Arpad “Arki” Busson has twice been worried that the world’s financial system might go into meltdown. The first occasion was in 1987, at the time of the British stock market’s last proper crash. The second is now, amid what has become known worldwide as the credit crunch, as investment banks from London to Wall Street write off billions against their exposure to defaulting American sub-prime mortgage borrowers.

Mr Busson, the 44-year-old hedge fund entrepreneur who is chairman and founder of EIM, the fund-of-funds manager, is typically forthright about both of these occasions.

“This is the first time in my 21 years in the business that I’ve seen systemic risk. I think we are now one third of the way through the banking problem,” he says, speaking at his Mayfair offices in what has become London’s de facto hedge fund district.

“The big banks can battle against these massive writedowns. They can shrink. What I’m concerned about is the medium-sized and small banks. This is going to create another round of consolidation among banks, which is a pity if you end up with ten banks that control the world.”

The Frenchman, who made his name raising funds for market veterans such as Paul Tudor-Jones and Louis Bacon’s Moore Capital, condemns international investment banks for their complacency during the present liquidity squeeze, during which some of the world’s most powerful credit markets have seized up almost completely.

He also defends the world of hedge funds from critics, who have expressed concerns about the powerful but little-regulated players in the capital markets. Indeed, Mr Busson, who has accumulated a fortune estimated most recently at about £250 million, argues that hedge funds are not facing financial oblivion after months of market turmoil. On the contrary, he believes that this year they will notch up their best performance since the turn of the millennium.

“This is not going to be an ‘end of the world year’ at all,” he says. “It is one of the best we have had in the past seven years. Volatility has come back to the market. Equities are up 6 per cent or 7 per cent. China and India have done well. It’s been a good year.

“By their very nature, hedge funds are animals that are designed to use every tool available, every strategy, long and short, including leverage. We have been invested with at least seven funds that have made a return of 50-plus per cent over the past year by being short the sub-prime trade.”

Mr Busson rarely gives newspaper interviews, but that is not to say that he is a stranger to the media. His role as a philanthropist is increasingly high-profile and the gossip columns and glossy magazines know him well. For example, he is spending his Christmas this year in New York with Uma Thurman, the Hollywood actress of Pulp Fiction and Kill Bill fame. Ms Thurman is now the love of Mr Busson’s life, after his split with the Australian supermodel Elle McPherson, who is the mother of his two boys, Flynn and Cy.

Yet although Mr Busson juggles a whirlwind social life with his business affairs and the philanthropic activities of his charity Absolute Return for Kids (ARK), not to mention his role as a father, he still has a passion for the hedge fund business and clearly is irked by moves to undermine it.

“I was shocked that officials were coming out and saying that the hedge fund industry needs more transparency, more regulation,” he says. “In our business, we live and die by mark to market. If I can’t quote [a price], that means there is a problem.”

Investment firms, particularly banks use the process of marking to market to evaluate their positions based on how much they would receive if they sold immediately.

“But the banks have not been marking to market. They are in a state of disarray and no one knows the extent of their losses. At one point in July and August, the banks were not talking or trading with each other. The system froze.”

Mr Busson has been here before and knows how to defy the odds. He raised funds for Tudor Investments, Mr Tudor-Jones’s investment vehicle, in the year of the market crash in 1987. During the same period Tudor generated a stunning 201 per cent return for its investors, helping to seal Mr Busson’s reputation.

He tells the story of being with Mr Tudor-Jones at the 4.30pm market close on the day in October 1987 when the British stock market suffered its precipitous correction – and thousands of traders subsequently lost their jobs.

Mr Tudor-Jones predicted, correctly as it turned out, that the markets would rally strongly over the following two days, yet he decided against speculating because he was worried about the risk of systemic problems. Mr Busson shared that concern.

“Raising assets in 1987 was like cutting a single tree in a forest – opening a completely new space in global asset allocation. Every new client was the pioneer of a new space. It was courageous,” he says. In the early days, the main players were private banks and high-net-worth individuals, Mr Busson recalls. Now, about 95 per cent of EIM’s customers are institutional players and the array of investment techniques available to the big players has become almost inexhaustible.

After spending four years raising cash for other hedge funds, Mr Busson was in a position to set up his own business. He established EIM, first in Switzerland and then in London and New York. Initially catering to private wealthy investors, EIM has grown rapidly. At present it has about €14 billion (£10.3 billion) of funds under management. With about 180 staff serving roughly 100 clients, it specialises in constructing individual, “tailor-made” portfolios for its customers. Among other things, Mr Busson has a talent for picking hot fund managers and high-performing asset classes.

For next year, he is bullish about the currency markets, so-called “macro” strategies that involve taking market positions based on a view of economic trends and, eventually, distressed debt. “It’s going to be a good environment for stock-pickers, macro strategies and, later in the year, distressed debt,” he says.

While Mr Busson is reticent about his social life – he firmly denies he has a celebrity lifestyle – he becomes increasingly animated when talking about ARK, whose name is a play on the hedge fund mantra of generating “absolute returns”.

Mr Busson formed ARK about six years ago as an international charity designed to help underpriviledged and disenfranchised children.

“The beauty of ARK is that it’s a philanthropic cooperative,” he says. It is now the largest provider of HIV/ Aids treatments in South Africa, works to ween children in Romania and Bulgaria off a reliance on institutional care and provides millions in funding to the new breed of academy schools in the UK. Despite the similarity, the naming of ARK is unrelated to Mr Busson’s nickname, Arki, and he bristles at the suggestion that there are egotistical reasons behind his involvement in the charity.

ARK trusteees include Stanley Fink, the nonexecutive deputy chairman of Man Group, the world’s largest listed hedge fund manager, and Paul Marshall, the co-founder of Marshall Wace Asset Management.

Mr Busson is at the leading edge of the new breed of philanthropists, who have made their fortunes often in the most intensely capitalistic of businesses and are commited to returning some of their wealth to society. It is no surprise that he declares his mentor to be Warren Buffett, celebrated for his shrewd investment strategy and subsequent devotion to charitable causes.

“I think somebody who is going to make $1 billion and then give it back is incredibly honourable. It’s the guy who makes the $1 billion and doesn’t even think about what to do with it that’s incredibly wrong,” he says.

There is little chance that Mr Busson will abandon EIM and devote himself full-time to his charitable activities in the near future, despite the temptations and the wealth to be able to do so, he says. Perhaps in ten or fifteen years’ time, which would put him at the more traditional retirement age of about 60. It might also leave time for a third opportunity to worry about the risk of a systemic financial meltdown.

Q and A

If you could change one thing in the financial and commercial environment, what would it be?
To create a built-in philanthropic obligation for all companies

What does leadership mean to you?
Being just in making tough decisions

Which business person do you most admire?
Warren Buffett. First, he made the money over 40 years; and now he’s giving it back

What is most important in your working life?
Integrity

Who is or was your mentor?
Churchill, Mandela and Gandhi

Which is more important, what you know or who you know?
A combination. If I had to choose one, it would be what you know, but you need other people to make it happen

Does money motivate you?
No, milestones do

What gadget must you have?
Anything that creates awareness

How do you relax?
I enjoy the natural world

C.V.

Born: January 27, 1963

Education: Institut Le Rosey, Switzerland

Career: After national service in the French Army, entered hedge fund industry in 1986, setting up EIM in 1992

Interests: Founding trustee and chairman of ARK (Absolute Return for Kids) charity

Times Recommends

• Lies and cover-up at MG Rover exposed by report
• High oil prices push manufacturing costs up
• Primark founder steps down as chief executive