Financial services firm Morningstar has suspended its bronze rating on the H20 Asset Management’s Allegro fund due to liquidity concerns.
The fund has been placed under review over concerns on the “liquidity and appropriateness of several holdings” in its corporate bond sleeve, according to Morningstar.
After review, the US-based research firm found various conflicts of interest within the fund, managed by H20, a subsidiary of French group Natixis Investment Management.
Over 4% of Allegro’s assets are invested in illiquid bonds connected to German financier Lars Windhorst.
“While this pocket is relatively small in size, and we do not believe it poses an immediate risk to the fund's performance, the concentration of investments in a series of companies related to the same individual is a cause for concern,” said Morningstar’s director of fixed income strategies Mara Dobrescu.
H20’s chief executive Brunos Crastes was also appointed to the advisory board of Windhorst’s fund Tennor Holding in May this year, creating another potential conflict of interest, according to Morningstar.
The Natixis subsidiary closed two of its most leveraged funds after strong inflows in 2017 and 2018. By the end of August last year, Allegro had “ballooned” to €1.4 billion – yet there are “no immediate plans to curtail subscriptions”, Dobrescu said.
“While we believe capacity is managed acceptably, we have concerns about risk management,” According to Dobrescu, the “fund’s high-conviction bets can lead to significant drawdowns, such as in August 2018 when the fund lost 12.6%”.
“Though so far such periods have been few and far between, investors need to be prepared for a bumpy ride,” she said.
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