According to a letter, signed by CEO Kenneth Griffin, to clients on Friday, Citadel Investment Group LLC - the Chicago-based hedge-fund firm - has frozen redemptions from two of its biggest funds after investors moved to withdraw $1.2 billion.

The letter also stated that Citadel will absorb a large portion of the funds’ expenses, something that clients usually are responsible for, in the range of 3 to 4 percent of assets.

Citadel normally allows clients to withdraw up to 1/16th of their assets quarterly. If total withdrawals exceed 3 percent of the fund, investors must pay a fee back into the fund ranging from 5 percent to 9 percent. Redemptions have never before surpassed the limit.

The clients were informed that the Kensington and Wellington funds, which together manage about $10 billion, have lost 49.5 percent of their value this year through December 5. The letter added that withdrawals may resume as early as March 31. Meanwhile, the three other funds in the Citadel family, which manage about $3 billion, have climbed 40 percent this year.

Griffin said: “We have not made this decision lightly. We recognize how a suspension impacts our investors, especially those with current financial obligations of their own to meet.”

Chicago-based Hedge Fund Research Inc noted that Citadel joins hedge funds including Fortress Investment Group LLC and Tudor Investment Corp. in limiting withdrawals, with hedge funds heading for their biggest annual losses since at least 1990. On an average, Hedge funds have declined 18 percent this year through November 30.