Absolute Capital Management, a London-listed hedge fund with $3.2 billion (£1.6 billion) of assets, went into freefall yesterday as Florian Homm, its co-founder and joint chief investment officer, quit amid a dispute with the board.

The share price of Absolute, whose investments are run from Mallorca, Spain, collapsed by almost 70 per cent as analysts predicted that Mr Homm’s departure would prompt investors to rush to pull out funds. During a stormy day of trading yesterday, its market value fell from £389 million to just under £117 million. The hedge fund floated only last March.

Mr Homm, an architect of Absolute’s strategies and its largest shareholder, with a 19 per cent stake, is thought to have managed around a quarter of Absolute’s total funds under management of about $3.2 billion.

In a parting shot, Mr Homm, who ploughed €33 million (£23 million) of his own Absolute shares into the funds to help to keep them in positive territory last month, published an open letter to shareholders detailing grievances. He said that concerns about the fund’s performance had led him to sacrifice his annual bonus and he called on fellow executives to do the same.

He said that his plan had been to share the payout with his colleagues, the board having ignored his calls to pay high compensation to top-performing staff. Mr Homm said that the five million shares he had put into three of Absolute’s funds ensured that they ended the month slightly positive.

“However, the board of ACMH did not agree with my arguments that ACMH needs to pay adequate compensation to retain top-level fund managers, nor did they follow my lead in sacrificing personal bonuses and compensation, or in contributing ACMH shares to the funds,” he wrote.

“It is apparent that I share a different investment and management philosophy from the current and prior management of ACMH. Therefore, I have decided that it is time that I left the company I founded to focus on other pursuits.”

Mr Homm, whose former wife and children also hold substantial stakes in Absolute, pledged to continue to lobby Absolute “for shareholder value”. He owns about 12 million shares, having given five million to his ex-wife as part of their divorce settlement and given a further five million to the funds.

Executives at Absolute were locked in a boardroom meeting yesterday. However, a spokesman said: “The board was not consulted by Florian on his resignation; nor as to the manner in which it was communicated.” Absolute was hoping to provide a formal update to investors last night.

Sandy Chen, an analyst at Panmure, put his forecasts for the hedge fund group under review. He said: “Homm was a key architect of ACMH’s equity investment strategies and, although we estimate that Homm was directly responsible for managing less than one quarter of the assets under management, such a high-profile departure will likely have an effect on both fund performance and AUM flows.”

This year, Sean Ewing, Mr Homm’s fellow founder and Absolute’s chief executive, also left the firm for “personal reasons”. Mr Ewing let it be known yesterday that he had been approached over a possible return, although no decisions had been made.

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