Citigroup (NYSE: C - News) is liquidating its Corporate Special Opportunities hedge fund after it lost 53 per cent of its value last month, marking the ninth time in recent months that the bank has had to close or rescue a fund in its alternative investment unit.

The collapse represents the latest setback for Citi's chief executive, Vikram Pandit, a former head of the alternative investment unit, who revealed plans on Monday to cut the bank's headcount by 52,000. Citi shares fell 6 per cent on Tuesday to $8.36, giving it a market value of $45.5bn.

CSO, which managed almost $4.2bn at its peak, has a net asset value of about $58m and debt of about $880m, investors say. People familiar with the matter say investors in the fund are likely to receive no more than 10 cents on the dollar.

The fund faltered even though Citi supplied it with $450m in credit lines and equity infusions of about $320m. It also bought assets with a notional value of $1bn that it placed in the fund.

Investors in the fund - which invested mainly in debt backing European private equity deals - have not been allowed to withdraw their money for about a year as performance deteriorated. Losses for Citi could total hundreds of millions of dollars, people familiar with the matter said.

Citigroup said its hedge funds "are subject to comprehensive internal fiduciary and risk management oversight and senior level management supervision. As with many other credit-based investment products, investment returns have been hurt by one of the most volatile periods for fixed income in history".

In an update to investors last month, CSO Partners said its performance was "impacted by the fund's leverage" after a deterioration in market conditions that "has been unprecedented and overwhelming".