The US-based bank will redeem money from Paulson’s Advantage portfolios, which have suffered double-digit losses so far this year, as well as the Merger and Recovery funds, which have made gains in 2012, reports said.

Citi declined to comment on the matter when contacted by WealthBriefing today.

The reports did not state whether Citi had cut its entire exposures to Paulson's funds.

Citi Private Bank discussed its plan to withdraw from the fund in a meeting yesterday with advisors, according to one news wire report.

The Advantage Plus fund fell by 18 per cent through the end of last month, and the Advantage fund declined 13 per cent over the same period.

Hedge funds have advanced by 2.88 per cent on average through to 31 July, according to Chicago-based Hedge Fund Research. In the 12 months to July, however, hedge funds have lost ground, the HFR data showed.

The $2.0 trillion-plus hedge fund industry has endured a relatively difficult past few years as unexpected changes in volatility and lack of clear direction amid news such as the eurozone debt crisis have made it difficult for managers to exploit market trends.