The cult of celebrity in China's hedge fund industry appears to be losing its magic after news broke that a high-profile manager was being investigated for insider trading and market manipulation.

A report by the country's official news agency Xinhua revealed that Xu Xiang, general manager of hedge fund Zexi Investment in Shanghai, had been detained by police for alleged market malpractice,

This created quite a stir in investment sector circles last week and left market observers wondering if it could herald a more cautious approach to the rapidly growing yet "chaotic" hedge fund industry.

"The investigation of Xu sent a message to investors that there are no God-like players in the market," Dong Dengxin, a financial researcher at Wuhan University of Science and Technology, said. "The decision could help cool a chaotic and speculative market."

Known as "Hedge Fund Brother No 1", Xu gained a flamboyant reputation as a "stock picker" and his moves in the market were eagerly followed by ordinary investors.

"Previously, any stocks picked by Xu would see a share price surge as hundred of retail investors would chase whatever he was investing in," Zhang Jie, an analyst at investment firm QuantumLeap Capital in Beijing, said.

"But now the celebrity effect is losing its magic."

While most hedge funds are still absorbing the negative impact of the dramatic fall in share prices during the summer, it is likely the industry will adopt a more cautious, or even conservative, trading approach, according to analysts.

By the end of the third quarter, Chinese hedge funds had reduced about 16.4 percent of their holdings in listed companies, data released by Royal Flush Information Network Co Ltd showed.

"It seems that everyone in the sector is now taking a very cautious approach and fund managers are trying to avoid any press exposure," a Beijing fund manager said on condition of anonymity. "They want to retain a low-profile."

Xu's investigation came after the China Securities Regulatory Commission widened its crackdown on illegal trading in an attempt to restore investors' confidence and market fair play after the summer slump erased $5 trillion of market value.

So far, details about the government probe remain sketchy. Neither Xu nor his firm has made an official statement. Phone calls to Xu's company went unanswered.

The unusual success and astonishing returns led Zexi Investment to become one of the top 10 hedge funds in China. The value of assets under Xu's management exceeded 10 billion yuan ($1.58 billion), according to Chinese media reports.

Five funds managed by him yielded an astonishing 249 percent on average this year through September, according to Shenzhen Rongzhi Investment Consultant Co.

That was despite the fact that the Shanghai Composite Index advanced only 2.8 percent in 2015 after a 36 percent plunge since June 12 wiped out most of this year's gains.

Bloomberg contributed to this story

lixiang@chinadaily.com.cn