Morningstar resumes coverage of Natixis's troubled H2O fund

PARIS (Reuters) - Morningstar resumed coverage of Natixis bank's CNAT.PA troubled H2O Allegro fund on Thursday, after suspending it last week, but said it still had concerns about governance issues related to German entrepreneur Lars Windhorst.

FILE PHOTO: The logo of French bank Natixis is seen outside one of their offices in Paris February 18, 2013. REUTERS/Charles Platiau

The fund, managed by Natixis’s H20 asset management arm, had heavy outflows of client cash after Morningstar put its rating on the fund under review last Wednesday, citing concerns over liquidity and governance.

London-based H2O has since sold some illiquid assets and stopped charging entry fees on its funds until further notice in an attempt to stem outflows of customer money.

Morningstar’s concerns are focused on H2O’s holdings in debt issues from private companies linked to Windhorst, who has investments in a broad range of businesses, as well as the fund’s board seat on his privately held Tennor Holdings.

“H2O Allegro is run by an experienced team adept at making top-down calls on government bonds and currencies,” wrote Mara Dobrescu, director of fixed income strategies at Morningstar.

“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 said.

A London-based spokesman for Windhorst’s Tennor Holdings company said he had no comment to make on Morningstar’s note.

Concerns about liquidity in funds that allow investors to get their money back on a daily basis have risen recently, particularly in Britain where money manager Neil Woodford was forced to suspend trading in his flagship fund.

Morningstar said it was resuming coverage of H2O, albeit with a “neutral” rating. Prior to suspending it, Morningstar had a so-called “Bronze” rating on it.

H2O itself said on Thursday that it was looking at ways to re-organise its holdings of non-rated corporate bonds.

Shares in Natixis, which owns 50.1% of H2O, had tumbled 14% late last week after Morningstar suspended the rating.

The bank’s shares rose 2.5% on Thursday after UBS also issued an upbeat note on the bank. Natixis shares are still down around 5% since the start of 2019.


Windhorst’s Tennor Holdings company later issued a statement to announce that Windhorst had invested into German top-flight soccer club Hertha Berlin.

Tennor Holding is making an initial 125 million euros ($142 million) equity investment for a 37.5% stake in Hertha Berlin, which could later rise to 49.9% at a higher valuation.

“We are making a long-term commitment to build on Hertha BSC’s success,” Windhorst said in a statement. “The stable revenue base and impressive management team convinced us to enter into this strategic partnership.”

Windhorst rose to fame in the 1990s as a teenage millionaire businessman, but some of his debt-funded businesses have faced legal difficulties.

On June 26, H2O had assets under management of 27 billion euros (24 billion pounds) after it won back some customers’ money, but that total was down from 31 billion at the end of March.

In its note on Natixis, UBS upgraded its recommendation on the bank to “buy”, arguing that concerns about the impact of H2O on the broader Natixis company were overblown.

Reporting by Matthieu Protard and Inti Landauro; Editing by Sudip Kar-Gupta/Susan Fenton/Jane Merriman