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While hedge fund managers may have had their pride dented over the shorting affair, Tim Cockerill at adviser Rowan believes they face far bigger problems than the temporary ban.

He said: “Many have made returns of just half of 1 per cent per year, but have leveraged it up to respectable levels. That access to capital is no longer there and will not be for many more years. For the time being, the hedge fund is dead.”

If that is the case, Mr Cockerill predicts tough going for some of the world's largest fund of hedge funds.

Last week, Aima was quick to voice criticism of the FSA’s ban on shorting financial stocks, now extended to 34 stocks.

In a statement, Aima said: “These measures have the potential to create several unfortunate consequences including an increase in the cost of capital for banks at a time when it is most needed and incorrect pricing of index products, with negative implications for mainstream retail products.”

However, Meera Patel, research analyst at Hargreaves Lansdown, said the impact for retail investors may be overplayed.

“In theory, every Nurs and Ucits III fund could use shorting powers. In reality, there are only a handful of funds that use it at the margins of their portfolios.”

For example, JPMorgan's Balanced Total Return and Cautious Total Return funds, run by Niall Nuttall, currently short no financial stocks and remain unaffected by the FSA ban.

Tony Stenning, retail managing director at BlackRock, said discussions were ongoing with the FSA and IMA over the wording of the ban. He said reporting at a group level on net positions would have far less impact on the UK Absolute Alpha fund run by Mark Lyttleton than reporting at individual fund level.

However, Mr Cockerill argued that the fund’s strategy of going long on oil and miners, short on banks, had already "gone sour" in the last couple of months, adding: “In the hedge fund world, there are still a lot of people who believe banks will go lower. They will be hit.”