The fund will be fronted by Roger Guy, who has been running Gartmore's pounds 1bn European special opportunities fund. The move comes amid growing pressure on Gartmore to find ways of improving its investment performance after several years of slipping down the industry league tables.
The launch is the latest sign of the rehabilitation of hedge funds as memories recede of last autumn's $3.5bn bail-out of Long Term Capital Management, the hedge fund run by former Salomon trader John Meriwether. The LTCM crisis at one point threatened to bring the world's financial system to its knees.
Many of the big-name hedge funds have struggled. George Soros suffered waves of redemptions from his flagship Quantum Fund following disappointing performance. However, the broader universe of hedge funds has done reasonably well this year, outperforming the benchmark US stock index the Standard & Poors 500 by a serious margin.
Last month Henderson Investors, now owned by Australia's AMP, announced plans to launch a hedge fund. Similar plans have been promised by Mercury Asset Management, and Commerzbank's UK-based fund management arm Jupiter.
They follow a high-profile announcement earlier this year by Calpers, the Californian state pension scheme, that it was setting aside substantial funds for hedge fund investors.
The attractions for big investors are that hedge funds can potentially make substantial returns well above what even the best conventional fund manager can achieve, although management fees can be as high as 20 per cent of profits. Many do this by using sophisticated derivatives-based trading strategies which are not necessarily high risk.
However, many institutions are prevented from investing in them by law because of their perceived high risk.