Peloton Partners, the London-based hedge fund, is liquidating its two funds and shutting up shop.

The stricken firm last week admitted that it was being forced to liquidate its $2 billion (£1 billion) mortgage-backed ABS bond fund.

But it was hoped that a deeply discounted firesale could salvage its second, $1.6 billion Multi-Strategy Fund, despite the fact that almost half of that fund's assets were invested in the ABS Fund.

However, a source familiar with the matter said that the fund will be liquidated in the coming days.

"[Peloton] is working with counter-parties on how much they can realise from the Multi-Strategy Fund for investors," the source said.

It was not clear how many investors face losses.

Peloton, which was founded by former Goldman Sachs partners Ron Beller and Geoffrey Grant, declined to comment.

Peloton's collapse has come as a shock because the firm has been one of the high-flyers of the competitive hedge fund industry. It recorded an 87 per cent return in 2007, largely because of the success of its bets against sub-prime securities.

Mr Beller is well-known in the City. Along with his wife, Jennifer Moses, and the former Goldman investment banking star Scott Mead, he was one of several victims of Joyti DeLaurey, the former Goldman secretary convicted of stealing £4.3 million to fund a lavish lifestyle.

At DeLaurey's trial, Mr Beller famously told the jury that he only began to suspect a fraud when he discovered his bank account was "one or two million light".

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