Drake Management has pulled the plug on its $2.5bn flagship hedge fund after failing to secure enough support from investors to keep operating the formerly high-flying New York-based fund – one of the best performers of 2006.

Drake, which manages about $11bn including long-only money, told investors in a letter on Wednesday night that it had decided to wind down the fund over the next year, but would launch a follow-on fund for those who wanted to stay with the firm.

Drake was trying to secure backing at a difficult time, when many investors want to realise cash. The industry had its lowest inflows for years in the first quarter, and many big funds are facing heavy redemptions.

The decision is a blow for Drake, which had gone out of its way to consult investors on how to restructure Global Opportunities to keep it alive after hefty losses late last year prompted $1bn of redemption requests.

Drake was unusual in polling investor opinion, with hedge funds typically responding to big withdrawals either by agreeing a deal with their biggest investors or suspending withdrawals.

The move means that Anthony Faillace and Steve Luttrell, the former BlackRock executives who founded Drake in 2001 with backing from Icelandic bank Kaupthing, will have to start again in building their hedge fund business.

They had been expanding rapidly after the flagship fund returned 41 per cent in 2006 from its global macro approach, betting on global economic themes, currencies and interest rates, and reached $13bn under management last summer before hitting trouble.

Global Opportunities lost 24 per cent last year, most of it in the past few months due to wrong calls on the effect of the credit crunch, and another 10 per cent by mid-March this year.

Two other hedge funds are also consulting investors about their future but the $7bn of long-only funds are unaffected.

Drake had recommended to investors that they agree to split Global Opportunities into a wind-down vehicle and a continuing fund in order to satisfy investors who wanted to leave immediately.

In its letter, Drake said investors with $500m in the fund had voted to stay after a split. “At the same time, however, some investors opposed the concept of splitting the funds,” it said.

“Several of these investors indicated that ... they would prefer to initiate any contributions from cash proceeds.”

Some investors have privately complained about Drake’s tardiness in reaching a decision, after paying only partial redemptions in January and February.

Drake said new funds would be launched later this year.