Europe's largest hedge fund, GLG Partners, may this week lose its star fund manager, Greg Coffey, which could prompt the firm’s investors to withdraw billions of dollars.

Coffey, who controls $7 billion (£3.5 billion) of the group’s $24 billion of funds under management, unexpectedly quit last Monday only to reverse his decision on Tuesday.

However, the u-turn could prove to be merely temporary, and may simply give the company time to draw up an incentive package aimed at persuading its star asset manager to stay.

It seems unlikely that offers of more money will sway the 36-year-old Australian, who reportedly earned $320m in fees last year, and is responsible for generating more than half of GLG’s profits.

Instead, it is understood that in the past few days lawyers from both sides have been using the time to hammer out the terms of Coffey’s departure.

GLG will be looking for a lengthy noncompete agreement and guarantees that Coffey will not poach any of his colleagues or investors in the event of his setting up a new hedge fund.

Despite these arrangements, few observers expect such a deal to be enough to prevent top investors from withdrawing a large part of their money in the event of Coffey’s departure.

Analysts estimate that this could be as much as $4.5 billion.

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