Citigroup to close hedge fund co-founded by CEO

(Adds detail from Citi statement, background)

NEW YORK, June 12 (Reuters) - Citigroup Inc (C.N) said on Thursday that it would close a hedge fund that Chief Executive Vikram Pandit had helped start and would take $9 billion on its balance sheet, allowing investors to cash out. In a statement, Citi said it would pay "fair value" to buy substantially all of the assets held by Old Lane's multistrategy hedge fund, allowing it to meet unaffiliated investors' requests to make redemptions on July 31.

A growing number of investors concerned about the hedge fund sector's flagging investment returns have been trying to withdraw investments.

Citi bought Old Lane last year for for about $800 million, in part to recruit Pandit, but the fund's performance has since been disappointing. In the first quarter, Citi wrote down $200 million of intangible assets linked to the acquisition.

Pandit personally received at least $165 million before taxes when Citigroup bought Old Lane, at which time it had amassed about $4.5 billion of assets. However, he reinvested about $100 million after taxes into an Old Lane fund, according to a Citigroup proxy statement.

All Old Lane partners, including Pandit, will have to maintain their investments in the fund, or other Citi alternative funds, the bank said.

Citigroup has reported combined losses of nearly $15 billion for the past two quarters, forcing it to cut jobs and sell businesses. It has raised about $39 billion in capital since last November.

(Reporting by Christopher Kaufman and Lilla Zuill; Editing by Kim Coghill, Erica Billingham and Lisa Von Ahn)