One of the most striking aspects of the Madoff affair is that the US victims are mainly private individuals and foundations. Professionals mostly steered clear. Many smelled a rat.

In Europe, where Mr Madoff was largely unknown, dozens of supposedly sophisticated institutions poured billions of clients’ money into his pockets.

Many of these were so-called funds of hedge funds, which select individual hedge fund managers for investors and put them together into diversified portfolios.

They charge hefty fees, traditionally 1 per cent of assets under management and up to 10 per cent of profits. But they justify this partly on the basis of the painstaking due diligence they carry out. Oops. If they can’t spot a Madoff, despite all the red flags that warned off the American pros, what is the point of them?

One consolation for the likes of Man Group’s RMF business is that they are in good company. Industry insiders say that many leading European funds of funds made the same mistake and that Geneva’s hedge fund cluster is in a complete panic about it.

This is the last thing the funds of funds business needs. The model — and the fees — were already being questioned after a flood of redemptions this year.

Many hedge fund managers have been predicting consolidation among the funds of funds as bigger operations take advantage of the economies of scale — to offset pressure on fees — and investors move towards a few well-known names.

It is likely that the Madoff affair will accelerate this process, helping those funds of funds that are part of larger asset management groups, such as BlackRock and Blackstone.

Man Group was in a position to be one of the consolidators, so its failure to avoid the Madoff bear trap is a particular blow.

It could be worse. Its fund of funds has only 1.5 per cent of assets with Madoff and even if that is written off entirely it is down only 13.9 per cent this year, better than the industry average of 20 per cent. Still, it’s hard to think of a bigger gift to its more careful rivals.

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