The rate of hedge fund closures increased significantly last year and is expected to rise further, according to one of the industry’s largest investors. The warning is the latest evidence that absolute return investors are facing tougher markets, according to Financial News.

Laurent Seyer, chief executive of Lyxor Asset Management, a subsidiary of French bank Societe Generale that operates a platform through which clients can invest in 150 hedge funds, said 30 of those funds had shut last year. Mr Seyer said that compared with an average of 15 a year over the past five years.

He was quoted as saying: “This year it will be more like 40. It is because of redemptions, perhaps because the fund’s strategy no longer works, or its performance was no good, or a manager has left.”

Hedge funds included on the platform have to agree to let Lyxor’s clients remove their capital at less than a week’s notice, making the platform an early indicator of investor sentiment.

Mr Seyer said investors have been particularly unenthusiastic about hedge funds that trade in asset-backed securities and some have sold the most liquid assets in their portfolio in order to reduce leverage.

The industry made a poor start to 2008, with significant losses in January and March. It has begun to recover since, making money in April and May, according to US data provider Hedge Fund Research, whose investable hedge fund index was down just 0.14 per cent for the year to 28 May, the most recent data available.