Jeremy Warner: Horlick damaged as Madoff makes off with the loot

Outlook: There's an old investment adage that goes "If something looks too good to be true, then it generally is". Hedge funds as a class might reasonably be thought to conform to this category, but the ones run by Bernard Madoff, a New York socialite with a top-drawer client list of the rich and famous, fit the bill to perfection.

His $50bn of funds under management appear to have turned out to be nothing more than a giant Ponzi scheme, under which Mr Made Off would pay the spectacular returns he boasted of out of the deposits he was taking from others. It's one of the oldest frauds in the book, so it is heartening to see it still flourishing in these credit-crunched times. It's a fair bet there will be many others practising the same game out there in the great sea of global financial markets.

In the event, it seems to have been the credit crunch that finally outed Mr Madoff. Virtually all hedge funds have been suffering massive redemptions as investors dash to get their money into cash and bonds. A particularly large call on one of Mr Madoff's funds revealed that it was nothing but a hollowed-out husk.

There appears to be no wider systemic threat posed by Mr Madoff's antics, but an awful lot of rich people and fund of funds may be badly damaged. One of the casualties is Nicola Horlick's London-based Bramdean, which turns out to have lodged nearly 10 per cent of its money with Mr Madoff.

Bramdean, which always did seem to be riding on a wing and prayer, invested the money through a fund of funds. In its annual report, Bramdean describes the fund as a "low-risk, high-liquidity" way of keeping the money until a longer-term home could be found for it. I don't know about you, but I struggle to understand even what a "very conservative split-strike strategy – which consists of the purchase of a basket of equities, the purchase of a put option and the sale of a call option" means, let alone how it could be described as "low risk".

The credit crunch is proving an almighty bonfire of both wealth and vanities. Mr Madoff may be just a simple fraudster, yet he might be thought of as a proxy for the credit bubble as a whole. The fabulous riches it seemed to spawn have turned out to be largely illusory.