Citigroup Inc. has barred investors in one of its hedge funds from withdrawing their money, another black eye for the financial behemoth's troubled foray into new types of investments.

Citigroup suspended redemptions in CSO Partners, a fund specializing in corporate debt, after investors tried to yank more than 30% of the fund's roughly $500 million in assets. To stabilize the fund, which had an 11% loss last year, Citigroup last month injected $100 million. The fund's longtime manager, John Pickett, has left, following a bitter dispute with Citigroup executives and complaints from investors that he put too much money into a single investment that went bad.

Alternative-investment products such as hedge funds are a relatively small business for Citigroup, which has about $2.4 trillion in assets. Citigroup's more than 80 alternative products held $61.9 billion in assets as of Sept. 30, of which about $11.5 billion represented Citigroup's own capital.

Still, the turmoil at CSO Partners is an embarrassment as Citigroup tries to dig out from billions of dollars of losses on mortgage-related investments. Citigroup's new chief executive, Vikram Pandit, briefly ran the alternative-investments group, and some of the funds he oversaw have been struggling.

A large Citigroup hedge fund called Falcon Strategies suffered a 30% decline last year as its bets on the credit markets backfired. Old Lane Partners, a hedge fund now run by Citigroup that was founded by Mr. Pandit and other former Morgan Stanley executives, has shown lackluster performance, posting a 1.8% loss in January.