The $1.4bn (£704m) flagship hedge fund of London’s Plexus Partners has lost more than a third of its value this year after arbitrage trades in the credit markets went spectacularly wrong.

Plexus, run by Dermot Keane, the former Goldman Sachs trader, fell by slightly more than 35 per cent when it was caught out by perverse moves in the “basis trade”, a popular arbitrage between the price of derivatives and the underlying corporate credits, investors said.