The
Financial Times is reporting that Citigroup is liquidating its
Corporate Special Opportunities hedge fund, marking the ninth fund this
year the bank has either had to step in and save or close down. The
fund, which once had $4.2 billion under management, limped into November
with only $58 million in assets and debt of $880 million, despite of
Citi's efforts to prop it up with $450 million in credit lines and $320
million in equity infusions.
Investors in the fund, which primarily bought leveraged debt from
European private equity buyouts, have not been able to withdraw funds
for nearly a year and are now expected to only walk away with 10 cents
on the dollar, while Citi will be saddled with losses reaching into the
hundreds of millions. Citi's experience is indicative of the state the
hedge fund industry as a whole, as managers and investors are each taking big losses as a bear market in
both equity and debt destroys the value of their portfolios. The hedge funds' pain
is intensified by jittery investors rushing to make redemptions,
creating a vicious circle where the funds have to take losses and sell
into a falling market, prompting further redemptions. -
George White
See FT story
See Dealscape post on hedge fund redemptions
Turmoil in the credit markets is once again hitting Citigroup Inc. where it hurts, as the banking giant is shuttering its leveraged debt hedge fund, which lost 53% of its value in October. 
