Citigroup, the largest U.S. bank, is barring investors of CSO Partners, a fund specializing in corporate debt, from withdrawing their money. CSO Partners dropped 10.9 percent last year and investors were trying to redeem more than 30 percent of the fund’s roughly $500 million of assets before Citigroup stopped them. Citigroup has injected $100 million into the fund to help stabilize it.
John Pickett, the CSO’s manager, left following a disagreement with Citigroup and complaints from investors after he tried to back out from committing more than half the fund’s assets to buy leveraged loans tied to a German media company. CSO eventually agreed to buy $746 million of the loans at face value even though they were trading at 86 to 93 percent of face value.
Meanwhile, Falcon Plus Strategies, a new leveraged fund launched last September, lost 52 percent in its first three months. It wrongly betted on mortgage-backed and preferred securities and made trades based on the relative values of municipal bonds and U.S. Treasuries. Some collateralized debt obligations in the fund trade at 25 percent of their original worth.
Both CSO and Falcon belong to Citigroup’s alternative investments unit. That unit was briefly headed by Vikram S. Pandit before he became Citigroup’s chief executive last December. Old Lane Partners, a hedge fund that Pandit founded and sold to Citigroup last year, also has dismal returns.
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