It was, according to one pundit, “the most expensive executive search in corporate history.” Those words proved to be prophetic as Citigroup, just 10 months after paying $800m for the hedge fund Old Lane Partners, which was co-founded two years ago by Vikram Pandit, has agreed to let almost all of the outside investors in the fund get there money back..

Pandit, of course, is now CEO of Citigroup, while the co-founders who came with him—John Havens and Brian Leach—now also hold top positions in the troubled financial services firm.

At the time of the acquisition there was much speculation that Pandit and his partners, who all had management experience at Morgan Stanley, were brought on board to provide more management expertise for Citi.

Obviously, the financial crisis that has enveloped Citigroup had not yet started, and Pandit was expected to get some experience—at least several years—running Citi’s alternatives and investment banking operations before being asked to take the top job.

Only last month did Citi Vice Chairman Lewis Kaden admit that Citi bought the hedge fund to acquire the services of Pandit and the fund’s other co-founders.

Also last month Citi CFO Gary Crittenden said that clients would be permitted to redeem their investments in Old Lane ostensibly because Pandit, Havens and Leach had left the hedge fund for other positions within Citi. In a regulatory filing last Friday, the bank announced that most investors wouild exercise the opportunity to take their money out of the poorly performing hedge fund by July 31.

“In April 2008, substantially all unaffiliated investors had notified Old Lane of their intention to redeem,” Citi said in the filing.

However, Citi is not quite ready to throw in the towel on the fund just yet. In a statement, the troubled financial services giant said, “we are in the process of restructuring Old Lane. Its business and its people continue to be valuable to us. We are confident that we can realize that value over time.”