H2O faces record €75mn fine and investment ban for chief

France’s financial regulator is seeking to fine H2O Asset Management a record €75mn and ban its chief executive from the investment industry for a decade over the asset manager’s extensive investments in illiquid bonds tied to German financier Lars Windhorst.

The Autorité des Marchés Financiers set out its recommendations against the once high-flying asset manager at a hearing on Friday in a case centred on H2O’s allegedly unauthorised investments in securities linked to Windhorst.

Alongside a €75mn fine for H2O, an official from the AMF also recommended banning Bruno Crastes, the firm’s co-founder and chief executive, from managing funds. The regulator is also seeking to levy a €15mn fine on Crastes, as well as a €3mn penalty for the asset manager’s chief investment officer Vincent Chailley.

The recommendation comes more than three years after the Financial Times exposed the scale of the firm’s outsized bet on Windhorst in 2019. The following year, H2O was forced to temporarily halt redemptions on its core funds after the AMF raised concerns about its investments linked to the financier. Two years later, investors’ money is still stuck in the so-called side pockets H2O set up to house €1.6bn of these hard-to-sell assets.

Once a well-respected money manager that oversaw €30bn of assets, H2O has lurched from crisis to crisis since the FT revealed the scale of its ties to Windhorst. French bank Natixis, which formerly owned a majority stake in the firm, completed a long-delayed deal to cut ties with scandal-plagued subsidiary earlier this year.

The fine the AMF is seeking would exceed any previous penalties it has levied, including the €20mn penalty handed down to hedge fund Elliott Management in 2020. The scale of the fines would also dwarf the provisions that H2O has so far disclosed for the case. In its 2021 accounts, the firm revealed that it last year booked an £890,000 provision in relation to one of its regulatory probes.

While the recommendations have been made by the AMF’s enforcement committee, H2O and its two co-founders will have an opportunity to defend themselves against the allegations at today’s hearing. The AMF will issue the final penalties at a later date.

H2O did not immediately respond to a request for comment.

H2O is also under investigation from France’s market regulator and the UK’s Financial Conduct Authority. The firm disclosed in its 2021 accounts that it has not yet booked a provision in relation to an FCA probe for “alleged non-compliance” with several of the regulator’s principles.