The expected consolidation in the hedge fund industry could move forward, with Goldman Sachs aiming to tie up a deal with Trafalgar Asset Managers.

The deal is set to be brokered by Jonathan Sorrell, the investment banker son of WPP boss Sir Martin Sorrell, in his role as a leading private-equity investment manager at Goldman.

Trafalgar, which has $2.7 billion (£1.36 billion) under management, has made its name getting involved in takeover or restructuring situations, trading companies' shares and debt securities.

Its track record includes calling for better terms in the reconstruction of Royal Dutch Shell's labyrinthine shareholder structure, agitating for British Energy to sell its coal-fired power station Eggborough, and most recently being involved in a shakedown at Italian bank UniCredit.

Trafalgar was founded seven years ago by hedge fund veteran Lee Robinson and former Deutsche Bank executive Theo Phanos, Trafalgar's two directors who are likely to cash in a fortune in any deal.

Goldman's Petershill fund, run by Sorrell, was today reported to be in talks to take a significant stake in Trafalgar. The talks are said to have been going on for a few months, during which time Goldman and Petershill have been active in taking a number of strategic stakes in hedge funds.

Terms of the deal are uncertain, but it is reported that Trafalgar funds have been performing well recently despite a number of hedge funds showing distress or, like Peloton Partners and Carlyle Capital Corporation, closing.