Falcon, a fixed income fund that had $10bn under management at its peak, is being unwound, with investors likely to receive no more than 45 cents on the dollar.

Falcon is part of Citigroup Alternative Investments (CAI), which managed $39.4bn at the end of September including $9.9bn of Citi's own capital. CAI's assets under management fell 19 per cent this year, from $48.7bn at the end of 2007.

Without a $250m subsidy for Falcon from Citi, investors would probably get back only 25 cents on the dollar, people familiar with the matter say. Citi this year already launched a $1bn bail-out of six hedge funds that had been caught out by the turmoil in the municipal bond market. In June this year Citi shut down Old Lane, the fund co-founded by Vikram Pandit (now CEO of Citi) and sold to Citigroup for an estimated $800m last year, after poor results.