Blue Planet hedge fund cuts bets

By Laurence Fletcher

LONDON (Reuters) - Market turmoil caused by the U.S. subprime meltdown could mark the start of a financial crisis, said Scottish fund firm Blue Planet Investment Management, which has removed most of its hedge fund's long and short bets.

"I think we are at the start of ... almost a financial crisis, on a big scale," Kenneth Murray, chief executive and head of investments at Blue Planet, which specialises in investing in financial companies, told Reuters on Friday.

"A lot of people will tell you it will be over in a week or two. It won't. It's just started."

The FTSE 100 .FTSE, which three weeks ago was trading above 6,600, closed down 3.7 percent on Friday at 6,038.3, its biggest fall in more than four years.

The fall ends a volatile week for both stock and credit markets, amid fears a surge in U.S. subprime defaults will lead to a wider financial crisis.

Murray said his Global Financials Hedge fund had removed most of its long and short positions and had built up cash. Shorting means betting on a lower price for a security in the future.

"We've effectively shut the thing down, we don't like what's going on ... In 25 years I've never seen volatility like this," he said.

In his long-only funds, meanwhile, he has removed borrowing and protected two-thirds of his portfolios by buying futures contracts on the DJ Euro Stoxx 50 .STOXX50E index.