Feb. 13 (Bloomberg) -- Citadel Investment Group LLC, the $13 billion hedge-fund firm run by Kenneth Griffin, plans to allow clients to make withdrawals from its two largest funds after freezing them last year.

Citadel will decide each quarter whether to make payments from its Wellington and Kensington funds, Griffin, 40, said in an investor letter yesterday. Clients will be notified of any amounts available for redemption.

“We believe that this plan will allow us to maximize the value of our portfolio holdings and capitalize on opportunities in the marketplace,” Griffin said in the letter, a copy of which was obtained by Bloomberg News. He said the firm had “significantly” cut its holdings in hard-to-sell assets.

A record number of funds, including Citadel and Fortress Investment Group LLC, limited client withdrawals last year, angering investors who wanted to exit as the industry produced its worst annual performance on record. More than 18 percent of all hedge-fund assets, managed by 5 percent of firms, were subject to some sort of withdrawal restriction last year, according to Peter Douglas, principal of Singapore-based consultant GFIA Pte.

Katie Spring, a Citadel spokeswoman, declined to comment on the letter.

Citadel in December limited investor withdrawals and said redemptions may resume as early as March 31.

The firm’s Kensington and Wellington funds have gained about 6 percent this year, following losses of 55 percent in 2008, the second annual decline since Griffin started the firm in 1990.

Hedge funds gained about 1.3 percent this year through Feb. 11, according to the HFRX Global Hedge Fund Index.

To contact the reporters on this story: Saijel Kishan in New York at skishan@bloomberg.net; To contact the reporter on this story: Katherine Burton in New York at kburton@bloomberg.net

Last Updated: February 13, 2009 11:45 EST