LONDON (Reuters) - London-based fund manager FIM, facing legal action from investors who lost money in Bernard Madoff's $65 billion fraud, has seen its assets slump after clients exited in the wake of the scandal, accounts showed.

FIM was consultant to Kingate funds, feeder funds that gathered money to invest with US financier Madoff who is now serving a 150-year jail sentence for a fraud revealed in December 2008.

According to 2009 company accounts filed this month, investors last year withdrew more than two thirds of the assets from funds of funds portfolios run by FIM Advisers.

This knocked the group's assets to $652 million at the end of last year from $2 billion at end-2008, although current assets were likely to be even lower after two of its funds were liquidated this year.

FIM was not available to comment.

In its accounts, FIM said it had "continued to scale back its operations. The well-publicised and dramatic events in the world's financial markets, and the resulting illiquidity and negative performance of many hedge funds, led to substantial redemptions from funds of hedge funds, including those managed/advised by FIM."

In March 2008, before Madoff's fraud was revealed, FIM ran $4.4 billion in client assets.

The firm, headed by Carlo Grosso and Federico Ceretti, meanwhile saw profit available for distribution amongst members of the partnership fall to £1.9 million ($3.0 million) from £10.3 million in 2008.

FIM is facing a US class action from investors in the Kingate funds. Kingate Global lost $2.7 billion and Kingate Euro lost 616 million euros in Madoff's fraud.

The accounts also reveal FIM was facing a similar claim in Bermuda, where Kingate was based.

In both the United States and Bermuda claims, FIM said it was yet to be formally served with proceedings.

In May, FIM was ordered by a British judge to hand over documents to the liquidator of Madoff's investment company.

Last year, FIM came under investigation by Britain's Serious Fraud Office over its role as consultant to the funds, according to a source close to the SFO.