H2O Asset Administration has corrected a collection of errors it made when disclosing investments in illiquid bonds and has claimed it traded the bonds with a Belgian wealth supervisor that final week denied doing so.
In late August, the €22bn funding agency and London-based subsidiary of French funding financial institution Natixis, was compelled by French regulators to briefly droop buying and selling in a collection of its funds, due to issues over the valuations of investments in bonds linked to the businessman Lars Windhorst.
The Monetary Occasions reported final week that H2O carried out tons of of thousands and thousands of euros of trades in these bonds within the yr earlier than regulators froze the funds, shuffling its publicity to this illiquid debt utilizing a free community of minor brokerages.
H2O has now revised the semi-annual report for its greater than €900m Allegro fund. The replace reveals that it had under-reported the extent of its buying and selling in these bonds and never beforehand disclosed two key counterparties.
In line with the revised model, on the finish of 2019, the fund had €218m of “purchase and promote again transactions” excellent in bonds associated to Mr Windhorst, a German financier with a historical past of authorized hassle. This equated to 13.5 per cent of Allegro’s then €1.6bn of web belongings. It initially reported €191m of transactions.
The purchase and promote again transactions have come below scrutiny as a result of they allowed H2O to reclassify a few of the illiquid bonds to put them outdoors its fundamental portfolio holdings.
The Allegro report additionally initially stated that it solely carried out these trades by way of British brokerage Shard Capital, whose founder James Lewis has had an in depth working relationship with Mr Windhorst for greater than a decade.
Nevertheless, within the revised report, two different counterparties are listed in these transactions: Brandon Hill Capital, a UK agency that primarily offers within the shares of mining firms, and a agency referred to as Benefit Capital in Belgium.
Whereas H2O has disclosed trades with Benefit in different filings, audited accounts from one other fund indicated it was a UK enterprise, though there isn’t a such firm as Benefit Capital integrated within the UK or licensed by the UK monetary regulator.
Benefit Capital in Belgium is a small wealth administration agency, whose chairman Henry Gabay is a longtime affiliate of Mr Windhorst. Final week, Mr Gabay advised the FT: “Benefit Capital integrated in Belgium has not traded with H2O.”
Individually, Benefit’s chief government Jan De Coninck advised Belgian newspaper De Tijd final week that the agency was contemplating authorized motion over being named in H2O’s filings. Whereas considered one of Benefit’s personal funds has itself been an investor within the H2O Allegro fund, Mr De Coninck advised De Tijd that this funding was “marginal”.
H2O declined to remark. Benefit Capital didn’t reply to requests for remark.
Allegro’s revised semi-annual report is dated July 23, a month earlier than French regulators ordered the fund freeze, however H2O posted it on their web site solely on the finish of final week, after the FT found the doc on-line elsewhere and requested H2O to substantiate its authenticity.
The asset supervisor revealed this month that Allegro might now have as a lot as 35 per cent of its funds invested in these illiquid belongings — far bigger than the agency indicated — after H2O struggled to shut these trades this yr.
Allegro’s auditor KPMG final yr disclosed that it broke the foundations on open-ended funds, which are supposed to enable buyers to withdraw their money each day, breaching danger limits when buying and selling Windhorst-linked bonds.