Wednesday, 24 July 2019 04:46 GMT

Natixis's H2O marks down bond assets to avoid Woodford's fate

(MENAFN - Gulf Times) Natixis went into crisis-fighting mode to stem a wave of outflows from its H2O Asset Management unit, selling about €300mn ($342mn) of its unrated private bonds and marking down the balance to remove incentives for investors to pull even more.
The move cuts the aggregate market value of the bonds, which were issued by companies linked to financier Lars Windhorst, to less than 2% of assets under management, H2O said in a statement yesterday.
H2O's funds, whose assets doubled since 2017 to $37.6bn before last week's tumult, will be priced at a discount between 3% and 7%, and the company will remove all entry fees across its funds, it said.
The measures aim to reverse outflows from a group of H2O funds that saw their assets drop by €1.1bn on Thursday as analysts questioned their holdings.
By moving swiftly and having fund investors take valuation losses now, H2O is seeking to avoid the fate of famed UK stock picker Neil Woodford and Swiss asset manager GAM Holding, which both froze funds over the past year amid concerns about whether they'd circumvented investment restrictions.
Morningstar questioned the 'liquidity and appropriateness of some of H2O's corporate-bond holdings as well as potential conflicts of interest, while research firm Autonomous said the notes are akin to loans, which aren't permitted.
The rating company suspended its recommendation on Wednesday, following a report in the FT about the fund's holdings of rarely traded bonds.
Natixis, which has a network of more than 20 independent asset managers, brought forward a periodic audit of the unit to start June 21. Its shares rose 1.3% in Paris yesterday, halting the two-day slump that followed Morningstar's move. The bank lost almost 12% last week, falling to the lowest level in nearly three years on Friday.
H2O told investors it sold about 300mn euros worth of private placements on Friday, according to a letter seen by Bloomberg. The money manager also said it planned to appoint an independent auditor to reassure investors about its investment process and valuation policy regarding non-rated private bonds in their funds, according to the note.
The fund said it depreciates all portfolio assets in line with market prices and that it started marking down net asset values as of Wednesday. This is why 'our funds have overall posted daily negative performances, despite the good showing of our main investment strategies, H2O said in the letter. An H2O spokesman declined to comment on the letter.
The reduction of Windhorst-linked bonds yesterday comes in stark contrast to the defiant tone struck by Bruno Crastes, chief executive officer of H2O, in an interview published on French media website H24 Finance last week. Crastes, who was asked by Natixis last week to leave the board of Windhorst's investment company, will be replaced by H2O's chief investment officer Vincent Chailley, according to a spokesman for the firm. 'The liquidity of the securities is ensured and will allow it to face potential additional withdrawals, Natixis said in statement yesterday. 'The long-term performance drivers of H2O funds, which have been proven over numerous years to the benefit of our clients, remain unaffected as they are not related to this type of investment.
The notes in question are so-called private placements linked to closely-held companies from lingerie to robotics in sales arranged by Windhorst. Unlike traditional bonds, they resemble loans, according to Autonomous.


Natixis's H2O marks down bond assets to avoid Woodford's fate

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