One of last years most successful hedge funds imploded Thursday when Peloton Partners put the assets of its $2bn flagship ABS fund up for sale and froze its remaining fund after leveraged mortgage bets left it unable to meet margin calls.

The losses are suprising because Peloton ABS was one of the big winners from the US subprime crisis, gaining around 86 per cent last year after betting against low-quality mortgages.

After investing in good-quality assets that are trading at deeply discounted prices, according to a co-founder of the fund, the ABS fund has recently experienced difficulties in the challenging credit markets and seen severe falls in value.