Focus Capital, a $1bn New York hedge fund, has been forced to liquidate its entire portfolio after missing margin calls from banks, it told investors yesterday.

The fund, which had produced strong returns by investing in Swiss mid-cap stocks since starting in 2005, is now expected to shut down after losing about 80 per cent of its value.

The collapse is the latest to hit leveraged hedge funds, following the failure of Peloton Partners' $2bn ABS fund last week, and comes as worries are rising that forced sales by hedge funds could drive down prices.

Several other funds specialising in credit are close to crisis, according to investors and consultants, while a few smaller funds have had assets seized by banks or required rescues by investors or allies.

In a letter to investors, the founders of Focus, Tim O'Brien and Philippe Bubb, said it had been hit by "violent short-selling by other market participants", which accelerated when rumours that it was in trouble circulated.

Sharp drops in the value of its investments led its two main banks forcing it to sell last Tuesday, according to the letter to investors.

Several Swiss stocks in which Focus invested plummeted when it sold big stakes last week, including white goods maker Schult-hess Group, in which it held 30 per cent, and food company Hiestand Holding, where it had 32 per cent.

Focus declined to comment on the level of leverage it used, but confirmed it had sold its portfolio after being hit by the plummeting value of its investments.

"It was like an avalanche," a spokesman said. He said the fund started February with just over $1bn under management.

Yesterday, P-Solve Niche Opportunities Fund, a listed London fund, said it had written down its investment to zero, knocking 7.6 per cent off its own asset value.

Focus denied it had lost all investor money, but refused to say how badly it had been hit.

According to hedge fund databases, Focus dropped 8.6 per cent in January in its euro share class, following gains of 33 per cent last year and 112 per cent the year before.

Many other hedge funds investing in illiquid assets, mostly in the credit markets, have suspended redemptions by investors to avoid forced sales. But concerns remain that withdrawals by investors from certain sectors could force more to shut.

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