Speculation of an imminent worldwide rout among stricken hedge funds intensified yesterday as it emerged that investors had pulled more money out of the sector in the third quarter than at any time during its turbulent history.

Industry experts began to predict that as many as a quarter of the world’s funds could go out of business by the end of the year. A 25 per cent cull could mean that thousands are facing collapse. Out of an estimated 450 hedge funds in London, more than 100 could be at risk.

One head of securities at a London broker said funds were being crippled by increased margin calls from their prime brokers, which supply services including liquidity.

“The implications of the last ten days are extraordinary. There is no way back,” he said.

It emerged yesterday that panic-stricken investors withdrew $31 billion (£17.8 billion) of hedge fund assets globally during the three months to the end of September and a further $179 billion was wiped off the value of their assets by falling markets, according to Hedge Fund Research, the Chicago research firm.

The combined effect wiped $210 billion off the industry during the three months to the end of September, HFR said. At its peak last year, assets topped $2 trillion.

Florence Lombard, chief executive of the Alternative Investment Management Association, said: “It has been a difficult year for many hedge funds. This has been greatly exacerbated by the bans on short selling imposed by some countries.”

The depth of the credit crunch, the collapse of Lehman Brothers and the most turbulent markets for a generation have left funds facing their biggest test since 1998, when Long Term Capital Management had to be bailed out by governments and Russia defaulted on its eurobond obligations.

Speculation of a round of fund collapses has reached fever pitch since the beginning of September, when the stark knock-on effects of allowing Lehman to fail became apparent.

Last month, hedge funds recorded their second-worst monthly performance, losing 5.5 per cent for investors. Market conditions have rapidly deteriorated since then and according to HFR’s daily index yesterday, hedge funds have lost almost 18 per cent for the year to date.

HFR said yesterday that it was likely that hedge funds were heading for their first industry-wide full-year loss for six years and some have been forced to shut the door on redemptions.

Toscafund, Martin Hughes’ $6 billion fund, is currently consulting its investors on whether they want to withdraw or be locked in.

Absolute Capital Management, based in London, said this week that it would have to close two of its hedge funds because it had been hit by redemption calls.

The former $3.4 billion business has been reeling for almost a year after the sudden departure of Florian Homm, its charismatic former chief investment officer and co-founder.

The rush of capital to the exit means that, after the closures, AbCap will have just $130 million of funds under management.

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