At least one UK hedge fund a week is considering winding up its funds, it emerged today, as a catastrophic investment performance this year puts the sector under unprecedented pressure.

"The credit crisis is definitely kicking in for the hedge fund industry now," said Andrew Shrimpton, the former head of hedge fund regulation at the Financial Services Authority (FSA), who now runs a consultancy, Kinetic.

"We are being approached by hedge funds considering voluntary fund liquidations on a weekly basis," he said.

Mr Shrimpton said turbulent investment markets and worries that investors are rushing to redeem funds were taking their toll on a sector that has experienced unrivalled growth since the turn of the millennium.

He also said the FSA's ban on short-selling shares in the financial sector was hitting individual investment strategies, including long-short equity funds and event-driven funds.

"There is a shakeout going on. Everyone is being affected," Mr Shrimpton said. Included in the funds opting to wind down were funds with more than $1 billion under management, he said.

"The number of funds that are worried about redemptions is higher than it's ever been."

His comments came as hedge fund investors, particularly the super wealthy, were expected to rush to lodge requests today to ensure they could redeem their capital by the end of the year.

Several hedge fund managers reported that companies running funds of hedge funds were particularly vulnerable as nervous high net worth individual investors move to invest their capital in areas such as cash or gold that are perceived to be less risky.

One manager at a London hedge fund, one of the most successful in its field last year, said: "Investors are scared, they want cash. We are not going to be immune from that."

Mr Shrimpton called on the FSA to drop its temporary shorting ban as soon as stability begins to return to the markets. "Short-sellers add liquidity to the markets; there is a clear case for dropping the ban in more stable times," he said.

It comes as hedge funds record their worst ever investment performance for the year to date.

Worldwide, hedge funds have lost more than 10 per cent, according to Hedge Fund Research (HFR), the Chicago-based research firm.

Almost every hedge fund investment strategy has recorded losses for the year so far, according to HFR data. Only macro investments and merger arbitrage strategies have posted gains.

Convertible arbitrage investments — where funds exploit small price differentials between convertible bonds and their underlying equities — have lost more than 19 per cent, according to HFR.

One manager admitted that his firm's strategy had fallen 9 per cent in the past month but speculated that some of his rivals had suffered losses of more than 20 per cent.

Times Recommends

• ‘Lame duck’ fear for FSA as chief quits
• Storm over bailout of EU's most ailing economy
• Northern Rock to drop 100% savings guarantee