H2O Asset Management today announced that it is expanding its product range with the launch of the H2O Barry funds.

H2O Barry Active Value and H2O Barry Short, both Irish UCITS, are the first funds specifically designed to address the problems associated with the current scarcity of liquidity in the marketplace following the regulatory crackdown on financial institutions.

“The objective of the Barry funds is to offer investment solutions leveraging today’s market predicaments and to turn these constraints impacting the performance of traditional asset classes into investment opportunities” said Bruno Crastes, H2O’s CEO. The funds will aim to offer investors new sources of performance and diversification benefits.

Commenting on the Barry Funds launch, Vincent Chailley, CIO, H2O Asset Management added: “The current financial system is definitely more robust as systemic financial crises are much less probable. However it is also characterised by more market distortions and it is prone to market shocks due to the massive drop in the liquidity provided by banks. The lower systemic risk makes these shockwaves less contagious and this pattern can offer attractive opportunities to flexible and responsive asset managers.”

• Investment rationale of the Barry Funds

H2O Barry Active Value aims to tap value from the new market environment. When markets are quiet, it invests in money market instruments. When a shock occurs, and as long as it is not deemed the result of a fundamental regime change, Barry Active Value steps in with a short term trading view. “In a way, Barry Active Value brings liquidity to the markets when it is the most needed, and it is paid for it” explains Loic Guilloux, head of H2O’s New Business Development.

H2O Barry Short positions itself to gain from sharp rises in global interest rates, while benefiting from a carry in excess of cash in-between these upsurges. Above and beyond its bearish positioning on G4 Govies, the fund derives a part of its value from the brutal and significant magnitude of interest rates rises, due to the lack of liquidity that banks can nowadays provide to Govies markets. Barry Short uses a portfolio of actively managed options that offers a small positive carry over cash before this sizeable one-off event takes place.

H2O intends to launch additional strategies in the Barry range in 2017 and 2018. The next, Barry Yield, is a strategy that will derive its revenues from fees paid by banks looking to get a capital/liquidity relief benefit by entering into transactions that will decrease their Risk Weighted Assets (being on Operational, Market or Credit and Counterparty Risks), hence the cost of capital associated.