A proxy battle is brewing to stop the transfer of hedge funds with substantial holdings in Citigroup's mutual fund from being transferred to Legg Mason. It could create a stumbling block for the anticipated business swap between the two companies.

The New York-based hedge fund, Elliott Associates with $5 billion under management, is the largest shareholder in Citigroup's Salomon Brothers closed-end fund. Elliott holds 6% of the fund, which trades at a heavy discount. Elliott - together with Western Asset Management and Karpus Investment Management - is anxious for Citigroup to finalize the transaction.

Subscribe Now

Access to premium content including in-depth coverage of mutual funds, hedge funds, 401(K)s, 529 plans, and more.

3-Week Free Trial

Insight and analysis into the management, marketing, operations and technology of the asset management industry.