The credit crunch, and the changes to capital gains tax, have forced the shutdown of Platinum Fund Managers, created five years ago by Eric McAuslan, one of Edinburgh's highest-profile and most successful fund managers.

The firm's demise follows last year's liquidation of the £80m Platinum investment trust, after the unexpected loss of a legal action brought by its former managers who successfully claimed the right to performance fees for five years after they were sacked.

McAuslan had by last autumn raised £8m for a successor vehicle, an Irish-registered open-ended fund, on the back of the Platinum trust's outperformance of the small-cap sector over the previous three years.

However, he said at the weekend: "We went to investors with a quasi bookbuilding exercise - if we got to our target of £20m-to-£25m then we would call in their commitment.

"But as we went through August and September, all hell was beginning to break loose, and we got the brunt of it because there was no money to be put into new ventures."

McAuslan went on: "If you have got a product nobody wants to buy, you keep bashing on or you say this is not working."

Platinum had promised investors that as the fund was so small it would waive its management fee to keep the expense ratio low.

"So we had no revenue but were sitting there running and operating a business every month. We had a big capital gain last year but were eating into it all the time."

Platinum Fund Managers had netted £2.5m from its shares in the liquidated trust, thanks to its strong performance, which had already been subject to a 30% tax charge.

"The final straw came when the chancellor changed capital gains tax to 18%."

McAuslan and his co-directors Adam Forsyth and Adam Mills were sitting on personal gains from their shares in Platinum, and if the company were to be wound up after April 6 their tax bill would be 80% higher.

"There was an element of double taxation - the company had already paid tax on the gain but our shares were a business asset," said McAuslan.

They decided to liquidate the new £8m fund and give shareholders their money back - but to accept shares in lieu of cash for their own holdings in the fund.

"We think that the companies left in the portfolio are basically good companies whose share prices have been absolutely hammered because of what has been happening The liquidator can give us pro rata holdings in all our stocks, or sell them to give us the cash, it is our decision, and we will see what 2008 brings."

The Platinum process of "change-driven investment" consisted of 20 or so mainly smaller company stocks, bought for their likely exposure to dramatic change in the business and in market sentiment.

"Some of these prices have gone so far, if I had more cash left I would buy some more," McAuslan said.

"Small companies have completely reversed their relative valuation against larger ones. In small caps it has been unremittingly bad, the index is down 28% from the middle of last year.

"It provides opportunities in our sorts of stocks when the market is difficult, but recovery stories come a long way down people's wish list ... sometimes the best opportunity is the most difficult sell, persuading people that now is the time to be looking at it."

McAuslan said he would oversee the liquidation of Platinum Fund Managers before deciding what to do next. "I don't want to retire, I haven't got enough money to retire ... there are a couple of difficult quarters to come, if they are difficult the opportunity is better ... there are a lot of individuals out there who are thinking similar things.

"If there is an opportunity there, there might be a vehicle that people could get together in."