Investment bank Bear Stearns grossly misled investors about its true exposure to the United States sub-prime market, according to one fund that had a 3.25 per cent allocation to its now defunct hedge funds.

Zurich-based fund of hedge funds Infiniti Capital, which is rolling out a fixed income fund in Australia, told an investor briefing in Sydney that Bear Stearns grossly underplayed its sub-prime exposure.

"Bears Stearns told us it had a sub-prime exposure of six per cent . but it had 40 per cent hidden elsewhere," Infiniti Capital portfolio manager Iain Hamilton said.

"Had we known [the true exposure] we would never have had an allocation at the levels we did."

Hamilton said Infiniti planned to launch a legal case against the investment bank and was currently "deciding which litigation suit we are to follow".

He also admitted the fund had investments with Basis Capital, but "Basis never lied to us as managers".

 "We have learnt a lot. If we had gone to a hedge fund manager in some back street in New York then you might expect something like this to happen, but you don't expect it with a quality investment bank," he said.

Infiniti Capital is one of numerous disgruntled investors across the world pursuing legal action against Bear Stearns in an attempt to recoup their losses.

The original value of the two Bear Stearns hedge funds ran to almost $2 billion, but their sub-prime-fuelled collapse wiped out most of those assets.