Sowood Capital Management, burned by big losses in its bond portfolio due in part to fallout from the sub-prime decline, is out of the credit business for now. The $3 billion Boston-based hedge fund sold its credit positions to Citadel Investment Group, which said it assumed control of the “majority” of Sowood’s positions.

“This transaction provides for an orderly transference of risk between the parties, and I am proud of our team’s ability to execute this transaction in a timely fashion,” Kenneth Griffin, founder of Chicago-based Citadel, said in a statement. “Moreover, we appreciate the professional manner in which the Sowood team has handled this complex transaction from start to finish.”

Sowood, founded by former Harvard University money manager Jeffrey Larson, was reportedly down 10% year-to-date after suffering big losses in its fixed-income portfolio in June and July. The three-year-old firm is apparently not in danger of folding, however, and does not face redemptions until 2008.

Harvard is one of Sowood’s biggest investors, having seeded the fund in 2004 with some $500 million. The university, which sits on the biggest endowment in American higher education at $30 billion, was planning to increase its allocation to both Sowood and Sowood private equity spinoff Denham Capital Management, it said in December. No word on whether that remains the case.