Former City minister Paul Myners has called on the Financial Conduct Authority to investigate the value of H2O Asset Management’s recent trades of illiquid assets with German financier Lar Windhorst to ensure they were conducted at a fair price.
On 2 June Lord Myners submitted a written question to parliament asking whether the government or the regulator would probe activity between H2O, a Natixis subsidiary, and Windhorst, described by the Financial Times as a “flamboyant financier with links to H2O’s top management”.
In April Windhorst struck a deal with H2O to buy back illiquid stocks and bonds. According to the FT, few details were revealed about the deal, although people with knowledge of the situation told the newspaper that the assets would be sold at a discount.
Lord Myners, who was City minister from October 2008 to May 2010 and is a former chief executive of Gartmore, did not make explicit reference to the deal, but told the FT he was concerned about whether H2O’s transactions with parties related to it had delivered fair value for investors.
H2O’s dealings with Windhorst have been under intense scrutiny over the past year. In June last year an FT investigation highlighted liquidity issues across six H2O funds – Adagio, Allegro, Moderato, Multibonds, Multistrategies and Vivace – which appeared to hold €1.4bn of bonds connected to the “controversial” Windhorst, described as a “flamboyant entrepreneur with a history of legal troubles”.
> See also: A breakdown of the H2O liquidity crisis
H2O Allegro fund faced €600m in redemptions between 18 and 21 June 2019 after Morningstar suspended its rating for the fund on the back of the FT article. Morningstar then reinstated a rating on the fund, downgrading it from bronze to neutral.
Lord Myners was also concerned about whether H2O had engaged in cross trades which involved moving investments from one client portfolio to another. Last year, H2O said it was considering moving illiquid bonds into a separate fund.
“Cross trades need to be carefully monitored to ensure they don’t favour one client over another,” Myners told the FT. “The same goes for trades with related parties.”
In March this year, H2O sent a letter to clients offering “sincere apologies” for heavy losses as the coronavirus crisis escalated. The firm’s flagship Multibonds fund lost 20% of its value in one day on 9 March.
According to the UK Parliament website, Lord Myners’ question is due to be answered by 16 June.
H2O declined to comment.
