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 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, according to people familiar with the matter.
Yesterday CAI already announced the unwinding of Falcon, a fixed income fund.