Executive leaves hedge fund Citadel

By Svea Herbst-Bayliss

BOSTON (Reuters) - A Citadel Investment Group LLC executive who ran an unprofitable credit investment group for the large hedge fund company has resigned, a person familiar with the matter said on Friday.

Joe Russell, who was instrumental in making Citadel's investments in E*Trade Financial (ETFC.O) this year and in failed hedge fund Sowood Capital last year, left the Chicago-based firm this week, said the source, who requested anonymity in order to speak freely about the matter.

Russell ran the smallest of Citadel's three credit groups, and it was the only one that was not profitable.

He resigned amid disagreements over how to manage the group, which like all of Citadel's credit groups invested in highly leveraged companies, the source said. The group that Russell ran will now be folded into the two other credit groups that concentrate on convertible and structured debt.

Russell, who joined Citadel in 2005 and worked in the company's New York office, could not be reached for comment.

Citadel was founded by Kenneth Griffin 18 years ago and ranks as one of the world's biggest hedge fund firms with $18 billion in assets invested in three main funds.

For years, Citadel has treated investors to strong returns, and its top executives have created a performance-driven culture where problems are addressed immediately.

This year, however, the company's $14 billion fund has lost 6 percent. The two smaller Citadel portfolios, which each manage around $2 billion, are both up more than 20 percent.

While the loss is unusual for Citadel it is relatively small compared with deeper losses that some rivals are suffering, industry analysts said. In the first eight months of the year, the average hedge fund lost 5.13 percent, according to preliminary data from BarclayHedge.

As losses climb into double digits, talk is mounting that more of the world's roughly 9,000 hedge funds will be forced to liquidate this year.

This week Ospraie Fund said it will shut down after suffering a 39 percent loss for the year, becoming one of the largest casualties ever among funds that invest mainly in commodities.

(Reporting by Svea Herbst-Bayliss; Editing by Lisa Von Ahn and John Wallace)