Colleges and universities in the United States which put their money in the Common Fund, an investment organisation specialising in higher education, have been warned that a rogue trader has caused the fund to lose an estimated $128 million.

It means that some or many of the 1,421 higher education institutions in the fund may make less money on their investments than they would have done without the activities of Kent Ahrens, 39, a senior trader with First Capital Strategists in Pennsylvania. (First Capital manages some of the securities owned by the Common Fund.) But it seems unlikely that any college will actually lose money.

For example, Johns Hopkins University, in Baltimore, has been told that even with the loss it will have profits of 13.8 per cent, 11.8 per cent and 6.9 per cent in the three funds in which it had investments. "It was in line with what you might lose on one bad day in the stock market," said a spokesman.

Not all institutions have reacted with such sang froid. The University of Minnesota has decided to pull all its investments out of the Common Fund and First Capital. Others, such as the University of Michigan, Vanderbilt University, Columbia and the University of Southern California appear to be staying put.

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News of the loss emerged last week when the fund announced that a trader from First Capital had "engaged in unauthorised trading in violation of the guidelines we established, and concealed those violations".

As in the case of Nick Leeson, the trader who brought down Barings, Ahrens had failed to hedge investments against risk. Unlike Leeson, however, he faces no criminal charges.

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For three years Ahrens hid losses, which began with one small, embarrassing mistake. He finally came clean towards the end of June.

It seems that Ahrens's problem began in 1992 when he made an index arbitrage transaction. He hoped to benefit thereby from price differences in the stock and futures markets, but he was not able to make a corresponding hedge before the market closed.

That produced a relatively small loss in the low five figures. But instead of admitting it, Ahrens concealed it and tried to wipe it out by betting that the stock market would go down. Instead the market has gone up.

The collapse of Barings earlier this year persuaded the Common Fund to investigate its own affairs, precipitating Ahrens's confession.

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Meanwhile the fund, which has enjoyed a glittering reputation for earning high returns, has sent a memorandum to investors to try to reassure them that the Common Fund's investment policies and its procedures are being reviewed.