Citadel Reports Loss of 35% By Main Hedge Funds

One of the world's largest hedge fund managers, Citadel Investment Group, told clients today that two of its main funds have lost 35% of their value this year after rumors swept the market about its financial position.

The Chicago-based firm, which has $20bn (£12bn) of funds under management, blamed "panic" and "dislocation" on global exchanges for its predicament.

Citadel is run by 40-year-old billionaire Kenneth Griffin, an investment prodigy who got married in the gardens of France's Versailles palace and who once spent a reported $60m on a Cezanne painting.

On a conference call with investors, Citadel's executives said the firm's liquidity remains strong with $8bn (£5bn) of unused credit lines available.

"We've made it through 18 years," said Griffin. "We will make it through the next six to eight weeks."

Troubled hedge funds have been blamed for aggravating recent plunges in stockmarkets as they liquidate investments to fund withdrawals by unhappy clients.

On Wall Street trading floors yesterday, a rumor circulated that Citadel was approaching the US government for help. A spokeswoman denied this: "These rumors are categorically false and we continue to invest and operate."

Griffin began trading from his dormitory room at Harvard University two decades ago and has long been viewed as one of the sharpest operators in the hedge fund industry. Citadel employs 1,200 people at offices in the US, Bermuda, London, Hong Kong and Tokyo.

Hedge Fund Research, a US analysis firm, reported last week that the industry had suffered the worst quarter in its history, with investors withdrawing $31bn (£19bn) to reduce funds under management to $1.72 trillion (£1.08 trillion). Some 350 hedge funds have shut down this year.

Although a handful of hedge funds have prospered by "shorting" banks and mortgage companies to bet on a slump in their fortunes, many highly leveraged, risk-taking investment firms have struggled to cope with unprecedented volatility in the markets.

Griffin acknowledged the hedge fund industry's performance had fallen short during a panel discussion at the Chicago Council on Global Affairs this week.

"In this bear market, they don't look that much different than the performance of the underlying indices. This is going to be a great disappointment to investors around the world," said Griffin, according to a report in the Chicago Tribune.

Meanwhile, the Alpha Bank and Trust, a Georgia-based bank, tonight became the 16th US high-street bank to fail this year. Georgia's state authorities shut it down and the Federal Deposit Insurance Commission arranged for a Minnesota bank to take over its $346m (£217m) of deposits.