What's going on?
French investment bank Natixis is under pressure: investors have pulled $6 billion (and counting) from funds looked after by H2O, part of its investment management business.
What does this mean?
Last week, the Financial Times reported that $1.6 billion worth of bonds in H2O’s portfolios were from companies linked to a nefarious businessman. The private loans in question are much harder to trade than public bonds (i.e. they’re “illiquid”), and some investors were therefore inadvertently taking on more risk than they’d have liked. And when fund rating agency Morningstar suspended its rating on one of H2O’s funds – citing those illiquid bonds – investors began moving their cash to safer pastures. By Wednesday, the exodus had hit $6 billion of the funds’ total $20 billion.
Investment management businesses typically charge a percentage fee on the money they look after – for Natixis, that’s currently $1 trillion. Investors in Natixis’s own shares may worry that lower income from less managed money won’t be offset by growth elsewhere – as American rivals have cautioned.
Why should I care?
The bigger picture: Natixis isn’t alone.
Similar withdrawals have recently plagued a fund run by famed British investment manager Neil Woodford. Despite a strong track record, some high-profile failed bets combined with lots of low-liquidity private company shares led to the fund temporarily freezing investor withdrawals. The Bank of England’s governor actually thinks investors shouldn’t have instant access to their cash when it’s invested in illiquid assets. Nonetheless, financial regulators are now investigating whether Woodford’s fund breached their rules and overinvested in illiquid stocks.
Zooming out: Keeping the farm.
Not all investors were selling the farm on Wednesday: Norway’s sovereign wealth fund removed companies including Walmart and Rio Tinto from its investment blacklist, meaning these firms may soon attract fresh investors. As might a handful of Kuwaiti stocks: investment index provider MSCI said it’d promote some of the country’s stocks to its emerging markets index next year.