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Fortress Investment Group LLC is liquidating part of its hedge-fund arm, according to people familiar with the matter, the latest hit to a business that has increasingly become a drag on the firm.

Fortress is selling off all investments that it makes in other hedge-fund managers through its Partners funds, the people said. That unit was created to emulate the bets of university endowments and other deep-pocketed investors, and managed $1.7 billion at its peak in 2010. But the Partners funds have slumped in recent years, recently managing about $400 million, one of the people said.

The remainder of the Partners funds cash, which is split between other private-equity firms and direct stakes in private companies and projects, is likely to be wound down in the coming years, the person said.

For publicly traded Fortress, the move is another reminder of the struggles it faces in its beleaguered hedge-fund arm, known as the "liquid markets" business, which has already cast off executives and shifted its trading strategies during an extended stretch of poor performance.

The firm's main macro hedge fund, overseen by co-founder Michael Novogratz, is down 15% this year through early September, making it one of the industry's biggest losers.

Hedge-fund unit president Stuart Bohart, who was also co-chief investment officer of the Partners funds, left the firm earlier this month, following the exit of macro fund co-manager Jeff Feig earlier in the summer.

On the company's most recent earnings call July 30, Mr. Novogratz said he was taking more direct control of the business. Still, his divinations continue to fall short. He predicted on the call that the Federal Reserve would raise interest rates this month, but the U.S. central bank kept rates steady at its meeting last week in the wake of global stock-market gyrations.

David Markus, a Fortress executive who helped run the Partners fund under Mr. Bohart, will leave as part of the unit's liquidations. He didn't respond to a request for comment. Doug Thomas, who became the funds' sole CIO with Mr. Bohart's leaving, remains in place.

Fortress shares are down 31% this year, recently trading around $5.55 on the New York Stock Exchange.

Write to Rob Copeland at rob.copeland@wsj.com

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(END) Dow Jones Newswires

September 21, 2015 13:45 ET (17:45 GMT)

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