The logo of French bank Natixis outside one of their offices in Paris. Picture: REUTERS/CHARLES PLATIAU
The logo of French bank Natixis outside one of their offices in Paris. Picture: REUTERS/CHARLES PLATIAU

Paris  — Morningstar resumed coverage of Natixis bank's troubled H20 Allegro fund on Thursday, after suspending it last week, but said it still had concerns about governance issues.

The fund, managed by Natixis's H20 asset management arm, saw heavy outflows of client cash after Morningstar put its rating on the fund under review last Wednesday, citing concerns over liquidity and governance.

London-based H20 has since sold some illiquid assets and stopped charging entry fees on its funds “until further notice” in an attempt to stem outflows of customer money.

Morningstar's concerns are focused on H2O's holdings in debt issues from private companies linked to German entrepreneur Lars Windhorst, as well as the fund's board seat on his privately held Tennor Holdings.

Concerns about liquidity in funds that allow investors to get their money back on a daily basis have risen recently, particularly in Britain where money manager Neil Woodford was forced to suspend trading in his flagship fund.

Morningstar said it was resuming coverage of H2O, albeit with a “neutral” rating. Prior to suspending it, Morningstar had a so-called bronze rating on it.

Natixis owns 50.1% of H2O and the French bank saw its shares tumble 14% late last week after Morningstar suspended its rating.

Natixis's shares rose 1.8% on Thursday after UBS also issued a relatively upbeat note on the bank. The shares are still down 4.9% since the start of 2019.

Morningstar stressed that its previous concerns over corporate governance issues remained.

“H2O Allegro is run by an experienced team adept at making top-down calls on government bonds and currencies,” wrote Mara Dobrescu, director of fixed-income strategies at Morningstar.

“But this team's decision to invest a sleeve of Allegro's portfolio in illiquid, high-risk corporate bonds, all linked to German entrepreneur Lars Windhorst, raises concerns about the robustness of the security-selection process applied here,” added Dobrescu.

A London-based spokesperson for Windhorst's Tennor Holdings company said he had no comment to make on Morningstar's note.

Morningstar's earlier suspension also followed negative media coverage of H20 in the Financial Times.

H2O's assets under management stood at €27bn after it won back some customers' money, H20 said in its most recent update this week.

Investment bank UBS upgraded its recommendation on Natixis shares to a “buy” on Thursday.

UBS said Natixis shares now traded at a 33% discount compared to their peers as result of H2O's issues, but added this discount was too big given Natixis's dividend payout ratio.