Crdit agricole has stopped marketing h2o asset managements funds through one of its life insurance subsidiaries, cutting off the troubled investment firm from a key network of distributors at frances largest retail bank.

In late august, the french market regulator forced h2o to temporarily suspend trading in a series of its funds because of concerns over the valuations of its investments in illiquid bonds.the london-based subsidiary of french bank natixis, which manages 22bn in assets, initially said this suspension would last about four weeks.

On tuesday, however, h2o announced it would delay the reopening by a fortnight to october 13. the asset manager attributed this to significant legal and operational work in hiving off its hard-to-sell assets, which are all linked to the flamboyant and controversial businessman lars windhorst.

Crdit agricoles spirica which manages and distributes life insurance products through online platforms, wealth managers and private banks to retail investors on tuesday told investment advisers it would no longer market any h2o funds to new investors, according to an email seen by the financial times.

The move marks the highest-profile partner so far to cut ties with h2o, following its fund freeze last month. the crdit agricole subsidiary will still allow existing investors to make transactions involving funds that are not subject to the suspensions, the email said.

Crdit agricole assurances and h2o declined to comment.

The investment firms chief executive bruno crastes was previously a star portfolio manager at crdit agricoles asset management division, where he headed up its london operations, before striking out on his own to set up h2o in 2010.

H2os funds have been some of the most popular products marketed by french investment advisers to retail investors, according to a deloitte study published earlier this year. investors were drawn in by the funds previously stellar returns.

Life insurance companies have been a crucial source of investment for h2o and the suspension of seven of the asset managers retail funds has wreaked havoc across these insurers investment platforms.

In some cases, redemptions in these insurance products were wholly suspended, even if only part of a customers policy is invested in h2os funds. this is because the firms hard-to-value assets have led to uncertainty over their tax treatment.

In an interview with a french investment website earlier this month, mehdi rachedi, h2os head of investor relations, said the firm has strong and historic relationships with insurers. we realise that this decision will lead to an overload of work and we are at their side to accompany them during this period, he said.

In addition to the funds h2o has suspended, crdit agricoles spirica said its halt on marketing new investments would also apply to five other funds, which are not subject to the regulatory freeze as they do not contain the disputed illiquid bonds, according to the email.

Philippe maupas, a french investment consultant and blogger, said that whether h2o can stem withdrawals when its funds finally reopen depends on if the asset manager can convince investors that mr crastes can stage a spectacular comeback.

But i think that trust has been irrevocably broken, mr maupas added. i think there will be a lot of redemptions as the reputational risk for investment advisers is now huge.