Spooked by Fishy Smells & Regulators, Investment Bank Natixis Dumps its 50% Stake in Formerly-$36-Billion Hedge Fund H2O

Blackstone Group, BNP Cardif, Crédit Agricole, and others have also unwound or suspended their relationship with H2O.

By Nick Corbishley, for WOLF STREET:

Embattled London-based hedge fund H2O Asset Management — with €20 billion ($24 billion) of assets under management, down from €30 billion ($36 billion) last year — has a big new problem on its hands: its majority investor, French investment bank Natixis, has decided to sell its 50.01% stake. The decision comes after an FT investigation last year revealed that the hedge fund had invested substantial funds in highly illiquid assets, and it raises serious questions about H2O’s future.

H20 “will no longer be considered a strategic asset,” said Natixis in its third-quarter earnings statement. “Natixis IM and H2O AM have entered into discussions with a view to unwinding their partnership in a gradual and orderly fashion.”

One way of achieving this, the bank said, would be through an incremental sale of its stake in H20. The alternative would be for H20 to gradually take control of the distribution of its own funds during a transition period lasting until the end of next year. Either way, the result is the same: Natixis is calling it quits on a partnership that goes back 10 years, to H2O’s inception.

Natixis has not given concrete reasons for its decision to cut ties with H2O, apart from as part of a broader de-risking exercise. But it comes after H2O’s recent brush with market regulators in France and Belgium.

At the end of August, H2O was forced by France’s market regulator to gate a number of its funds, due to “valuation uncertainties” resulting from their exposure to high-yielding unlisted securities. Those securities are linked to the scandal-tarnished German financier Lars Windhorst, whose business dealings over the past two decades have left a long trail of bankrupt companies, stiffed investors, and unpaid debts.

By 2019, H2O was one of the biggest holders of bonds issued by Windhorst, with holdings of around €1.4 billion. At a time of ultra-low interest rates, the high yields offered by these kinds of securities were like manna from heaven for fast-growth funds such as H2O and the Woodford Equity Income fund (WEI), which ended up closing for good in late 2019 after the fund failed to unload its illiquid assets quickly enough to meet a flood of investor redemptions.

When the true nature of H20’s private securities was revealed in June 2019, Morning Star decided to downgrade its rating of the fund. As happened at WEI, many of the fund’s investors rushed for the exits, removing some €8 billion — around 30% of the total money parked in the fund — in just one week. As the funds fled, H2O’s founder and CEO, Bruno Crastes promised investors he would never gate the fund.

Just over a year later, he broke that promise, at the behest of France’s market regulator. In all, eight funds were gated, ostensibly to allow H2O to segregate the privately listed Windhorst assets from more liquid assets and place them in “side pockets.” Once that was done, H2O would complete the sale of the privately listed assets — at a sharp discount — to a Luxembourg-based consortium of investors called Evergreen Funding, which was assembled by none other than Lars Windhorst himself.

But even as all this was happening, Belgium’s top financial watchdog, the National Bank of Belgium, launched an investigation of its own into suspicious bond repurchase trades that took place between H2O and Duet Group’s Merit Capital NV, which also has close ties to Windhorst.

On October 13, H2O’s gated funds were finally reopened, six weeks after they were shuttered, although an estimated €1.6 billion of investors’ cash remains locked away in side pockets. Some investors took whatever money they could and headed for the exits. In the space of a few days, €429 million was withdrawn. After steadily rising for nine straight years, the hedge fund’s portfolio of assets has now slumped by a third since 2019, from €30.3 billion to €20.3 billion.

Natixis — itself owned by Groupe BPCE, France’s second largest banking group — has insisted that whatever happens at H2O, it will have “no financial impact” on its own balance sheet. H2O’s remaining €20 billion in assets, as of September 30, are a drop in the bucket compared to Natixis’ €910 billion asset base. But H2O did provide a disproportionate chunk of Natixis’ profits, earning it €211 million in 2019 — over 10% of the banking group’s net profits.

