(NEW YORK) Citigroup Inc has barred investors in one of its hedge funds from withdrawing their money, and a new leveraged fund lost 52 per cent in its first three months, the Wall Street Journal reported yesterday.
The largest US bank suspended redemptions in CSO Partners, a fund specialising in corporate debt, after investors tried to pull more than 30 per cent of its roughly US$500 million of assets, the newspaper said.
Citigroup injected US$100 million to stabilise the fund, which lost 10.9 per cent last year, the newspaper said.
The fund’s manager, John Pickett, left following a dispute with Citigroup executives and complaints from investors after he tried to back out from committing more than half the fund’s assets to buy leveraged loans tied to a German media company, the newspaper said.
That matter was settled when CSO agreed to buy US$746 million of the loans at face value, though they were trading at 86 per cent to 93 per cent of face value, it said.
Meanwhile, Falcon Plus Strategies, launched Sept 30, lost 52 per cent in the fourth quarter, after betting on mortgage-backed and preferred securities and making trades based on the relative values of municipal bonds and US Treasuries.
Some collateralised debt obligations in the fund traded at 25 per cent of their original worth, the newspaper said.
Both funds are run in Citigroup’s alternative investments unit. That unit was briefly headed last year by Vikram Pandit, who in December replaced Charles Prince as Citigroup’s chief executive.
Old Lane Partners, a hedge fund that Mr Pandit founded and sold to Citigroup last year, has also had weak performance, falling 1.8 per cent in January, the newspaper said.
Since June, Citigroup has disclosed some US$30 billion of writedowns and losses tied to sub-prime mortgages, complex debt and deteriorating credit.
The problems contributed to a record US$9.83 billion fourth-quarter loss. Profit that quarter in the alternative investments unit fell 89 per cent to US$61 million.
Citigroup was not immediately available for comment.
A spokesman told the newspaper that CSO and similar hedge funds are subject to comprehensive risk oversight, and that Falcon Plus’s returns suffered from volatile fixed-income markets.
Shares of Citigroup closed on Thursday at US$25.74 on the New York Stock Exchange.
Source: Reuters (Business Times 16 Feb 08)