In a statement on Monday, H2O said it has sold part of its non-rated private bonds and reduced their aggregate market value to below 2% of its total assets under management.
It has also decided to remove entry fees across all funds until further notice and introduce swing pricing to prevent shareholder redemptions.
The measures come after an article by the Financial Times last week highlighted liquidity issues across six H2O funds – Adagio, Allegro, Moderato, Multibonds, Multistrategies and Vivace – which hold certain bonds connected to “controversial” German financier Lars Windhorst, described as a “flamboyant entrepreneur with a history of legal troubles”.
Morningstar suspended its rating on the H2O Allegro fund “given concerns on the liquidity and appropriateness of several holdings in the fund’s corporate-bond sleeve”, and the group subsequently saw €1.4bn (£1.25bn) outflows across the six strategies, according to the FT.
H2O’s statement added: “Following this mark down, triggered by press reports which dried up market liquidity and widened bid-ask spreads, H2O’s funds will be priced at a discount between 3% and 7%.”
H2O’s parent company Natixis said in a statement that it supported the action taken by H2O, adding the relevant assets are private debt securities relating to a variety of companies, none of which are currently in a default situation.
It added: “Considering the current environment, the H2O AM teams have decided to record these securities at their transactional value in case of an immediate total sale rather than recording them at their standard market value, it being specified that their transactional value has been determined with valuations obtained this Sunday from international banks which are independent from Natixis.
“Such securities represent a total exposure for H2O funds of less than 2% of the outstanding amounts under these funds. This will enable remaining clients and new investors to retrieve the long-term value of their securities.”
Natixis added that the measures ensured the liquidity of securities and will allow the firm to face potential withdrawals if clients decide to sell their funds due to the recent media coverage.
In a Q&A addressing exposure to non-rated private placements on its website published on Friday, H2O said current exposures of the Adagio, Allegro, and MultiBonds to non-rated corporate bonds amount to 4.3% 9.7%, and 8.3% of net assets, respectively.
Contribution of private placements to the performance of H2O Adagio, H2O MultiBonds, and H2O Allegro since 2015
Data as of 20 June ’19. Source: CACEIS & H2O
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