ONE of Britain’s best-known hedge funds, RAB Capital, has stopped investors cashing out of a second of its flagship funds. Investors in RAB’s Energy fund - which has lost more than 50% of its value this year - have been told they will not be able to liquidate their holdings.

Those who want to quit will be handed “redemption shares” instead of cash - a promise on behalf of the fund to pay back investors as and when it can sell out of enough stocks.

The fund, run by Gavin Wilson and Mark Redway, is entitled to do this under existing agreements with investors.

Those who opt to stay in are being offered the chance to lock up their money for three years in exchange for a reduced management fee. The proposal is based on the deal offered to investors in RAB’s Special Situations fund, run by former chief executive Philip Richards.

Investors have until Friday to tell the firm whether they want to accept the Energy fund’s lockup deal or sign up for the special shares.

The fund, which was worth more than £1 billion at its peak, has been one of the biggest backers of oil and gas-exploration firms on London’s Alternative Investment Market.

It is understood that the fund has held informal discussions with a number of large oil companies interested in buying some of its holdings. The fund mostly holds large stakes in small companies - investments that have become almost impossible to trade in today’s volatile environment.

RAB Capital said: “The fund managers have exercised their right to make redemptions in specie in light of the difficult market conditions.”

Its latest problems come amid mounting expectations that the hedge-fund community will be decimated by the global market meltdown. Banks have been calling in credit lines extended to a number of funds, which has forced them to sell shares to raise cash.

Former US Treasury adviser Nouriel Roubini warned last week that up to 500 hedge funds would collapse within months.

Kenneth Griffin, the founder of hedge fund Citadel with $17 billion (£6.6 billion) in assets, held a 45-minute emergency conference call on Friday to quell fears it was in trouble by going public with information it usually guards militantly.

The call was intended for a small group of bondholders but almost 1,000 investors, analysts and other market players dialled in after a Wall Street blog said Citadel was meeting Federal Reserve officials to manage a pending collapse.

On the call, Griffin and chief operating officer Gerald Beeson confirmed the firm had suffered losses of 35% in its two core funds - Kensington and Wellington - as a result of the global financial crisis.

Beeson stressed the severity of the financial crisis: “To call it a dislocation doesn’t go anywhere near what we’ve seen. We’ve seen the near-collapse of the world’s banking system.”

They said Citadel had not had to sell assets to meet investor demands to return their capital and that the firm had more than 30% of its assets in cash - or close to $6 billion. It has another $8 billion in credit available from commercial banks around the world.

Poor performance has also spurred London-based Centaurus Capital into action. It is proposing to return 30% of cash to investors in its Alpha fund and lock up the rest of the money for two years with reduced fees.

If approved by investors, the plan would take effect on December 1. As an interim measure, Centaurus is restricting the amount of money investors can withdraw to just 10%.

And GLG may decide to suspend redemptions on its $1.4 billion market-neutral fund this Friday – the last day of the month and typically when redemption notices come in.

Times Recommends

• C&G axed - 1,660 jobs to be lost
• UK house prices rise 1.1% as buyers return
• Mixed reaction to US banks repaying bailouts