The hedge fund is attracting all the wrong kinds of attention and this is raising concerns about Natixis’ risk controls and oversight. The bank has enough problems of its own to deal with, having suffered significant trading losses in the second quarter as equity derivatives bets went awry. It is also heavily exposed to the aviation finance sector, which could see a wave of defaults in coming months.

For H2O, the divorce is likely to be a painful experience. Natixis has been instrumental in H2O’s success, providing operational support and access to a vast network of deep-pocketed investors, plus 50% of its operating funds, which the firm will now have to learn to live without.

A number of big market players have already withdrawn their support from H2O in recent months. They include Blackstone Group, which has dropped H2O as advisor of one of the its major funds; French insurance group BNP Cardif, which has suspended allocations to H2O; and French banking and insurance giant Crédit Agricole, which has stopped marketing H2O products through its life insurance subsidiary.

The loss for H2O of Natixis, its biggest backer, could rupture the fragile trust and remaining confidence investors still have in it. In the wake of the Woodford debacle and the regular gating of open-ended property funds in the UK, retail investors are wary about entrusting their money to funds that offer daily redemptions while investing heavily in highly illiquid assets. By Nick Corbishley, for WOLF STREET.

IWG — for “International Workplace Group,” previously known as Regus, the serviced-offices and coworking giant whose business model served as inspiration for WeWork — is undertaking an aggressive global restructuring program that is causing all kinds of headaches for its landlords and investors. Its U.S. subsidiary has already filed for Chapter 11 bankruptcy. Read…  WeWork Forerunner IWG/Regus Restructures its Business, Unleashing Mayhem on Landlords and Investors

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  36 comments for “Spooked by Fishy Smells & Regulators, Investment Bank Natixis Dumps its 50% Stake in Formerly-$36-Billion Hedge Fund H2O

  1. Dave Mac says:

    The smart money got out early leaving the suckers to crash and burn.

    Have we seen this situation before?

    Yes we have, and likely always will.

    • Joe Saba says:

      Those securities are linked to the scandal-tarnished German financier Lars Windhorst, whose business dealings over the past two decades have left a long trail of bankrupt companies, stiffed investors, and unpaid debts.
      sure sounds like SMARTER INVESTOR than banksters

      everyone hates IDEA of bankruptcy – because it take many with them
      but big guys get to decide because YOU DUMMIES LENT THEM BIG $$DOLLARS


    • Elena Afemei says:

      H2O seems to be a close analogue of GAM 2 years earlier..

      Bruno Crastes = Tim Haywood, GAM ‘star manager’
      Shard = Greensill Capital
      James Lewis = Lex Greensill
      Lars Windhorst = Sanjeev Gupta

      Billions of $ of deeply illiquid long term bonds of doubtful solvency absent a bid back from the sponsor/borrower.

      In both cases the regulators seem absent despite evidence of uncontrolled conflicts of interest, losses to investors, dodgy repos, questionable mark-to-market levels.

      Maybe the handsome ‘performance fees’ just weren’t enough.

    • M says:

      All the naughty companies will soon be revealed as the economic dominos start to fall and fall. Read about how Maddoff allegedly came clean with his innocent family and turned himself into them and then those innocents turned him into the police. Many other crooks will soon be coming out to police or more likely, to the friendly society for the enabling of crooks, because prison is better than waking up dead floating in some pool.

      They will also have to go into country-club type prisons, while unconnected, powerless people that merely stole shirts or did similarly minor crimes in other states went into the worst prisons. That will be so sad for the financial crooks. My heart bleeds. :-)

  2. Roger Smith says:

    What an enjoyable read. It reaffirms the financial caution my grand parents, who lived through WWI and II and the 30’s depression, demonstrated to me while I was very young and which still lives in me today. Thank goodness.

  3. Javert Chip says:

    This whole scheme falls under the Madoff rubric.

    This is the kind of transaction (unlisted, illiquid, long maturity in an open ended fund) that even stupid bureaucrats should spot, especially after several European funds have blown up from the same problem. Regulators should force this kind of risky fund to gate from day-1, as well as prohibit investment from state supported banks (and other state actors, like pension funds).

