David Rubenstein, co-founder of the Carlyle Group, on Thursday pledged to compensate investors hit by the collapse of a $22bn mortgage-backed securities fund his private equity group floated seven months ago.

“We have stood behind our products in the past and we are working on ways to address the losses that are being suffered by investors,” Mr Rubenstein told the Financial Times, adding that Carlyle was examining the legal issues about compensating shareholders in Carlyle Capital Corporation, a separate legal entity.

Shares in CCC, which plunged 87.5 per cent on Thursday to $0.35, opened up 14 per cent on Friday. They listed in Amsterdam at $19 in July last year.

CCC, 15 per cent owned by employees of the Carlyle Group, said its banks were likely to take possession of its remaining assets and liquidate them after it ran out of cash to meet margin calls – demands for more collateral – that exceeded $400m.

CCC represents one of the most dramatic casualties of the great unwinding that is occurring in the financial markets as lenders pull back from risk.

The fund, which had $31 of debt for every $1 of its own, had hoped to use its massive borrowings to generate higher returns from investments in highly rated mortgage securities. Its strategy was undone by the turmoil in the mortgage markets, dealing a heavy blow to the reputation of Carlyle, one of the world’s biggest private equity groups, and raising questions about whether it became too diversified.

Investors in CCC – many who back Carlyle’s buy-out funds – are asking why it was so late in cutting use of borrowed money.

Mr Rubenstein defended Carlyle’s handling of the collapse. Speaking after the talks with banks to rescue CCC ended in failure he said, “I don’t think one fund out of 60 will spoil a reputation built up over 20 years.”