Glasgow-born Hendry, who established Eclectica Asset Management four years ago after working in the investment industry on the both sides of the border, has emerged as de facto spokesman for a notoriously publicity shy industry as the financial crisis raged.

He told the Sunday Herald that measures being considered by the European Union could lead to him moving outside the jurisdiction. He said: “Increasing regulation will lead to me relocating my office from the UK.”

Hendry is furious at rules being considered by the European Union that among other things could lead to a crackdown on pay awards similar to that being imposed on bankers.

“I am a small business and a partnership. What I do is of no concern to them. There is no Government guarantee around my funds. I am an offshore Cayman Islands-registered product. Why does the EC need to regulate me?”

Hedge funds vary dramatically in their strategies to generate returns for their wealthy clients. Some managers will use derivatives to bet against certain shares or markets, so-called shorting, others seek to benefit from events such as corporate takeovers, others bet on the direction of currencies or interest rates.

Eclectica, as its name suggests, is willing to consider any investment strategy that produces returns, following a “macro” approach that seeks to harness trends in global markets.

It was the shorting of financial stocks in the first half of 2008 which attracted the attention of European regulators.

Even the UK -- which as the home of the European hedge funds industry takes a comparatively relaxed view of the industry -- put a short-term ban on shorting. This was followed by a set of proposals unveiled earlier this year by the European Commission under the guise of the alternative investment manager directive.

These have been embellished separately by the European Parliament and by the Swedish Government, which holds the European presidency until the end of the year.

The proposals have to be combined, which means continuing uncertainty for the sector well into next year when Spain will take over the presidency.

Up for consideration are plans for limits on how much funds can be borrowed, and additional rules on how to value investments. But most worrying to hedge funds are proposals to introduce similar pay restrictions as those being imposed on bankers, such as limits on cash bonuses and deferrals of large parts of the pay outs.

Britain’s financial regulator recently calculated the directive would cost EU finance firms €3.2bn (£2.1bn) to implement and €311m (£204m) in annual compliance costs.

Large insurers and banks as well as hedge funds and private equity funds will be caught by the rules. Another study by Europe Economics calculated the plans could cost the European Union 0.1% to 0.2% in annual economic growth. This will be most felt in the UK, which hosts 80% of Europe’s alternative investment managers.

Julian Young, head of the European hedge fund practice at accountant Ernst & Young, said: “The question I would ask is if these are private partnerships, managing private people’s money, why is it in the public interest to try and manage the compensation arrangement?”

Those who want to invest in hedge funds typically need to plough in upwards of £100,000. However, Young does not anticipate a massive exodus of hedge fund managers from the upmarket streets of Mayfair in London where many of them are based. He notes that this would mean they could not market the funds to European investors.

But he acknowledges extra rules could push some who are already concerned about tax and regulatory practices over the edge.

“People are establishing offices in places like Switzerland for a variety of reasons concerning tax and regulation. But it will probably accelerate that,”said Young.

He said hedge funds are increasingly willing to offer recruits the chance to work out of a variety of locations to suit their personal and tax circumstances.

Hugh Hendry, whose firm is based in London, argues it is unfair to penalise hedge funds for the financial crisis.

“I believe a speculative culture was allowed to develop within the banking sector,” he said.

Hendry avoided risky areas in the run-up to the financial crisis, a strategy that was controversial with some clients at the time. But as a result the worst ever year for his flagship Eclectica fund was a 3% drop while it returned more than 50% in its best year. It has generated an average return of 11% since launch.

The average hedge fund lost 19% last year and many were forced to close.

Hendry argues the UK economy could take a massive hit if a clampdown on hedge funds causes an exodus to other jurisdictions. “I cannot stress how dependent the UK is on the financial economy and the majority of Government tax revenues is raised from 4% to 5% of the population. It has catastrophic implications for the UK,” he said.

As a share of GDP, financial services contributes somewhere between 8% and 12% but provides a disproportionate number of the country’s high earners.

Worry about more regulation has been heightened by the appointment of former French foreign minister Michel Barnier as commissioner for internal markets. He will be in charge of

drafting future EU laws governing financial services.

Hendry trained with Edinburgh fund manager Baillie Gifford after graduating from Strathclyde University in 1990.

Hendry claims he was only hired because institutional investors told the firm to hire more working-class employees.

“I am a truck driver’s son from Glasgow and I sound like Rab C Nesbitt,” Hendry told The Herald last year.

After a brief stint at Credit Suisse he joined high-profile London-based hedge fund manager Crispin Odey.

A falling out led to Hendry leaving in 2005 with colleague Simon Batten to establish Eclectica.

His varied team of colleagues includes former Tottenham Hotspur goalkeeper and Norway international Espen Baardsen.

North of the border only a few financial houses run hedge funds, including the Edinburgh-based Ignis Cartesian funds boutique and Martin Currie.