    Regulators absolutely had to know Natixis, a (presumably) taxpayer-backed bank, was buying these instruments, and simply “hoping” everything would be “OK”.

    Ya gotta wonder how many more of these time bombs idiot regulators are pretending to “oversee”.

    • Lawefa says:

      Amen to all of that and then some. Wolf should keep this article for future reference as I would expect these type of articles to be written many more times in the ensuing months and years

      • Joe Saba says:

        well the ones who MADE OFF with your money
        is wally street, banksters, biggie insurance and so many others we call GOVT
        can’t wait to see how QUICKLY JOE crashes economy we don’t have

    • RepubAnon says:

      People keep screaming about “burdensome government regulations” – right up until the consequences hit. Then, they blame government for inadequate regulations.

      From the S&L Crisis, to the various “Tiger” economies, to the Great Recession, the story keeps repeating. Markets need just enough regulation to keep the scammers out.

      • 91B20 1stCav (AUS) says:

        Repub-well said. A good example of what happens when enthusiastically eviscerating/subverting regulation (…how often does Smith’s dictum for ‘well-regulated’ markets disappear in the fog generated from laissez-faire wine?…) under the Norquistion banner of ‘starving the government’ in order to ‘drown it’.

        Little wonder some number of the proles now enthusiastically support ‘defunding/eliminating’ the police, as the equivalent seems to be working for the upper classes.

        may we all find a better day.

      • Javert Chip says:


        I have a slightly different view:

        1) Much of current financial regulation is straight out of the 1980s (or earlier). It’s silly-assed and wrong-headed regulation that really avoids tackling long-standing problems head-on. You are absolutely correct that some problems just keep on repeating

        2) Just because you have a crap-pile of so-called regulations, volume alone does not guarantee adequate regulation (which any “-ism’s” financial system requires, including capitalism).

  4. Engin-ear says:

    “French investment bank Natixis, has decided to sell its 50.01% stake”

    So they controlled H2O, and now end the relationship?

    Tje regulators started the attack on the Shadow-banking?

    • Javert Chip says:

      Given the 50.01% ownership, it’d be interesting to see exactly what kind of “control” (read: responsibility) Natixis had for this dumpster fire…

      …which brings up the question of how they get out of this without taking 50.01% of the loss.

      As this plays out, it’s probably another life lesson about you can’t just pick up a turd by the clean end.

  5. MonkeyBusiness says:

    Conference call:

    H20: “Bought this bridge” …….
    Natixis: “We are f***ed!!”

  6. Xaver says:

    Lars Windhorst, once a Wunderkind, seen with Helmut Kohl, took the wrong path. How can so many people for so long fall for this impostor?

    • LoneCoyote says:

      Wasn’t he connected to that German bank that recently had a couple billion Euros go missing? Or am I misremembering?

  7. andy says:

    Illiquid assets, hmm..
    Was H2O in business of selling ice to eskimos?

  8. Wisoot says:

    10 year relationship not long. Any company born out of the 2009 to 2011 era should be viewed with caution. Many were set up to bury and launder winnings from the Sept to Dec 2008 controlled demolition. Whether Russell-Jay: Gould created those tumbling bricks with his voiding of mortgage contracts remains to be proven.

    Blackstone group withdrawal sets off dominoes in investor trend followers. So many fishy smelly funds – question is – why pick on H2O? Dissent in the ranks? Or clean up of dirty linen to avoid transference into global reset blockchain with its shiny new transparency?

  9. sunny129 says:

    Madeoff scandal came to light in the the December of 2008 when the GFC was in full swing. This reminds me there will be more roaches crawling out in the next 12 months+

    Everything has/had been covered by easy-peasy $ (DEBT) provided by Fed/CBers since ’09. In fact the GLOBAL Banking structural problems which lead to GFC and the housing bust NEVER got addressed by Obama Admin or the regulatory authorities, Banksters got bailed out, but problems. conveniently masked by insane credit creation by Barnake et all and now under Mr. Powel who gave financialization and riches to WAll ST and at the same time doled out financial repression punishing the long savers, those on fixed income reirees in the Main street. After QEs, stimulus, twist, ZRP + suspension of Mkt to mkt accounting standard, Barnake was called HERO!

