US Hedge Fund Admits 35% Plunge in Value Since Downturn

One of the world's biggest hedge fund managers, Citadel, told clients last night 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 (£12.5bn) 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 was married at Versailles palace and who once spent a reported $60m on a Cézanne painting.

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

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

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

On Wall Street trading floors yesterday, a rumor circulated that Citadel was approaching the US government for help. But a Citadel 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 industry. Citadel employs 1,200 people in the US, Bermuda, London, Hong Kong and Tokyo.

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

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

Meanwhile, Georgia's Alpha Bank and Trust yesterday became the 16th US lender to fail this year and a Minnesota bank will take over its $346m of deposits.