Absolute Capital Management, the embattled $2.3 billion hedge fund, has plunged into a loss for the full year and suffered a sharp slide in investment performance in the wake of the shock exit of its star trader, Florian Homm.

Jonathan Treacher, the chairman, also blamed "the worst credit crisis in history" for the disastrous annual performance of some of AbCap's funds.

Its Octane and European Catalyst funds, both the ultimate responsibility of Mr Homm, posted heavy losses of 25.8 per cent and 24.3 per cent respectively for the year to the end of December, AbCap said today.

This helped pushed the hedge fund, which at its height managed $3.2 billion, into a €32.9 million pre-tax loss for year. Last time, it recorded profits of €27.6 million.

AbCap scrapped the annual dividend and took a €74.1 million write down on the value of Argo, the debt trading business that it spun off earlier this year.

AbCap, whose investments are run from Mallorca, spiralled into crisis last September when Mr Homm, its famously cigar-smoking co-founder, abruptly quit as part of a spat over staff bonus arrangements.

An audit following his departure uncovered up to $550 million of highly illiquid investments in American bulletin board and over-the-counter stocks.

AbCap hived these off into side-pocket investments and is still going through the process of carrying out an orderly sale.

Assets under management, excluding Argo funds, stood at $1.2 billion at the end of year, some $300 million down on the same point in 2006.

However, investors will have the right to redeem funds without a penalty in November, raising worries that there will be a rush for the exit once this lock-in expires.

Mr Treacher said he felt to have the support of a number of AbCap investors and he said that during the first six months of the year investment performance had been "okay".

"From January to June performance has been okay. We haven't been trying to shoot the lights out. We've been trying to stabilise the business and focusing on assets," he said.

Mr Treacher said other funds were performing well. Its Absolute India and Absolute Germany fund both recorded strong positive annual returns, as did the Argo debt and property funds.

Later this year, PricewaterhouseCoopers, the consultants, and Berwin, Leighton Paisner, the law firm, will conclude an investigation into the circumstances surrounding Mr Homm's departure, Mr Treacher said.

He said AbCap would wait for the conclusions of that report before deciding what action to take. He said there had been no contact with Mr Homm and he did not know his whereabouts.

No direct replacement has been found for Mr Homm. Mr Treacher suggested AbCap would look for more new managers, possibly to be incentivised with equity awards, once the business had recovered further.

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