    I am retired(professional), elderly but got benefitted by the tail wind of the great bull mkt of 20th century starting ’82.

    Now I feel sorry for the younger generation, honest working wage workers swept aside by the mobile power of of ‘CAPITAL’ of US Multi-Nationals (+ top 0.1%) who sent our factories/Jobs to overseas for richer profits in exploiting cheap labor since 2000. Both parties, Wall St and the US chamber of Commerce are complicit in this tragedy! Blaming China (and other Countries) was such a snow job by Trump!

    Capital(mobile) is winning and the wage workers – labor (trapped within their own Countries) all over the world are losing.

    • Zantetsu says:

      sunny129, I agree with your overall sentiment but I do think there is reason to fight against some of China’s trade policies.

      This is not to say that I disagree with your sentiment that blaming the Chinese for our failures is just a cop-out … but let’s not lose sight of the fact that there are things that we need to fight against in their policies.

      However, we should focus considerable energy at putting our own house in order at the same time. Unfortunately, American citizens have no appetite for this and would rather wave a flag, and politicians generally are just enablers.

      • sunny129 says:

        ‘I do think there is reason to fight against some of China’s trade policies’

        Cannot disagree on that issue. But how?

        They are NOT democracy like us or have free press to challenge or question their policies? Even our MSM (90% owned by mere 5 mega Caorps) practice ACCESS journalism NOT the investive kind helping the public interest like ProPublica. They have NO labor laws or real enevironmental laws.

        The Big Techs Cos gave away their knowledge in turn for access to their country economy. For US or any Multi-National Co, national border is virtually doesn’t exist since they can choose to move and invest their capital any where in the World, where it is welcome with no regard to any thing except the PROFIT.

        I am retired MD ( diag Radiologist – 3 board certifications) When business took over medicine, business ethics is dictated by BOTTOM LINE unlike earlier where medical ETHICS dictated ‘do what’s best’ in the interest of the patient. NO MORE possible under Corporate medical practice! There is no ETHICS class in any MBA courses ( including the one I took at Uni South Florida in early 2000s!) In fact I dropped out 5 credits short before graduation for that reason! I had to quit practicing Medicine 15 yrs earlier b/c of lack of quality in patient services in mid 90s! It is/was futile, when every one around you say ‘ just go along to get along’!

        You see, our Corps are running successful RENTIERS economy in USA, which the political class (both parties) have allowed for decades! How are you going to fight China’s TRADE practices when the interest of our citizens are being subverted!??
        We have lost our own moral compass, in the first place!! I may sound very cynical but unfortunately true!

        We found the enemy. Look in the mirror!

      • sunny129 says:

        I replied to your above query on China, It either got lost or nixed. I tried but apparently doesn’t work here some times. It was an honest expression but who cares for honesty these days, right?

  10. Javert Chip says:


    Why pick on H2O?

    Ok, here are 3 reasons, any one of which should scare the crap out of a sentient investor:

    1) Financial regulators from 2 different nations are shocked SHOCKED! at how illiquid, unlisted, hard to value assets are being managed & marketed; French regulators undoubtedly told (taxpayer-backed bank) Natixis, “owner” of 50.01% of this turkey, to get the hell out of this investment shit-hole

    2) Financial press investigates & discloses massively risky & highly inappropriate investments for all but most aggressive & risk-tolerant investors, and, just for good measure, some of the securities are linked to the “scandal tarnished Lars Woodhorst”

    3) Assets under management decline 33% in 12 months, so, among other problems, management fees are dropping like a rock

  11. sunny129 says:

    The catch of words or phrases behind almost every ‘scandal’ which stare at any investors’ eyes:

    – high yielding INLISTED securities, ILLQUID assets, PRIVATELY listed securities,downratings of the funds, promise of never gating the funds,
    Windhorst right hand transaction to his left or vice versa(!?) suspicious bond REPURCHASES, Funds Re-opened-weeks later shuttered,concerns about risks controls and oversight, access to deep pocketed investors++

    It is amazing that so many of these phrases are the same, I have been reading over the decades about global/National financial frauds of various types in numerous financial publications including WSJ, Barrons FT etc
    The acts are the same but with different actors!

