Yet more figures have been published to show that 2008 was the worst year in the history of the hedge fund industry in terms of performance. On average, hedge funds fell by 19 per cent, according to the broad measure of returns by Credit Suisse/Tremont, the fund-tracker.

Sharp falls in global equity markets, coupled with a sharp rise and sustained rise in volatility, have hit the vast majority of hedge fund strategies, apart from funds deliberately positioned to profit from market falls, such as short-biased funds, earning returns of 14.9 per cent last year. Only 21 per cent of funds made money last year.

The data is in line with evidence from fund trackers such as Hedge Fund Research and Hennessee.

Besides market conditions contributing to the poor figures, sharp de-leveraging of hedge fund strategies, the losses caused by the alleged Bernard Madoff Ponzi scheme fraud also added to the fall in hedge fund performance last year, the report said.

The market carnage of last year has prompted wealth managers to re-assess the case for hedge funds or some of the strategies these funds employ and the traditionally high fees levied by these investment pools. Regulators have imposed partial or complete bans on hedge fund tactics such as short selling to reduce market falls, although some analysts say such restrictions are counterproductive in the long run by reducing market liquidity.

During 2008, investors withdrew $149 billion of assets from hedge funds, which at the end of last year declined in asset value to $1.5 trillion, CS/Tremont said. The industry’s assets plummeted in value by $582 billion last year.

High net worth individuals have been among the quickest to withdraw money from hedge funds, the report said. In response, a number of hedge fund managers have invoked contract clauses to halt or severely curtail redemptions. About a quarter of the world's hedge funds are ranked as "impaired": banning or restricting redemptions. About 17 per cent of all hedge funds have ceased operations; according to latest data, there are now about 7,600 funds.

The report said that up to 30 per cent of private investments in hedge funds could be redeemed by early 2009. However, institutional investors are less likely to rush for the exits and may use the volatile market situation to return to this investment.

“In general, institutional investors have maintained their exposure and are taking advantage of the fact that quality funds, which had previously been closed, are now ready to accept funds again,” the report said.

Although hedge funds on average fell in value, their decline was less than among broad measures of equity market performance. For example, the MSCI World Index of developed countries’ stock market returns fell by 42 per cent last year.