LTCM was one of the first, and largest of all hedge funds, and when it collapsed during the devaluation of the rouble in 1998, the world’s largest investment banks agreed to an unprecedented $3.6 billion rescue to restore confidence in the global economy.

Mr Merton told The Times at the GAIM hedge fund conference in Cannes that the new fund had been set up late last year, and that, “the collapse is not unique to hedge funds. It’s inevitable when you have a system with a low point of entry. People will make mistakes.”

The Victoria fund has a $5 million investment minimum, with a 2% management fee. The strategy is expected to be applied across non G-7 countries and will invest in several areas, including sovereign and corporate bonds, inflation-linked instruments, and foreign exchange.

Victoria’s portfolio manager is Jose Luis Daza, formerly the global head of emerging markets strategy at Deutsche Bank. The hedge fund of funds is overseen by an investment committee made up of Hancock, Gene Shanks and Thomas Graham. Shanks was president of Bankers Trust Company from 1992-1995. Graham was head of hedge fund­linked structured products at CDC IXIS Capital Markets North America.