By Dane Hamilton and Svea Herbst-Bayliss

NEW YORK/BOSTON (Reuters) - Peloton Partners, a London-based hedge fund, became the latest victim of the global credit market crisis when it told investors on Thursday that it was shutting one fund and was considering what to do with another.

"We are writing to inform you that we have today had to take steps to attempt to realise the Peloton ABS Master Fund's portfolio," fund managers Ron Beller and Geoffrey Grant told investors in a letter dated February 28. Reuters obtained a copy of the letter.

The pair, who founded the fund in 2005 after working at securities firm Goldman Sachs (GS.N: Quote, Profile, Research), told investors they have been working to fix the problems and were now searching for a buyer to provide outside help.

"The problems for the Peloton ABS Fund have had a serious negative impact on the Multi-Strategy Fund and we are currently assessing our options," the managers wrote.

Through the end of last year, Peloton ranked as one of the secretive $1.8 trillion hedge fund industry's biggest success stories, as the $2 billion (1 billion pound) ABS fund boasted an 87 percent return in 2007 on bets the subprime market would decline.

Things changed dramatically this year.

When the market stalled in recent weeks, the ABS fund, backed by a ratio of four-to-five times leverage, chose an "orderly liquidation" to pay off lenders, one source familiar with the fund's recent activities said.

The ABS fund suffered "severe NAV declines" and lenders have tightened their requirements, Beller and Grant acknowledged this in the letter, saying it "made it impossible to meet margin calls."