The Serious Fraud Office (SFO) has today launched a formal criminal investigation into a $500 million London hedge fund following complaints from investors and a referral by the City’s chief regulator.

The SFO said today that it was investigating the investment activities of Dynamic Decisions Capital Management, a hedge fund based in Chelsea that was founded by an Italian finance professor about five years ago.

Dr Alberto Micalizzi, professor of finance at Bocconi University in Milan, was until February Dynamic Decisions’ chairman, but was forced to resign by the other members of the board.

Dr Micalizzi told The Times today that he had done nothing wrong and that he would be flying back to London to be interviewed by the SFO and to clear his name.

“The investigations are not founded, first of all. There have been complaints from investors about the delays in payment of redemptions,” Dr Micalizzi said.

He said that it was his “expectation” that investors would receive their money back in full.

Dr Micalizzi’s hedge fund has been registered in the UK since 2004, according to Financial Services Authority records.

Its funds are operated from the Cayman Islands, an offshore financial centre favoured by investors for its light tax treatment.

The SFO said today that specific complaints had been received about a fund, Dynamic Decisions Growth Premium Master Fund Ltd, operated in the Cayman Islands.

Dynamic Decisions’ master fund, which was served by two further feeder funds, was forced into liquididation in May after it was unable to meet investors’ redemption demands.

The master fund, valued at about $550 million last December, traditionally invested in European and US shares, according to Dr Micalizzi.

However, in the fourth quarter of 2008 it switched a large slice of its assets into fixed income securities, which became far harder to value and to subsequently sell, he said.

Dr Micalizzi said that the board supported the decision to change the investment policy. Grant Thornton is liquidator to the Master Fund.

The SFO said that anyone with information that might help the investigation should get in touch.

The FSA is understood to have been watching the situation at Dynamic Decisions since early this year.

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