Bruno Crastes battles on at H2O following investment ban

Bruno Crastes, the star fund manager who recently earned a five-year investment ban from French regulators, held a conference call with H2O Asset Management’s clients on Wednesday in which he made clear that he will continue to play an active role at the €11.6bn asset manager.

Earlier this month, France’s Autorité des Marchés Financiers banned the 57-year-old Frenchman from managing funds or an investment company for five years as punishment for “serious” rule breaches related to H2O’s extensive illiquid investments linked to the controversial financier Lars Windhorst.

The markets regulator also levied a record €75mn fine against H2O, which Crastes founded in 2010 and ran with backing from Natixis. The French bank is now in the process of dumping its stake.

During a call with clients in his new role as H2O’s “corporate and market strategy director”, Crastes dismissed the alleged breaches at the heart of the sanctions as “very technical”, while indicating he would continue to help shape the firm’s view on the direction of global bond and currency markets.

“I’ll be happy to carry on working with markets and trying to find the right strategies,” Crastes concluded, after delivering forecasts on everything from the Japanese yen to US tech stocks for an hour. He also expounded his belief that the Federal Reserve’s rhetoric “is not sustainable” and that “Europe cannot afford not to buy Russian oil and wholesale gas”.

In a further signal of the continued importance of Crastes to H2O, the firm’s chief sales and marketing officer Babak Abrar assured his now former boss: “We will be needing you and your insight more than ever this year”.

The decision to continue presenting Crastes as the public face of H2O cuts to the heart of the dilemma now facing the firm: despite the AMF’s sanctions against him, Crastes has still retained the loyalty of many core clients due to their belief in his skill at navigating swings in markets.

H2O “immediately acted” on the sanctions by adapting temporary governance and Crastes “stepped down from his position as co-CEO and portfolio manager”, said a person briefed on the firm’s thinking.

“It shows they’ve gotten legal advice that he can carry on having an input into the overall investment process — offering his view on the direction of rates or whatever — as long as he is not directing investments,” said another person familiar with H2O’s operations. “And whatever you think about Bruno, it’s clear he’s still very good at what he does.”

H2O’s flagship €1.5bn MultiBonds fund — which was overseen by Crastes for more than a decade until the AMF’s decision prompted a switch in managers — posted a 26 per cent return last year, even after initially cratering when Russia invaded Ukraine due to an enormous bet on the Russian rouble.

Crastes has been not only the manager of H2O’s flagship fund, but also remains one of its biggest shareholders, with a near 20 per cent stake.

In the wake of the AMF’s ruling, Crastes stepped down as chief executive, with his lieutenant Loïc Guilloux taking his place. H2O has previously said that it will fight to overturn the sanctions, calling them “disproportionate and completely unprecedented” and indicating that it will lodge an appeal with France’s Council of State.

Investors in H2O’s funds, including thousands of ordinary savers across Europe, have had a portion of their money trapped for more than two years, after H2O hived off €1.6bn of illiquid bonds and stocks linked to Windhorst, a German financier with a long history of legal trouble.

Earlier this month, H2O said that it would start paying back investors some of the trapped funds for the first time, after receiving a “partial repayment” from Windhorst’s main investment company.

On Wednesday’s call, Abrar said this initial repayment was “scheduled for next week”, with further details to be outlined in letters to investors. A slide indicated that the overall valuation for the so-called “side pocket” of illiquid assets on H2O’s MultiBonds fund had been marked down by about a third since it was first frozen in the latter half of 2020.

H2O is also under investigation by the UK’s Financial Conduct Authority and is facing litigation in France from a group of more than 3,000 aggrieved clients, which last year obtained a court order to appoint an expert to review H2O trades linked to Windhorst.