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Highland Capital To Close Its Crusader Fund

In the midst of ongoing concerns about hedge fund losses and liquidations, Highland Capital has told investors that it's closing its Crusader fund, CNBC has learned.

In a letter to investors, Highland said it was winding down the fund in "an orderly fashion," citing the "unprecedented market volatility and disruption to the financial system over the past 60 days, and especially within the last two weeks."

"The environment is one where the fundamental tools to manage the Crusader Funds' trading, hedging, shorting and financing are highly constained, and in some cases unavailable," Highland said.

Hedge funds had their worst month ever in September, with average losses of 6.2 percent, according to an estimate by TrimTabs Investment Research.

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All major categories of funds chalked up losses over the month, but emerging markets, long equity funds and distressed strategies had the worst results. The declines came as investors withdrew $43 billion from hedge funds—almost seven times the previous monthly record for redemptions, TrimTabs said.

On Wednesday, amid concerns about troubles at Citadel, the fund confirmed to CNBC that its flagship Kensington and Wellington funds, which hold around $15 billion in assets, were down between 26 percent and 30 percent so far this year.

But Chicago-based Citadel denied rumors that it's having difficulty meeting margin calls and is facing mass redemptions. The firm also denied that it's unwinding any positions.

At that time, traders with knowledge of the activity of at Highland said the big hedge fund company, which has $14 billion under management, was unwinding some of its assets.

On Wednesday, Highland settled on 30 cents on the dollar for $20 million to $30 million in bank loans that the firm only last week was trying to unload for 60 cents on the dollar.

Highland also has put out a bid list for $600 million of loans, according to a trader.

- CNBC'sDavid Russell contributed to this report.