RAB Capital, the London-listed hedge fund, gave warning today that volatile markets would mean profits in the first half would be "significantly lower" than the same period last year, in a shock alert that sent its shares tumbling more than 14 per cent.

RAB, one of the City's best-known fund managers, told investors at its annual meeting that assets under management had fallen by almost $1 billion over the past four months as concerns about liquidity and market nerves took firm root.

The fall in assets, from $7.24 billion to $6.34 billion, was split equally between fund performance and investors heading for the exit, RAB said.

RAB said that its assets under management are down by 12 per cent since the year-end.

First half profits last year were 58 per cent higher at £22.7 million before tax.

RAB's warning comes after a bleak assessment of market conditions from other fund managers, including Schroders.

Others, such as Aberdeen Asset Management, which reported a 24 per cent jump in first-half revenues to £200 million today, have managed to ride out the market rout so far.

RAB, led by its evangelical Christian chief executive, Philip Richards, is probably best known as the second largest investor in Northern Rock, the stricken mortgage lender that was nationalised in February.

The firm's special situation fund, which holds the Rock shares, managed to return 9.3 per cent to investors last year despite losses on the holding.

It is thought that the Rock nationalisation would have had no bearing on today's alert.

RAB shares fell as much as 9.31p, a drop of 14.25 per cent to 52.4p as the firm said that it faced "headwinds both for our investment strategies and for our distribution plans".

"Although it is too early to comment on the likely full-year outcome, on the basis of four months' trading, our current expectation is for first half earnings in 2008 to be significantly lower than those for the first half of 2007," RAB said.

Because the firm will only book performance fees when it receives them, income and profits should be weighted towards the second half of the year, RAB said, arguing that the strength of its balance sheet meant it should be well placed "when conditions normalise".

After the early morning slump, shares were 8.8 per cent lower at 56p.

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