Asked about whether the firm was considering bankruptcy, Savage said that "anything is possible but not the most probable or preferred outcome—we are restructuring—working with our creditors."
(Read more: Bruised FX hedge funds tiptoe back into bets on weaker yen)
The San Francisco redemption follows recent withdrawals by the Pennsylvania Public School Employees' Retirement System and German pension fund Bayerische Versorgungskammer. A filing in September also disclosed that FX Concepts had liquidated two of its smaller hedge funds: the Volatility JPY Fund and Multi-Strategy HighAlpha GBP Fund.
Taylor founded the firm in 1981 as a research service and began managing external capital in 1988.
FX Concepts grew to manage $14.2 billion in January 2008 by successfully using systematic investment strategies in currencies, fixed-income derivatives, and commodity and equity futures. Taylor was named one of the best-paid hedge fund managers of 2008 by Alpha magazine, pulling in an estimated $250 million.
But like many trend-following hedge funds (often called managed futures shops or commodity trading advisors) FX Concepts has lost money in recent years. The flagship multistrategy fund is down 11.35 percent this year through August.
It also fell 14.47 percent in 2011 and lost 3.11 percent in 2012. The fund produced net annualized returns of 3.74 percent from January 2002 through this August.
(Read more: 'You should own gold right now': John Taylor)
"As a basket, trend-following funds have been disappointing over the last several years. Central bank policies have made it increasingly difficult to invest on a macro level or based on historical precedent," said Charles Stucke, chief investment officer of Guggenheim Investment Advisors, which has no relationship with FX Concepts.
"That said, most people use trend-following as a hedge, and so recent losses during a bull equity market are in line with expectation," he added. "As government intervention in the markets tapers and there's a return to fundamentals, we think the strategy could do well."
The Absolute Return Managed Futures Index fell 2.71 percent in 2011, 0.86 percent in 2012 and another 2.30 percent this year through August. The strategy has yielded net annualized returns of 6.99 percent since January 1998, including a gain of 15.91 percent in 2008.
Taylor himself recently lamented the difficulty his type of firm faced.
"Trend-following is dead because trends never really get going," Taylor said in July, according to Track.com. "Investors trying to read signals in the financial markets pushed by political and central bank diktats have struggled to keep up with the latest government moves."
Other large managed futures hedge funds have faltered recently.
As noted recently in hedge fund publication Absolute Return, Renaissance Technologies' Renaissance Institutional Futures Fund is down 3.03 percent for the year through August. Quantitative Investment Management's Quantitative Global Program is down 5.50 percent.
Winton Capital's Winton Futures Fund is down 0.10 percent. The Brevan Howard Investment Fund IIMacro FX fund is also down 4.20 percent through August, and the currency focused Ortus Fund from Ortus Capital Management was down 14.81 percent through Sept. 13, according to a report by HSBC's Alternative Investment Group.
(Read more: John Taylor on US dollar conundrum)
A rash of employees—many of them with long tenures—have departed FX Concepts.
They include former senior investment researcher Saurabh Kumar (left in August 2013); quantitative researcher Simon Zhang (August 2013); compliance officer Courtney Wessling (May 2013); compliance director Susan Kim (March 2013); quantitative analyst Dyuti Lad (February 2013); portfolio manager Edward Boyle (January 2013); portfolio manager Ross Thalheimer (October 2012); director of investment administration Laurie Pisano (March 2012); portfolio administrator Lauren Orlouski (March 2012); chief financial officer Anthony Sacco (December 2011); managing director for fixed income Timothy O'Grady (September 2011); portfolio manager Brett Holleman (September 2011); head of research James Conklin (August 2011); and vice president Trey Fitzpatrick (April 2010).
FX Concepts also faces ongoing litigation by former fixed income trader Michael Zentz, primarily over allegedly lost pay. Zentz worked at the firm from 1997 to 2007. The firm has fought the accusations and Zentz declined to comment.
One clue to FX Concepts troubles is Taylor's home. In 2010,Taylor bought a nine-room, three-bedroom apartment on Manhattan's Upper East Side for $22 million—$4.5 million above its asking price—using a loan from FX Concepts.
Taylor has the property on the market for $25 million. It's "truly a one-of-a-kind opportunity to own a magnificent residence in one of Manhattan's finest prewar co-ops," a Sotheby's listing says.
Savage confirmed the aim of the sale is to benefit the firm. "The story of John agreeing to sell his home to help recapitalize the firm is accurate and, yes, FXC like many other funds [has] some debt agreements in place."
—By CNBC.com's Lawrence Delevingne. Follow him on Twitter @ldelevingne.