Hedge fund manager Citadel Investment Group has begun winding down its $1bn (€776m) fund of hedge funds in its alternative asset management unit, and has reallocated assets to emerging hedge fund managers as a rocky third quarter takes it toll.

A source familiar with Citadel said the hedge fund manager, responsible for 95% of the investment in Fusion, is reallocating the assets to hedge fund seeding fund, Discovery, and its incubation fund Pioneer, which are also part of the alternative asset management unit.