Singaporean sovereign wealth fund GIC is cutting its investments with H2O Asset Management following recent regulatory sanctions against the French fund manager.
France’s market regulator last month levied a €75mn fine against H2O and banned its founder Bruno Crastes from managing funds or an investment company for five years, as punishment for “serious” rule breaches related to H2O’s illiquid investments linked to financier Lars Windhorst.
While H2O amassed more than €30bn in assets at its peak by attracting the savings of thousands of retail investors across Europe, it has also managed billions of euros on behalf of sovereign wealth funds. The firm’s two largest fund investors have long been GIC and the Abu Dhabi Investment Authority (Adia), according to people with knowledge of the fund manager’s client base.
GIC has been reviewing its investments with H2O after the French regulator’s sanctions and has now decided to start withdrawing its funds, according to the people. The Singaporean sovereign wealth fund is likely to redeem its investment in stages.
H2O manages billions of euros for GIC and Adia, according to people with knowledge of their investments, making up a significant chunk of the firm’s €11.6bn of assets under management. In a US regulatory filing last year, H2O reported that it managed $4.19bn of assets on behalf of sovereign wealth funds.
H2O said: “As a matter of policy, H2O AM Group never has and never will communicate on the identity of its investors. This is strictly confidential information and thus the group is unable to confirm, deny or provide any guidance.” GIC and Adia declined to comment.
GIC was an early H2O investor, having first invested in its funds over a decade ago. The sovereign wealth fund has no exposure to the illiquid bonds at the heart of H2O’s regulatory sanctions, according to people familiar with its exposure, having invested through its own segregated funds with additional layers of monitoring and compliance.
In contrast, investors in H2O’s core funds open to retail investors had €1.6bn of savings trapped for more than two years, after the firm hived off its hard-to-sell assets linked to Windhorst into so-called side pockets.
H2O recently returned a fraction of these frozen funds after the German financier made a partial repayment of the money he owes the firm. The first repayment equated to 10 per cent of the original value of the side pocket for H2O’s flagship MultiBonds fund, for example, according to letters sent to investors last month.
The Financial Times revealed the scale of H2O’s investments linked to Windhorst in 2019. Windhorst, who shot to fame in Germany as a teenage entrepreneur in the mid-1990s, endured a downfall that culminated in the financier receiving a suspended jail sentence for “breach of trust” in 2010.
While H2O’s Crastes has relinquished his positions as chief executive and a portfolio manager following the French regulator’s investment ban, he has continued to play an active role at the firm. On a conference call with clients last month in his new role as H2O’s “corporate and market strategy director”, the 57-year-old Frenchman dismissed the alleged breaches at the heart of the Autorité des Marchés Financiers’s sanctions as “very technical”.
H2O has previously said that it will fight to overturn the sanctions, calling them “disproportionate and completely unprecedented” and indicating that it will lodge an appeal with France’s Council of State.
H2O is also under investigation by the UK’s Financial Conduct Authority and is facing litigation in France from Collectif Porteurs H2O, a group of more than 4,500 clients.
Additional reporting by Andrew England