Hedge fund manager Man Group could face declines of up to 90 per cent in the assets under management of its fund of hedge funds subsidiary RMF, due to its exposure to the funds of Bernard Madoff, according to predictions by Morgan Stanley equity analysts.

In their base case scenario, the analysts forecast that Man Group could see its RMF’s assets under management fall by about 75 per cent from its March 2008 peak of $33 billion to around $9 billion by March 2011.

This scenario breaks down as redemptions of 13 per cent of AuM in the first three months of 2009, and later redemptions of around 40 per cent of AuM in the 12 months to end-March 2010 - Man Group’s next financial year.

In their bear case scenario, Morgan Stanley predicts that at the end of March 2010 RMF will have shrunk to $3 billion – a 90 per cent decline over two years.

Man Group declined to comment when contacted by WealthBriefing.

Switzerland-based RMF had been noted as one of the largest fund of hedge fund managers in the world. Now, like many other firms, RMF faces criticisms over the due diligence performed on Madoff-related funds.

"We are bearish on asset retention for fund of hedge funds managers that were exposed to Madoff, given the potential damage to due diligence credentials and expect this to compound redemption pressures for RMF," Morgan Stanley said.

Last year the US authorities exposed an alleged $50 billion fraud perpetrated by Mr Madoff in the form of a Ponzi scheme. Commentators have since pointed out that Mr Madoff reported implausibly consistent returns from his funds, and that auditing was carried out by a virtually unknown firm – warning signals which should have been identified in the due diligence process.

As at 30 September 2008, the assets under management of UK-listed Man Group stood at $68 billion.