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.