H2O hires advisers as it races to dispose of illiquid debt

H2O Asset Management has enlisted investment bank Perella Weinberg Partners and law firm Linklaters, as the group explores new ways to dispose of illiquid assets tied to the German financier Lars Windhorst that plunged it into turmoil last year.

Once one of Europe’s top performing fund managers, London-based H2O said on Friday it had hired a financial adviser “at the initiative and request of the Financial Conduct Authority”.

The firm was engulfed in controversy last summer after the French financial regulator ordered it to temporarily suspend several of its flagship funds. France’s AMF took the draconian step out of concerns over the valuations of its investments in illiquid bonds, which are all linked to Windhorst.

Windhorst, a flamboyant businessman with a history of legal trouble, last year struck a deal to buy back his companies’ debts from H2O at a discount, but progress on the arrangement has been slow.

H2O still holds €1.6bn of hard-to-sell assets linked to the financier and companies in his Tennor Group, according to a person familiar with the matter, trapped in “side pockets” that do not allow investors to withdraw their funds.

Alongside New York-based Perella, H2O has also hired top law firm Linklaters, according to people familiar with the matter. H2O confirmed it had enlisted Perella, known for its restructuring advisory business, in a statement after the Financial Times had inquired about the hiring.

“H2O AM continues to work hard to dispose of the illiquid or little liquid Tennor Group-related instruments,” the group said in a statement.

Hiring heavyweight advisers marks a sharp break in approach for H2O, which has previously negotiated directly with Windhorst and Tennor, whose chief executive and chief financial officer both resigned in recent months, according to people familiar with the matter.

H2O’s chief executive Bruno Crastes previously sat on Tennor’s advisory board, but stepped down in 2019 after influential fund rating company Morningstar said the role raised “the risk of a potential conflict of interest”. Crastes was replaced by chief investment officer and co-founder Vincent Chailley.

H2O and Windhorst last spring inked a deal under which Luxembourg registered Evergreen Funding — a vehicle linked to the financier — would buy back the troublesome securities at a steep discount. Half of the sale was due to have happened by last June, with the balance to completed by June this year.

However, last August H2O described the execution of the Evergreen contract as “very partial”. At the time H2O told investors that the sale of the securities would be done “as quickly as possible but also as slowly as needed and in the best interests of investors”.

H2O managed about €30bn of assets at the start of last year but this tumbled to just €18bn by year-end, after drastic losses, renewed scrutiny around risk controls and regulatory difficulties pushed H2O’s majority shareholder to cut ties.

French bank Natixis confirmed last month that it was selling its majority stake in H2O to the latter’s management.

H2O, Linklaters and Tennor Holding declined to comment, while Perella Weinberg Partners did not respond to a request for comment. The FCA did not immediately respond to a request for comment.