When one of Europe’s best performing asset managers plunged into crisis this summer, a little-known brokerage took a contrarian view on the illiquid debt securities at the heart of the affair.
H2O Asset Management was suffering what it likened to a bank run, with alarmed clients withdrawing €8bn from its funds. Large financial institutions struggled to see the value in the London-based fund manager’s holdings of hard-to-sell bonds, which backed a ragbag of businesses linked to a racy German financier with a troubled past.
Yet Shard Capital Partners, a small firm based on the 23rd floor of London’s iconic “Walkie Talkie” building, seemed confident these assets were worth a lot more.
When Shard’s name flashed up on trading screens indicating it could buy and sell some of those bonds at much better prices, it would have appeared to some traders that another small broker was prepared to chase business in the rough and tumble world of illiquid debt.
But to those in the orbit of Lars Windhorst, the name was instantly recognisable.
Debilitated by two corporate collapses, a personal bankruptcy and a suspended prison sentence, Mr Windhorst found that many big banks were reluctant to back him as he set out to rebuild his fortune at the beginning of this decade.
Instead, the flamboyant financier relied on a handful of small banks and brokerages in Europe and the Middle East to maintain markets for a host of private securities backing his businesses.
Documents seen by the Financial Times, alongside interviews with more than a dozen people familiar with Mr Windhorst’s operations, suggest that Shard — with its wide ranging regulatory licenses — has played a particularly important role in keeping his interests alive.
Mr Windhorst has turned to the brokerage’s founder, James Lewis, to carry out trades in esoteric securities for well over a decade. Even as Shard’s dealings with the German financier dragged the brokerage into high-profile spats — including a hedge fund’s misfired trade that stung a Wall Street bank and a dispute with a Big Four auditor — the relationship has endured.
“If you needed to sell, Lars would tell you to call James,” a fund manager who traded several bonds related to Mr Windhorst told the FT.
One of Shard’s regulatory filings offers a glimpse into just how much of its activity appears to have been linked to Mr Windhorst. The filing indicated that an offshore company controlled by the German financier represented 40 per cent of Shard’s over-the-counter debt trading volume in 2017.
Shard removed the document from its website after receiving questions from the FT. A spokesperson said the report, which was disclosed as part of the Mifid II regulatory regime, was “incorrect and is being reviewed”. The now-deleted filing also listed other entities with ties to Mr Windhorst as major counterparties.
Mr Lewis, known to his friends as “Jumbo”, is a keen marksman who has represented Great Britain in rifle shooting competitions. He caught Mr Windhorst’s eye long before he set up Shard in 2010. While working at Dutch broker Amstel Securities in 2004, the Englishman helped the then 28-year-old financier to offload his stake in a thinly traded Japanese company.
Shard was frequently involved in so-called repurchase agreements on stocks and bonds orchestrated by the German financier, where securities were sold with an agreement to buy them back later at a higher price. The brokerage proved crucial when Mr Windhorst’s empire faced a cash crunch several years ago, helping to facilitate a number of these short-term financing transactions to fill shortfalls.
But many of these “repo” trades caused problems.
Citigroup’s prime brokerage unit, for example, temporarily became exposed to a $400m hit on one of these repos, in which Shard acted as a broker, when the transaction failed to settle in 2015.
Mr Windhorst then had to fend off litigation from several parties alleging that he had reneged on repo deals, including a lawsuit from Ukraine-born billionaire Len Blavatnik in which Shard was mentioned as a broker in a complicated transaction that never came to fruition.
One former banker who witnessed the fallout from a failed repo trade that Shard brokered, described it as “an absolute shit show”, adding that it was “close to impossible” to value the bonds.
A spokesperson for Shard said the firm acted as an “execution only agency broker” in these trades and that they were carried out “under instruction from the client”.
Some of these disputed transactions, however, had consequences for Shard.
Three years ago the broker received complaints from its custodian bank, RBC Investor & Treasury Services, after failed trades linked to Mr Windhorst left Shard overdrawn to the tune of more than €30m. The same year, German private bank Berenberg filed a suit against Shard in London after becoming ensnared in a failed trade in which the firm acted as a broker. The case was quickly settled.
“[Shard] was labelled as a ‘defendant’ in a couple of cases, but within the documents and legal narrative it was clear its role in proceedings was as a ‘witness’ to the court,” the firm’s spokesperson said.
Shard was also forced to defend itself after Deloitte resigned as auditor of Sapinda Invest, Mr Windhorst’s flagship vehicle, in 2017, alleging that the brokerage provided it with letters that contained “deliberately false” financial information.
Shard said that “two independent specialist legal reviews” into Deloitte’s allegations found that the firm “did not have any intention to mislead”. The firm added that the UK’s Financial Conduct Authority did not take any action after making inquiries into the matter.
In the Deloitte case, Shard was acting as Sapinda Invest’s custodian, which involves holding cash and other assets on behalf of clients, a role it carried out for several companies backed by Mr Windhorst.
Directors at some of these businesses have complained that they had difficulty accessing their funds.
Mr Windhorst’s African farming group Amatheon Agri, for example, announced in 2016 that it “experienced delays” in drawing down amounts held at “a UK-regulated financial institution”, which people familiar with the matter said was Shard. The same year, medical robotics company Avatera filed a claim against Shard for “breach of fiduciary duty”.
Shard told the FT that it acts “under instruction only” and that the cash management of these companies was “a matter for them”. The spokesperson added: “[Shard] is rigorously compliant in its client money procedures.”
This summer, as Mr Windhorst was dragged into the H2O crisis, Shard was not far from the scene.
In late June H2O took hefty writedowns on €1bn of bonds linked to Mr Windhorst, after investment banks indicated they could be sold only at heavy discounts. In one instance, the fund manager slashed the value of bonds issued by La Perla, an Italian lingerie maker, to just 25 cents on the euro.
Days later, Shard indicated it could buy and sell those same bonds around face value, showing its confidence in securities others appeared to find toxic. Despite the difficulties Mr Windhorst has caused over the years, Shard was still by his side.
“It’s so hard to make money as a brokerage,” said one person who was close to Mr Windhorst’s operations. “Lars offered them a way to make money.”
In a statement, a spokesperson for Mr Windhorst’s investment company, Tennor, described Shard as a “valued and trusted service provider”. The spokesperson added: “Tennor has a nine-year working relationship with Shard Capital whereby Shard Capital has acted for Tennor Holding and a number of its portfolio companies in the capacity of custodian and settlement agent.”
Shard told the FT that it “earns fees from a number of different revenue streams and is profitable”.
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