Start the conversation
By Jennifer Yousfi
To avoid a fire sale of illiquid assets, Citigroup Inc. (C) was forced to suspend investor withdrawals from CSO Partners, a hedge fund that focuses on corporate credit.
"We have temporarily suspended redemptions of all shares of CSO to stabilize the fund and allow time to address its funding needs to meet anticipated obligations," Citigroup spokesman Jon Diat said in a statement.
CSO first ran into trouble last November, The Wall Street Journal reported, when it sought to invest a sizeable amount of its assets in a German media company. The Journal did not name the company in question. CSO head John Pickett later tried to rescind the deal, but ultimately the fund was forced to buy the debt at face value even though the value had already dropped to 86 cents to 93 cents by that time, The Journal reported.
Diat stated that Pickett resigned in December.
It is not unusual for hedge fund managers to suspend redemptions in a troubled fund. Such provisions are typically allowed for in the investment documents. However, it is unusual for a fund with the assets and clout of Citigroup behind it to have to resort to such drastic measures.
"If they are invested in illiquid assets, chances are they cannot get out an equivalent amount of money investors are demanding without materially damaging the portfolio," Ferenc Sanderson, senior hedge fund analyst for Lipper Inc., a unit of Reuters Group PLC, told Reuters.
"Even having a big name and a big brand doesn't leave investors immune to potential issues when they try to redeem," Sanderson added.
Citigroup has already invested $100 million in the fund and it seeking additional funding options.
Citigroup shares dropped 31 cents [a 1.20% decline] to close at $25.43 in Friday trading.
News and Related Story Links: