By Louise Armitstead Last Updated: 1:48PM GMT 26 Oct 2008  Highbridge Capital Management, which is majority owned by JP Morgan Chase and has $25bn under management, is axing 10 per cent of its New York-based staff and plans cuts in Europe and Asia.  The volatility in global stock markets has savaged the performance of some of the world’s best-known hedge funds, raising fears of a collapse in the sector, which could cause a fresh crisis in the financial system.  Big names including Deephaven, Marshall Wace, Citadel Investment Corp, Lansdowne Partners, Third Point and Harbinger, have in recent weeks sustained losses of as much as 20 per cent in some funds.  Investors pulled at least $43bn (£25bn) from US hedge funds in September, according to TrimTabs Investment Research. This is nearly five per cent of the global sector’s estimated $2 trillion in total assets.  Part of the fall in share prices around the world is the result of hedge funds having to liquidate positions to fund redemptions as investors flee the asset class. Last week, Manny Roman, the co-chief executive of GLG, Europe’s biggest hedge fund, warned that thousands of hedge funds are on the brink of failure. He predicted that between 25 and 30pc of the world’s 8,000 hedge funds would disappear “in a Darwinian process’’, either by going bust or deciding that meagre returns are not worth their efforts.  Insiders said Highbridge management planned the restructuring to cope with the turbulence in the hedge fund industry. Highbridge executives are also keen to position the firm to take advantage of cheap European stocks amid the collapse in equity markets.  Highbridge has hired Munib Islam, a senior fund manager from Third Point Capital, one of New York’s best-known and most aggressive hedge funds, to head a new European operation which will buy into over-sold companies across the Continent. Michael Alsalem, a fund manager from Kingdon Capital Management, another rival, has been hired to work with him.  The fund will be Highbridge’s first dedicated to European equities. Until now, its presence in London has focused on researching investments for its US-based funds.  Highbridge, whose sale to JP Morgan in 2004 was one of the first and most lucrative examples of investment banks buying into hedge funds, has dominated the sector. At its peak, the firm had an estimated 20 separate funds with $35bn under management.  Two years ago, Highbridge hired the former co-head of investment banking at Goldman Sachs, Scott Kapnick, to lead its move into private equity and corporate debt.  But, as with other funds, Highbridge has suffered from the financial crisis. Among the group’s funds, its multi-strategy fund declined about 13pc this year at the end of September, while its long-short fund was down about 6pc. Its statistical arbitrage fund is up about 8pc.
The world’s biggest hedge fund is undertaking a radical restructuring amid a    shake-up of the multi-trillion dollar industry which spells the end for    thousands of its smaller rivals.