Natixis has come out swinging to defend itself against criticism of its business model as the French bank tries to convince investors that a crisis of confidence in one its funds should not shake the entire structure.
The French bank’s multi-boutique model has been hit by a crisis at H2O, a London-based fund manager that it owns half of. FT Alphaville revealed last month that H20 had put more than €1bn of investor money into illiquid bonds linked to Lars Windhorst, a controversial German financier with a history of legal troubles.
“We do recognise the market is nervous, following the recent crises of illiquidity at other funds but we think the market is wrong to think that H2O is in the same position,” Jean Raby, chief executive of Natixis Investment Managers told the Financial Times.
Assets in six H2O funds tumbled by nearly €7bn in the week after the FT revealed their Windhorst-linked exposure. While some of these funds have since seen modest inflows, assets in others are still down as much as 50 per cent.
“We’ve had an affiliate that has faced significant redemptions . . . and there has been no contagion,” said the Natixis IM boss. “There have been no consequential outflows at any other affiliates. Yes, some have received some questions from investors, but just a minority and that’s it.”
Natixis’s share price fell 14 per cent following the revelations by the FT around Mr Windhorst and subsequent concerns expressed by Morningstar, a fund-research adviser. Although the share price has partially recovered, it remains down 6 per cent.
“When I think about the share price reaction, the logical assumption is that the market is extrapolating the issue to Natixis’s control of its affiliates,” admitted Mr Raby, while defending those controls.
The French bank, majority owned by mutual group BPCE, is also under pressure after it booked a €260m loss linked to South Korean derivatives, raising similar questions about its ability to manage risk.
Natixis is putting its faith in an internal audit, which had already been scheduled but was pulled forward in response to the crisis, to help calm investor fears. However, people close to the bank said no due date had been confirmed for the audit and there were currently no plans to release the findings, emphasising this was standard practice. Natixis’s quarterly results are due on August 1.
The scrutiny of Natixis’s nearly 20-year-old model has intensified amid fears over a liquidity mismatch in funds, propelled by fund managers reaching for yield in an environment of punishingly low rates.
Neil Woodford had to suspend his flagship fund because of investor fears over the UK stockpicker’s investments in smaller, less liquid companies, while last summer investors took flight from GAM’s $11bn “absolute return” fund range because of its own adventures into esoteric, illiquid assets.
More recently, Bank of England governor Mark Carney has said funds invested in illiquid assets but allowing investors instant access to their money are “built on a lie”.
But far from being repentant, Mr Raby and Natixis are pushing back, arguing that “what has happened with H2O is the demonstration of the robustness of the multi-boutique model”.
That model involves Natixis taking majority stakes in smaller fund management and advisory boutiques that continue to be run at arm’s length.
Crucially, the responsibility for investment decisions lies in the hands of individual asset managers across the network with Natixis taking a supervisory role while also helping with distribution.
Natixis’s asset management business has $960bn under management, and some analysts say the share price reaction has been overblown given that at its peak H2O only managed €30bn. Lorraine Quoirez at UBS said “the market is discounting an extreme scenario on which we put a very low probability”.
But Stefan Stalmann at Autonomous wrote that “various angles of the story leave a bitter aftertaste for us, in particular the close association with Mr Windhorst, the logic around H2O acting as a quasi-bank and the inherent difficulty of the centre in Paris to impose certain standards on its far-flung independent local activities”.
According to a poll of institutional investors by Procensus, 70 per cent of respondents indicated that recent events have eroded their perception of the quality of Natixis’s franchise and deserved valuation. Most of those polled did not expect Natixis to change its business model but did assign a 40 per cent probability to a regulatory backlash on the European asset management industry.