RAB Capital today shut down 12 underperforming hedge funds as it gave warning that a surge in investor redemptions and sliding markets would leave it with just $2 billion of assets to manage by the end of December.

The closures mean that the London hedge fund manager will have shut down about a third of its portfolio, worth around $250 million.

It also means RAB will have lost almost three-quarters of its total managed assets, which stood at $7.2 billion at the end of last year. It managed $2.8 billion at the beginning of the month.

As part of its retrenchment, RAB also said it was abandoning a plan to build up a business to cater to individual hedge fund investors.

Stephen Couttiee, RAB's new chief executive, said: "We have taken the necessary action to focus the business and reduce its scale of operations in the context of extremely difficult conditions throughout the industry."

RAB shut three funds, described as "sub-scale", as part of the decision to drop the plan to target retail investors.

It closed other, smaller hedge funds, unlikely to achieve critical mass in current market conditions. These included its one fund with exposure to Lehman Brothers, the collapse Wall Street bank, RAB said.

RAB also said it plans to close three out of the five fund of funds - or pools of hedge funds - that it runs.

RAB shares rose 1.48p to 8p.

Hedge funds have been battered by unprecedented market turmoil since the demise of Lehman and the US Government bailout of AIG, the insurer.

Panic-stricken investors have rushed to withdraw their assets as hedge funds have imposed lock-ups aimed at preventing fire-sales and heading off the risk of collapse.

RAB's investors have agreed to lock in to the Special Situations fund, its highest profile investment offering run by Philip Richards, the former boss.

It has also restructured its Energy and Octane funds.

RAB insisted today that its balance sheet was strong, with assets of £106.7 million, including £53 million in cash.

It said it was prepared to reinvest in its existing range of funds where necessary and was still prepared to set up new funds if the opportunity arose.

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