt of court, hit with a €150mn freezing order and conceded under cross-examination that it was “difficult” to say whether he was solvent.
Several businesses underpinning H2O’s investments in Windhorst-linked illiquid securities have recently experienced financial difficulties, with a UK court in November ordering the liquidation of the holding company of Italian luxury lingerie brand La Perla.
Windhorst last week told the FT: “It remains a priority of Tennor Group to repay its debts and Tennor Group and myself kept making payments to creditors including H2O during the past year and intends to continue paying down its debts during the coming weeks and months as we are confident about the development of our global businesses for this year and beyond.”