A series of defaults is set to rip through the collateralised debt obligation market as a direct result of the fallout in the US sub-prime mortgage market, a leading fund manager has warned.

François Barthelemy, a senior fund manager with F&C Partners, the fund of funds operations within F&C Asset Management, said he has cut exposure to CDOs and instead increased investment in credit hedge funds to 20% of his portfolio compared with 10% a year ago.