The fund was up 27 percent since inception in August 2004 to Dec. 31, 2007.

“We have temporarily suspended redemptions of all shares of CSO to stabilize the fund and allow time to address its funding needs to meet anticipated obligations,” said Diat in a statement.

It is not unusual for hedge fund managers to suspend redemptions on funds in distress. Investment documents typically give the manager the right to put up temporary “gates” barring investor exits so managers don’t have to undertake a fire sale of assets to pay exiting investors.

In addition to suspending investor exits, Citigroup told investors it put $100 million into the fund in recent weeks and is looking for other funding sources.

“If they are invested in illiquid assets, chances are they cannot get out an equivalent amount of money investors are demanding without materially damaging the portfolio,” said Ferenc Sanderson, senior hedge fund analyst for Lipper Inc., a unit of Reuters Group Plc.

Sanderson said the fact that it is happening in a fund managed by one of the world’s largest banks means that “even having a big name and a big brand doesn’t leave investors immune to potential issues when they try to redeem.”

News of the fund was reported Friday by the Wall Street Journal.

Citigroup was trading down 34 cents, or 1.3 percent, to $25.40 on the New York Stock Exchange. (Reporting by Dane Hamilton, editing by Dave Zimmerman)