Increased regulation of hedge funds will drive some out of business and lead to a shrinkage of the industry, according to the chief executive of Man Group, the UK’s biggest listed hedge fund manager.

Peter Clarke said smaller managers who did not have the resources to cope with additional demands from watchdogs would be hit hardest. He said Man, which estimated that pre-tax profits for the year to the end of this month would drop to a third of last time’s level, was well-placed to cope with additional controls.