The alert had been sounded in June 2019. An article in the Financial Times revealed that H2O funds, which at that time totalled €1.9bn, had liquidity problems. A wave of panic swept through the company, which was then indirectly 50.01%-owned by Natixis Investment Managers, a subsidiary of the BPCE group, and 49.99%-owned by 17 individuals, including co-founders Bruno Crastes and Vincent Chailley. Some of the investors immediately withdrew their assets en masse. The French financial regulator AMF and its British counterpart launched an investigation.

“Between 1 June 2016 and 16 January 2020”, the AMF said , “H2O carried out 1,262 transactions involving 14 securities issued by entities belonging to the Tennor group, founded by Lars Windhorst (hereinafter, the ‘Tennor securities’), on behalf of seven of the eight French Ucits: the Adagio, Allegro, Moderato, Multibonds, Multiequities, Multistrategies and Vivace funds (hereinafter, the ‘H2O Funds’). Of these 1,262 transactions, 389 related directly to one of these securities and 873 were securities financing transactions in the form of Buy & Sell Back (hereinafter, ‘B&S’) with Tennor securities as the underlying asset (hereinafter, the ‘B&S transactions with Tennor securities as underlying asset’). These transactions consisted of the H2O Funds using their available liquidity by immediately purchasing a Tennor security from a counterparty and simultaneously agreeing with the counterparty that it would repurchase the security at a later date, with the purchased security acting as collateral in the event that the counterparty failed to honour its repurchase commitment”.

In December 2022, the French financial regulator fined H2O AM LLP in the United Kingdom €75m plus a reprimand, Bruno Crastes €15m plus a five-year management ban, and Vincent Chailley €3m plus a reprimand. The company and its founders are contesting the AMF’s analysis and have lodged an appeal with the Conseil d’État, France’s highest administrative court, which rejected a request to fast track the case in the spring.

First repayments

The illiquid assets are held in special structures that are still inaccessible to investors. A group of 6,077 investors is seeking compensation for the damage they have suffered. Their two lawyers, Dominique Stucki and Clément Nicolaizeau, have therefore decided to take legal action against 5 Luxembourg entities: H2O AM LLP’s Luxembourg holding company, H2O AM, Natixis IM, KPMG and Caceis, before the Paris Commercial Court, which should hear arguements from the directors or their lawyers at the end of the first quarter of 2024.

“The Collectif Porteurs H2O and its members are more determined than ever to seek compensation. This writ of summons is intended to compensate our members for the damage they have suffered and allows us to provide the plaintiffs and the courts with all the evidence we have gathered over 11 months of expert appraisal against H2O AM, Natixis IM, KPMG and Caceis. We are confident that the proceedings will continue and hope that investors will be able to recover their funds, which have been frozen for more than three years now”, Gérard Maurin, chairman of the investors’ association, said in a press statement on Wednesday.

This decision is based on months of in-depth investigation, during which the association Collectif Porteurs H2O, with the support of its lawyers and Deminor, gathered evidence demonstrating the responsibility of the H2O group companies concerned, but also the control failures of the trusted third parties--three of the four companies targeted in Luxembourg, according to the lawyers.

At the end of August 2022, Lars Windhorst, an entrepreneur once adored by German chancellor Helmut Schmidt, undertook to repay €550m to H2O AM as quickly as possible. On 3 January, H2O AM announced an initial repayment to investors of €250m.

In March 2022, Natixis IM finalised a strategic reorientation announced in November 2020, by selling its stake in H2O in two stages, “26.61% of the capital today [25 March 2022], then, within four years and at the latest in six years, subject to the required regulatory approvals, the sale of the remaining 23.4%”, the two companies announced .

Natixis IM said the case was “groundless” and would challenge the complaint “vigourously”. Caceis and KPMG declined to comment. H2O AM was approached for comment.

Originally published in French by and translated for Delano. Updated 20 December at 4:30pm to include responses from Caceis and Natixis IM. Updated 20 December at 4:40pm to include response from KPMG.