UPDATE 2-Citi winding down PE fundraising unit -- source

(Adds details about size of unit, background about industry)

By Megan Davies

NEW YORK, April 23 (Reuters) - Citigroup Inc (C.N: Quote, Profile, Research) is winding down Citi Alternatives Distribution Group, a unit that raises money for private equity funds, a source familiar with the situation said on Thursday.

A small part of the group, likely to include its head Douglas Blagdon, will remain to serve existing customers, the source said.

Citigroup confirmed in a statement it is reducing its fundraising operation to focus just on its internal funds.

"We have decided to focus our efforts on institutional fund raising for our internal funds and are reducing our third party fund raising operation," the company said. "We will retain a core team of professionals to service our existing third party clients."

The Citi Alternatives Distribution Group, part of its Alternative Investments unit, consists of a team of more than 50 people focused on capital raising for private equity funds, real estate, infrastructure and hedge funds, its website said.

According to recent data from London-based private equity research firm Preqin, the unit is the third largest placement agent business after MVision Private Equity Advisers and Credit Suisse Private Fund Group (Placement Agents).

Placement agents typically act as third parties between pension funds looking for places to put their money and private equity funds seeking investments.