The fund was placed under review on June 19 after Dobrescu flagged up concerns over a conflict of interest. H2O’s chief executive Bruno Crastes was named as a board member of Tennor, a holding company run by Lars Windhorst. Shares in Paris-listed Natixis - H2O's parent company - slumped after the fund was placed under review. Following Morningstar’s announcement, Natixis said Crastes had resigned from Tennor, saying the risk of a possible conflict of interest was "groundless".

Morningstar's Dobrescu said the H2O Allegro fund, which has seen millions of euros of outflows this month, needs to regain investors’ trust. The fund, which takes long positions on the U.S. dollar and eurozone debt, has produced stellar annualised returns of 16.5% over the past eight years but this has been achieved at a “higher risk than investors could have expected”.

The majority of the illiquid bonds that analysts had concerns over have now been sold off or marked down. The exposure to these bonds has been cut from 10% of the portfolio to 3.8% as of June 24.

Eoin Treacy's view

The siren call of stellar returns from illiquid assets has claimed more than a few funds lately. This practice represents a special type of hubris; that assets under management will never be called back.

It was made particularly clear to me at the recent Marcus Evans conference I attended, that the excessive value of private assets represents the clearest bubble risk in this cycle. The fact the $100 billion Vision Fund is considering an IPO so it can offload its illquid assets after only a year in existence further supports that view. 

The confidence evident among potential investors as they look glassy-eyed at the record of returns while the private equity sector is increasingly holding cash is the closest thing to mania, we are likely to see in unlisted entities.