    No wonder why the P.T Barneum said ‘There’s a sucker born every minute’
    Beware the BUYER!

  12. gorbachev says:

    I keep reading how our pension funds are getting

    superior returns investing in private equity. Are they not illiquid.

    I’d like to hear the real reason H20 got smusshed.

    • RightNYer says:

      That’s because the equity markets are so obscenely overvalued that there is likely no future return for the next decade.

      Look at today. S&P rising by 5% based on positive vaccine news? I thought that was already “priced” in at least 8 times?

      • Javert Chip says:


        Well, you’ve heard (and read) about it from Natixis, French regulators, Belgian regulators and the (very credible) Financial Times.

        What else do you want? I have enclosed a note from your mom:

        Dear RightNYer:

        I’ve recently read about the shady investment fund H2O; they invest in things that are not listed on any exchange, have highly uncertain current asset values, and almost nobody wants to buy them. Some guy named Lars Woodhorst is involved; everything he touches ends up going bankrupt.

        Only managers of “Other Peoples Money” invest in a fund like this, and they only do it because it appears to make money for the first 6 months before going bust.

        Please don’t invest any of my hard-earned pension money in H2O or I will have to come live with you.

        As always XXXOOO

        • Javert Chip says:


          With apologies, the above should have been addressed to Gorbachev; the note really came from his mom…

        • RightNYer says:

          Javert, I’m really confused. LOL

    • Wolf Richter says:


      What wasn’t mentioned here because we covered that in prior articles: H2O’s leveraged bond funds took huge losses earlier this year. Bonds can be illiquid in the sense that there may be no bids for days or weeks at a given price. But they’re traded. PE firms usually invest in assets that are not traded at all (such as entire companies via an LBO).

  13. kevin says:

    Wolf, you missed the biggest fishy smell of all.

    As a non-American (i.e. independent observer across the pond), I thought the TIMING of the Pfizer announcement of a strong vaccine contender almost right after the mass media declared Biden the winner, very perfectly PLANNED – too perfect indeed.

    Imagine what could have happened if Pfizer had announced their results BEFORE election day?

    Fyi, the stock markets are all going limit UP, because of this huge announcement of a potential vaccine.

    My humble view is you’d better close your shorts, if you’ve not already done so earlier. This thing is going to run up strong if the vaccine is really 90% effective as claimed.

    • sunny129 says:

      When Fed announced early this year that they are going to keep buying 120 Billions/month in Treasuries/MBSs for the next year or two(?), I know going SHORT without hedge is suicide. I paired my puts with calls (swing trades) to escape the whiplash coming, just like today (vaccine news!)

      First I had to watch out Donny’s tweet of AWESOME trade deal just around the corner or dovish remark by a FOMC member. Bad news is good. Good news is better and NO news is way better! Just crazy but Fed is feeding this animal spirits from the very beginning in their casinos!

      NO one cares about fudamentals just salivating for easy-peasy money – stimulus or more QEs from Fed. We have on going QE4 now.
      But for the QEs the S&P would be at 1800 today ( Societe Generale – MW)
      Go Figure!?

      truetimes com


  14. Matt says:

    Market hit new all time high.

    Wolf, How is your short doing? I guess you should have gone long.

    • Zantetsu says:

      Matt, didn’t you ask this inane question already previously? I think I remember your name associated with a prior smack down.

  15. fajensen says:

    Meh, My short on the OMXS30 was wiped out clean today. OTOH – I bought some SAS stock Friday at 0.76 SEK, soo, that made up for it.

    In this environment, I mostly buy “systemically important”, big-time losers like Danske Bank and SAS, because there will of course be a bailout!

    I am a bit annoyed I missed buying Maersk B at 6000, though.

Comments are closed.