William Donaldson, chairman of the Securities and Exchange Commission, the US regulator, has warned that the pressure on hedge funds to post stellar returns in order to justify their fees could lead to "disaster for the investors that they serve."

He told the Foundation Financial Officers Group, an industry body, in Washington: "If history is any guide, it is just this sort of pressure that can lead otherwise well-intentioned professionals to pursue practices that can ultimately result in disaster for the investors that they serve."