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After a Wild Week, H20's Co-Founder Vows Fund Will Emerge Stronger

After a Wild Week, H20's Co-Founder Vows Fund Will Emerge Stronger

(Bloomberg) -- Bruno Crastes, the fund manager at the center of this week’s H20 Asset Management selloff, appeared on screen Friday to calm his investors’ frayed nerves. The recent outflows and turmoil, he said, “will only make us stronger.” His heretofore lower-profile co-founder, Vincent Chailley, appeared as well, vowing that liquidity for private debt will return.

The two Frenchmen, whose London-based fund is backed by Natixis SA, spent the past week seeking to contain the turmoil set off by Morningstar’s decision to suspend the rating on one of their funds and reporting about illiquid debt tied to German entrepreneur Lars Windhorst’s companies. They’ll now be seeking to further restore investor confidence and a return to more normal business conditions. Since June 19, Natixis’s stock is down 10%. Here’s a look at how the drama of the past week unfolded and some of the key developments.

Monday, June 24

Amid signs of mounting investor concern, H2O moved to contain the turmoil. It removed entry fees across all of its funds, sold 300 million euros ($341 million) of unrated private bonds and marked down the balance to dissuade investors from pulling even more assets. The sale cut the aggregate value of the Windhorst-linked bonds to less than 2% of assets under management. The money manager also said it planned to appoint an independent auditor to reassure investors about its investment process.

After a Wild Week, H20's Co-Founder Vows Fund Will Emerge Stronger

Tuesday, June 25

The measures -- while swift -- failed to reassure investors in the short term. Redemptions worsened, with assets in six of H20’s funds down more than 5.6 billion euros over the four days through June 24, to less than 16 billion euros. H24Finance, a French website for the fund industry, released Crastes’s French-language video address from the previous week with English subtitles. He sought to play down the extent of the drama. “Proportionally, the response from investors and the press is very large compared to the subject,” he said. “The last time I communicated by video was in 2015, during the Greek crisis -- it’s during crisis periods that I prefer to communicate this way.”

Wednesday, June 26

H2O said it had received some “material inflows” on Tuesday while redemptions “markedly subsided.” Switzerland’s Union Bancaire Privee said it was examining its investments in H2O.
The drama -- and recent decision by famed U.K investor Neil Woodford to freeze redemptions at his fund -- saw Bank of England Governor Mark Carney reprimand investment funds that hold illiquid assets but allow unlimited withdrawals.

Such funds “are built on a lie, which is that you can have daily liquidity, and that for assets that fundamentally aren’t liquid,” Carney told a parliamentary committee. “That leads to an expectation of individuals that it’s not that different than having money in a bank." On a call with investors, H2O said that it planned to jettison the controversial bonds linked to Windhorst and committed to starting a new fund for “deep value” securities.

Thursday, June 27

Morningstar finally downgraded the Allegro fund it suspended a week earlier, citing concerns about the risk controls and its process for selecting investments. H2O reported assets shrank for a sixth consecutive day on Wednesday, but the pace slowed. Assets in six funds fell by a combined 603.3 million euros that day. On Thursday, assets dropped in at least four of the six funds by a combined 176 million euros, with data on the other two funds unavailable as of 9:15 p.m. Friday in London. Separately, Windhorst announced he’d bought a stake in Hertha BSC, a Berlin soccer team, for more than 125 million euros.

Friday, June 28

True to Crastes’ word about communicating in front of the camera during difficult periods, H2O released an English-language follow-up video. Seated in front of wood paneling and a television in their Mayfair office, the two main men vowed never to freeze investors’ money, avoiding comparisons with the travails of Woodford and Swiss asset manager GAM. While Chailley struck a defiant tone about how the fund “will never gate” investors’ money, Crastes said the fund acknowledged “that the unfortunate events last week have led to results that are way below your expectations.”

--With assistance from Shelley Robinson, Nishant Kumar, Peter Eichenbaum and Steven Crabill.

To contact the reporters on this story: Keith Campbell in London at k.campbell@bloomberg.net;Lucca de Paoli in London at gdepaoli1@bloomberg.net

To contact the editors responsible for this story: Ambereen Choudhury at achoudhury@bloomberg.net, Keith Campbell, Dale Crofts

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