RAB Capital yesterday closed a dozen underperforming funds and gave warning that the effects of investor redemptions and sliding markets would leave it with just $2 billion (£1.3 billion) of assets by the end of the year. It started the year with $7.2 billion of funds under management, and began November with $2.8 billion.

The slump in the value of assets means that the London fund manager will have lost almost three quarters of its funds in less than 11 months. The 12 that it is closing are worth almost $250 million.

RAB's funds were based onshore with a minimum investment of £1,000, rather than the standard £50,000 and could have developed into a lucrative market. But the funds were launched last September into the eye of the credit storm and failed to attract wealthy investors.

Stephen Couttie, 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 closed other, smaller hedge funds, unlikely to achieve critical mass in current market conditions. These included its Market Cycles fund with exposure to Lehman Brothers, the collapsed Wall Street investment bank.

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

Yesterday's bleak prognosis by RAB, a one-time poster child for the hedge fund generation and one of the few listed funds, demonstrates how hard the industry has been hit.

RAB, founded in 1999, listed in March 2004 after delivering stellar returns for its publicity-shy clients over previous years. The float, at 25p, made a combined £25 million for Philip Richards and Michael Alen-Buckley, its two co-founders.

Its Special Situations fund, run by Mr Richards, attracted some of the world's most powerful investors, including Lakshmi Mittal, the steel billionaire. Investors have agreed to be locked in to this fund, which has lost more than 50 per cent this year.

Mr Richards stepped down as chief executive to concentrate on running funds. The Energy and Octane funds have been restructured.

RAB insisted yesterday that its balance sheet was strong, with assets of £106.7 million, including £53 million in cash. The shares rose 1.48p to 8p.

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