In the middle of English football's greatest ever boom, a proud club is being publicly strangled, and those who run the game are accused of being no more use than bystanders. Coventry City, formed in 1883 by workers at Singers' cycle factory, are owned 130 years later by Sisu, a hedge fund specialising in "distressed debt", using money from unnamed sources via the Cayman Islands.

Sisu's decision to take the club 35 miles from Coventry to Northampton Town's Sixfields Stadium, and play hardball with Coventry city council, which built and owns the high-quality, 32,000-seat Ricoh Arena, has proven catastrophically unpopular with supporters.

The manager Steven Pressley's remarkably positive start to the season, with a cut-price squad of mostly academy graduates, skidded to two home defeats last week: 5-1 to Tranmere then 3-0 to Rotherham. The crowds were 1,815 then 1,961, comfortably the lowest at any League One match, at the club served by Jimmy Hill, Willie Carr and Keith Houchen, which spent 34 years in the top division before relegation from the Premier League in 2001. The presence of around 7,000 fans watching Pressley's team win 3-1 at MK Dons on Saturday demonstrated abiding support for the club and overwhelming rejection of the move to Northampton.

The council, with the Alan Edward Higgs Charity which, as Arena Coventry Limited, jointly run the Ricoh, recently offered Sisu a return rent-free, paying only matchday costs, but Joy Seppala, Sisu's chief executive, has refused even those terms. She is insisting the council should sell Sisu the freehold ownership of the Ricoh Arena, which cost £113m to build; Mark Labovitch, a Sisu director, suggested to the Guardian that Sisu's valuation of the arena could be as low as £4m. The council, which spent £14m of council taxpayers' money building the arena, is not inclined to be harried into selling a major civic asset, and certainly not cheaply.

Bob Ainsworth, Labour MP for Coventry north east, who has been extremely critical of Sisu's conduct and the Football League for agreeing to the Northampton move, said in a parliamentary debate last month "The club's hedge-fund owners and its boss, Joy Seppala, want the stadium, the freehold and the surrounding land, but they do not want to pay more than a pittance for it, and have moved the club out of the city and nearly destroyed it in order to achieve that."

Sisu bought the financially distressed club in December 2007, eyeing millions to be made by winning promotion to the Premier League. Little complaint was heard from Sisu then about the rental arrangement they accepted at the Ricoh, agreed under previous owners who had sold the club's old Highfield Road ground but then spent all the proceeds.

Seppala explained to the Guardian that Sisu's investment was made using private equity and hedge funds. The Arvo Master Fund, registered in Grand Cayman, now providing money to fund losses at Northampton which Sisu has projected as £3m a year, is a hedge fund. Seppala would not name any investors, but said they are European and Asian pension funds, and American universities' endowment funds. Most hedge funds, she said, are "domiciled" in tax havens like the Cayman Islands because it means they avoid paying capital gains tax.

Sisu burned through around £36m on players' wages, transfer fees and other losses, which brought them only relegation from the Championship. Asked how pension fund managers and American universities feel about so much of their money being lost on an English football venture, Seppala replied: "There is no timeframe in which one needs to crystallise value. We believe there is immense value creation to happen in the future."

Seppala, who says "I know nothing about football" almost as an expression of objectivity, explained she reviewed the investment two years ago, and decided, five years after buying the club, that their £1.2m annual rent at the Ricoh was "stratospheric" and they had to gain control of matchday income such as food sales and car parking.

Negotiations were held with ACL and the Higgs charity, but no deal was done, then in March 2012, Sisu simply stopped paying the rent. Sisu's failure to "honour its obligations", as the club's administrator later described it, put ACL under severe financial pressure. The council, to stabilise the position, borrowed money to pay off ACL's mortgage, effectively becoming ACL's banker itself, and earning a little profit from the interest payments.

Sisu actually sued the council, arguing it had acted illegally, a judicial review claim thrown out by Mr Justice Males in July. The judge said Sisu "had caused rent to be withheld as a means of exerting pressure [on ACL] in their commercial negotiations".

ACL had to sue for a net £600,000 owed, then when Sisu still did not pay, applied for the club to go into administration. Sisu were by far the largest creditor due to the hedge fund millions they had put in as loans, and so were able to buy the club back from administration.

Tim Fisher, working for Sisu as the club's chief executive, discussing the acrimonious detail, told a London supporters club meeting in July: "SISU is a distressed debt fund and therefore batters people in court."

Sisu brought the council back to court last week, overturning Mr Justice Males's judgment, gaining the right to proceed with its judicial review claim.

Despite everything, in the summer ACL still offered Sisu dramatic rent reductions, but Sisu refused and instead decided to move Coventry City to Northampton. The Football League board, chaired by Greg Clarke, worried that if they refused, Sisu might still not agree a rent at the Ricoh, and the club would have nowhere to play. So they allowed a five-year move, provided Sisu are making efforts to move back to Coventry, a decision bitterly criticised by many supporters, and Ainsworth.

Seppala rejects the accusation that she is seeking to put ACL and the council into financial distress to buy the arena on the cheap. She says she will not take the club back as tenants because the relationship with ACL has broken down – even though ACL have offered a rent-free return this season, and just £100,000 for the next two if the club is still in League One.

Seppala claims if Sisu do not get the arena, they will build their own stadium, on some site in the Coventry area covered for planning by a different council. That, an unusual project for offshore pension and US university endowment funds, with a 32,000 seat arena already built in Coventry, looks a very distant prospect.

The council leader, Ann Lucas, has said that although they want City back, she will not allow "paralysis" to continue. The suggestion is that if Sisu maintains its refusal, in the new year ACL will seriously consider a Ricoh Arena future without Coventry's football club. ACL believe more concerts, prestige sporting fixtures – the Ricoh hosted 12 Olympic football matches – possibly a rugby club tenant, will pay the arena's way.

Sisu, which bought a Championship club with eyes open, are perhaps overestimating their negotiating power to pressure a local council into ceding a public asset. The hedge fund are now Northampton Town's tenants, losing investors a further £3m a year, sending a small, very young squad into a League One winter. And the vast majority of Coventry City supporters are staying away, outraged that modern football has brought them to this.