Citi Hedge Fund Investors To Get Just 3 Cents On The Dollar

Jan 16 2009 | 2:40am ET

Investors in a Citigroup credit hedge fund that once managed as much as $4.2 billion will receive literally pennies on the dollar from the fund’s liquidation.

Corporate Special Opportunities clients, who have been barred from redeeming their investments since last January, will get back on 3 cents on the dollar, the Financial Times reports. The news, delivered in a letter dated Dec. 22, is likely to be a bitter disappointment to investors, who had been expecting to receive roughly 10 cents on the dollar.

It is also a bitter blow to the embattled financial giant, which will likely lose the hundreds of million it lent to the hedge fund to prop it up. Citigroup injected $320 million into CSO last year, along with a $450 million credit line, and placed assets with a nominal value of $1 billion with the fund, as well.

Citigroup decided to shutter CSO, which had shrunk to just $58 million in assets against $880 million in debt, in November.

CSO has been nothing but trouble for Citi of late. Its former manager, who says he was forced out after his superior overruled his attempt to cancel a $730 million order for levered loans, costing the fund $746 million, sued the firm for wrongful termination. His lawsuit accuses the firm of acting against the interest of CSO shareholders. The fund has also been sued by New York-based fund of hedge funds Robeco-Sage Capital, accusing the former manager, John Pickett, of lying about the fund’s condition in communications with investors.

Of course, Citi’s hedge fund troubles aren’t limited to CSO: The firm was forced to close CEO Vikram Pandit’s former fund, Old Lane Partners, and is also liquidating its Falcon Strategies hedge funds, which once managed $10 billion. In addition to CSO, it was also forced to bail out six other hedge funds for $1 billion.


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