Citigroup to prevent hedge fund withdrawals

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The Independent Online

Citigroup's credit crunch woes intensified this week as the beleaguered US bank took steps to prevent investors withdrawing cash from one of its London hedge funds, over fears of a run at the debt-focused manager.

The credit crunch has proved disastrous for Citigroup in the past six months, causing it to write down more than $18bn (£9bn) through its exposure to the US sub-prime mortgage market and claiming the head of its chief executive Chuck Prince. It admitted yesterday it had barred investors from redeeming money from CSO Partners, a small hedge fund operation based in Berkeley Square, in response to investor attempts to withdraw almost 30 per cent of its $500m assets.

CSO has struggled in the past year, with its fund performance falling 11 per cent following a charge on a trade dispute in November. The fund's chief executive John Pickett also resigned in December, after disagreements with Citigroup management over the dispute.

A spokesman for the bank said it had enforced the suspension "to prevent a forced liquidation of leveraged loan assets at prices not reflective of their true value in order to make redemption payments".

There is currently no specific timetable for the suspension to be lifted, only "once the loan market has normalised and the fund portfolio's liquidity profile has improved", he added.

CSO Partners is a single-manager event driven hedge fund offered to Citigroup customers to make co-investments alongside the US bank. It focuses on corporate credit.

Mr Pickett, formerly of Salomon Brothers, had been investing Citigroup's proprietary funds in Corporate Special Opportunities since 1999. It was opened to outside investors in August 2004.

It is alongside several other underperforming hedge fund operations in Citigroup's stable. Both Falcon Partners and Old Lane Partners have struggled this year. In the fourth quarter, Citigroup's alternative investment business posted an 89 per cent slump, falling from $549m in 2006 to $61m last year. Citigroup has suffered not only in its investment banking division, over the sub-prime exposure, and hedge fund underperformance, but also its consumer business, where it was hit with an additional $4bn charge last year.

Vikram Pandit, one of the founders of Old Lane, bought by Citigroup in July, was appointed Mr Prince's successor in December. He has announced 4,200 job cuts since his appointment and all eyes are on April's strategy update, where more cuts are expected.