The proposed transfer of mutual fund assets from Citi to Legg Mason has encountered its first problem. Hedge funds with large holdings in se...

The proposed transfer of mutual fund assets from Citi to Legg Mason has encountered its first problem. Hedge funds with large holdings in several of Citigroup’s mutual funds have launched a proxy fight against the funds being transferred. Under the deal, Citigroup plans to hand over its $440 billion asset management business to Legg Mason, in exchange for Legg’s brokerage network. New York-based hedge fund, Elliott Associates, which has $5 billion under management is the biggest shareholder in Citigroup’s Salomon Brothers closed-end investment fund, holding 6 per cent. The fund trades at a heavy discount to its asset value. Elliott, along with Western Investment and Karpus Investment Management, is pushing for Citigroup to close the discount. The hedge fund shareholders reckon that the fund is undervalued by $200 million and are soliciting support to refuse to allow the transfer of the $1.4 billion fund until action is taken. A vote by fund shareholders will be taken on October 21, only days before the deal is due to be sealed on October 28. Citigroup has more than 20 closed-end funds, with most trading at a discount to their asset backing. Investors in at least seven funds are planning to vote against the transfer unless Citigroup takes action to close the discount.