Just when you thought Woodford was a one-off, another major fund with retail investors has run into trouble. Like Woodford, it invested heavily in illiquid assets despite allowing clients to withdraw their funds whenever they liked.
Not only that, but also, in an eerie repeat performance, some of those assets are, erm, exotic, to say the least. Excellent work by the Financial Times has exposed how H2O — the fund in question — put some €1.4 billion of investors’ cash into bonds linked to one London businessman with a colourful past — a certain Lars Windhorst. In many cases, H2O is by far the biggest investor in those assets — echoes of Woodford again.
Evening Standard readers may recall how ex-bankrupt Windhorst tried to buy Peter Hambro’s Petropavlovsk but was spurned amid concerns about links to various Russians. Or how a top fund manager at Carmignac resigned after revelations about his investments with Windhorst’s funds. Or how Windhorst — who has had Peter Mandelson as an adviser — received a suspended sentence in 2009.
Thanks to the FT, Morningstar has belatedly pulled its “bronze rating” on H2O’s Allegra Fund. It doesn’t take a genius to see how this may now pan out. Investors stampede for the exits; H2O can’t find buyers for its assets with which to refund the punters; tears flow.
H2O, a long-term Windhorst investor, insists there’s nothing to worry about. “In many instances” it has been able to trade the bonds, it points out. However, FT research finds repeated instances where the bonds are anything but liquid. Which raises the question, as with Woodford: why are regulators in Europe and the UK allowing open-ended funds targeting retail investors to be investing in illiquid assets?
