Hedge funds are beginning to close their doors or lay off teams of traders in response to the unprecedented gridlock in the debt markets which has led to losses and significantly reduced the amount of money banks are willing to lend their hedge fund clients.

In January, the overall performance for all hedge funds was a negative 1.8 per cent, according to Hedge Fund Research, while the merger arbitrage index was down a mere 0.34 per cent. This does not capture the wide range of results, according to managers of funds of funds, who say many firms lost as much as 8 per cent in January.