Simon Dawson/Bloomberg News

LONDON — The hedge fund titan Louis M. Bacon has made billions of dollars for himself and his investors over the years by placing big bets that allowed him to overcome and profit from one financial crisis after another.

But like many others, he has been stumped by the current debt crisis in Europe — so much that he has done what such titans rarely do: Admit defeat and return about $2 billion, or 25 percent of the main fund he manages at Moore Capital Management, to his investors.

It is hard to figure out how to invest when actions taken by politicians can affect financial markets more than basic economic factors, he said.

“The political involvement is so extreme — we have not seen this since the postwar era. What they are doing is trying to thwart natural market outcomes,” Mr. Bacon said in an interview. “It is amazing how important the decision-making of one person, Angela Merkel, has become to world markets,” he added, referring to the German chancellor.

In the long-running cat-and-mouse game between investors who are betting that the common euro currency used by 17 countries may not survive and the politicians who are fighting to keep Europe united, Mr. Bacon’s giveback to investors is a victory of sorts for the technocrats — for now at least.

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The difficulty in finding the right investment strategy has led to one of the worst performance periods of Mr. Bacon’s career, down 2 percent last year and up 0.35 percent through June of this year.

That stands in stark contrast to his past successes. Since its inception, Mr. Bacon’s main fund is up 18.3 percent, with some years, like 1990 and 1992, returning 86 and 45 percent.

At the root of his decision to return some investor money has been a frustrating inability to put on and execute a career-defining macro trade that would capitalize on the euro zone’s disintegration.

Like many of his peers, Mr. Bacon — who along with George Soros made a bundle when the euro zone’s predecessor, the European Exchange Rate Mechanism, collapsed in 1992 — recognized that the buildup of debts, deficits and competitive imbalances in Europe made some form of crisis inevitable.

But with senior political figures in Europe favoring summit meetings, bailouts and more austerity as opposed to recognizing losses, making a bet that would move the needle with the $8 billion in assets in his main fund became nearly impossible, he said.

Linking his performance woes to Ms. Merkel’s refusal to bail out weaker nations in the euro zone will certainly not earn Mr. Bacon any sympathy in Brussels or Berlin, where suspicion toward hedge funds runs deep.

But many of his peers may well understand his lament. Making big money in dried-up markets that veer sharply up and down on the basis of what Ms. Merkel and Mario Draghi, the president of the European Central Bank, say and do has become very hard to do.

Unlike the financial crisis of 2008, when hedge fund investors like John A. Paulson made billions by wagering that house prices in the United States would fall, the euro crisis has not produced a similar big winner.

Some funds made decent profits, either by betting that the banks and bonds in countries like Spain, Ireland and Greece would fall in price or buying instruments that would pay off if these countries neared default.

But no legend has been made and may well not be in the years ahead, especially if officials in Europe have their way.

And for someone like Mr. Bacon, who created his own renown by outwitting central bankers, politicians and the markets, this is a difficult truth to accept.

“I am going to let some people down,” he said, sitting in the living room of his fairly understated home in the upscale Knightsbridge area of London. (He splits his time between here and New York.)

“The ability to manage large assets well — it’s like being Michael Jordan or winning the gold in the Olympics, it’s what you aspire to,” he said. “And there is obviously the compensation benefit as well.”

With this return of assets, Mr. Bacon will now personally manage $5 billion to $6 billion. Outside investors will retain a majority share of the fund, although he and other employees at Moore will have the largest single account.

He says he believes this amount will give him a greater flexibility to move in and out of the markets. Hedge fund experts say that there are few pure macro investors left — those who invest in stocks, bonds and currencies all over the world — who personally manage a portfolio greater than $6 billion for clients.

As Mr. Bacon sees it, he is giving back profits to investors who have stuck with him for a long time (although he has never given back such a large amount relative to overall assets). And he points out that his return is not too far removed from the industry average this year. According to Hedge Fund Research, hedge funds were broadly up 1.7 percent over the same period.

It is also true, though, that other big funds, like Brevan Howard in London and Bridgewater in the United States (both larger than Moore in size), have seen significant payoffs from their anti-Europe bets, as have other funds without a pure macro bias.

Mr. Bacon accepts that he was late in recognizing how bad things were going to get. And when he was ready to take action, the markets had dried up.

“I found myself trying to make money in a much less liquid environment, with less instruments to trade,” he said. “It’s very frustrating.”

Indeed, getting the geopolitics right is the stock in trade for macro investors like Mr. Bacon.

In 1990, he made a series of winning bets that Saddam Hussein would invade Kuwait and would be quickly routed with no lasting effect on the market. That became the foundation of his reputation — securing a 115 percent two-year investment return and a flood of investment assets.

Like one of his first backers, Paul Tudor Jones, Mr. Bacon is a son of the South, born in North Carolina, and he cut his investment teeth trading commodities on Wall Street.

From then on, his talent in spotting big trends — the gulf war, the first European crisis and, most recently, the market recovery in 2009 — gave him his best yearly returns.

All of which makes his inability so far to get Europe right harder to stomach.

“I have underperformed market opportunities, so yes, I have questioned myself a little bit,” he said. “But I do think I can ultimately adapt to a changing market environment.”

In an industry that prizes secrecy, Mr. Bacon is more retiring than most — though he says that one of his first professional aims coming out of Middlebury College in 1979 was to become a journalist, he does not spend a lot of time in the company of them.

As for retreating to a form of retirement where he just keeps an eye on his personal wealth — as other onetime titans like Mr. Soros, Stanley Druckenmiller, Julian H. Robertson Jr. and Bruce Kovner have done — Mr. Bacon says he is not ready to make that move yet.

That is the case even though Mr. Bacon is said to be worth about $1.4 billion. He owns Robins Island, an undeveloped 435-acre island off the coast of Long Island, 172,000 acres of ranch land in Colorado (much of which he has worked to protect from future development), a grouse hunting estate in Scotland and a retreat in the Bahamas.

And he certainly does not look as if he is ready to pack in his BlackBerry.

Mr. Bacon is a fitness fanatic who feasts on sushi and skis, plays squash and uses a bow and arrow to hunt game with a boy’s fervor. He might pass for someone a decade younger than his 55 years.

“If you were to see me right now, you might think I was ready to start a hedge fund,” he said, before challenging his younger interviewer to a game of squash — an offer that was sensibly refused.