HDFC Bank, India's largest private sector lender, is once again under fire after a group of investors accused the bank of mis-selling high-yielding life settlement funds. Many of these investors, primarily Non-Resident Indians (NRIs), claim they were sold a product by Carlisle Asset Management, which subsequently halted redemptions, leaving their investments in limbo.
What Are Life Settlement Funds?
Life settlement funds are investment vehicles that specialize in purchasing existing life insurance policies from policyholders. Individuals who no longer need their policies might sell them to these funds for a price higher than the surrender value but less than the full death benefit. The fund then takes over premium payments and collects the death benefit upon the insured individual's passing, distributing returns to its investors.
These funds are often seen as portfolio diversifiers, offering potentially high returns that are less correlated with traditional market fluctuations like stocks or bonds. However, they carry significant risks, including illiquidity (requiring long holding periods), the possibility of the insured living longer than expected (delaying returns), and the risk of the underlying insurance company failing.
The Carlisle Asset Management Controversy
According to reports, approximately 70 investors allege they were sold the Luxembourg Life Fund, managed by Carlisle Asset Management, between 2017 and 2019. They were reportedly promised annual returns of 14-16 per cent. However, the fund allegedly stopped honoring redemption requests about a year into the investments, causing significant distress among the investors.
The total amount involved for these investors is reportedly around $12.5 million, though unverified claims suggest the bank might have facilitated investments totaling up to $100 million in such funds. Carlisle Asset Management was later acquired by alternate asset manager Abacus Life Inc. in 2024. The Luxembourg Life Fund, which reported strong returns until 2020, suspended redemptions after experiencing an increased volume of requests.
HDFC Bank's Response and Past Issues
HDFC Bank has stated that it merely facilitated these investments and that the responsibility for the fund's performance and redemptions lay with the fund house. The bank maintains that the fund was registered in a recognized jurisdiction and had a performance track record at the time of investment. Crucially, HDFC Bank claims its internal investigation found no evidence of mis-selling in this particular case.
The bank has communicated to investors that it has repeatedly engaged with Carlisle, external legal counsel, and the financial regulator in Luxembourg, acknowledging the unsatisfactory outcome for investors. This incident is not an isolated one for HDFC Bank. Earlier this year, the bank took action against three executives following an investigation into alleged mis-selling of high-risk AT1 (Additional Tier-1) bonds of Credit Suisse to NRI clients, primarily through its Dubai branch. This action followed the Dubai Financial Services Authority barring HDFC Bank’s DIFC branch from onboarding new customers due to non-compliance in financial services.
“The bank has said that the fund was registered in a recognised jurisdiction and that at the time of investment the fund had a performance track record and had been honouring redemptions. Importantly, HDFC Bank has said it hasn’t found any incidence of mis-selling in this case.”
The Credit Suisse AT1 bonds were written off during its bailout by UBS in 2023, resulting in significant losses for investors. These repeated controversies highlight ongoing challenges for HDFC Bank in its wealth management and international operations.