* Level Global tells investors it will wind down - letter
* Cites government investigation, redemptions
* Fund was raided by U.S. agents in November (Adds details from letter, background, blog report)
By Emily Chasan
NEW YORK, Feb 11 (Reuters) - Level Global Investors, one of the hedge funds raided by U.S. agents last November in a broad investigation into insider trading, told investors it would begin the process of winding down.
The New York and Connecticut-based hedge fund, which managed roughly $3 billion as of December, said in a letter to investors on Friday that it would liquidate the funds and return its cash to investors.
"The government has commenced what may be a lengthy inquiry with no set timeline. This process, even when it leads to the positive outcome that counsel expects, nonetheless threatens to undermine our ability to meet our fiduciary responsibility to our investors," one of the firm's co-founders, David Ganek, said in a copy of the letter seen by Reuters.
The fund said last year that its investors, which include big pension funds like the New York State Common Retirement fund, were not racing for the exits. But it recently extended its deadline for investor redemptions.
Based on the new terms for investors, about 75 percent of the fund's capital would have been eligible to leave on March 31, and 100 percent would have been eligible to exit on June 30, Ganek said in the letter.
Hedge fund blog Dealbreaker.com, citing people familiar with the fund, reported earlier on Friday that Level Global had received about $750 million in redemption requests from investors.
"With the continuing cloud of uncertainty, we understand why investors might elect to redeem in the current environment," the letter said.
The fund said that since the start of the government's investigation it had "substantially reduced" its gross exposure, which should help simplify a wind-down.
Level Global was co-founded by Ganek and Anthony Chiasson in 2003. Both were alumni of Steven Cohen's $12 billion hedge fund SAC Capital Advisers.
Level Global, along with Diamondback Capital Management, Loch Capital Management and Barai Capital Management, were raided by federal agents in November. Samir Barai was arrested and charged with insider trading on Tuesday and his fund had already shut down. Investors in Diamondback Capital Management have asked to take back some $534 million. (Reporting by Emily Chasan; additional reporting by Svea Herbst in Boston; editing by John Wallace)