Cerberus Capital Management LP on Tuesday dismissed market speculation that some of its hedge funds, which have suffered losses and heavy redemptions, are in danger of default.

Traders in London and Frankfurt were buzzing with talk that a major hedge fund was headed for default. Much of the talk was directed at Cerberus , a private equity and hedge fund firm hit hard by losses on investments in Chrysler and GMAC.

There is absolutely no truth to the speculation, said Tim Price, a Cerberus managing director and spokesman for the firm.

High-profile investment losses at Cerberus prompted investors recently to seek the withdrawal of $4.77 billion from two of its hedge funds. That represents about 60 percent of the $7.9 billion managed by Cerberus Partners LP and Cerberus International LP, and 19 percent of Cerberus' total $24.3 billion in assets managed through a dozen funds.

People familiar with the firm played down the redemptions, saying they were driven by a need for liquidity among investors -- including funds-of-hedge funds facing their own withdrawal requests -- rather than a loss of confidence in a firm that has generated average annual returns of 20 percent since it was founded in 1992.

Indeed, Cerberus last month raised $1 billion to purchase distressed companies and securities, and it expects to raise two new distressed asset funds in the fourth quarter, people familiar with the firm's plans said.

Cerberus, named for the mythological three-headed dog guarding the gates of Hades, built a strong track record by quietly investing in hard-hit companies, debt and real estate. Its winning streak ended when it led $15 billion of investments for control of Chrysler and GMAC, the former finance arm of General Motors.

Cerberus wrote down most if its Chrysler investment when the automaker headed into bankruptcy earlier this year, while its GMAC stake was slammed when the U.S. government bailed out the lender.

The Cerberus Partners LP and Cerberus International LP funds lost more than 20 percent last year, blocked clients from withdrawing funds in December, and halted making new investments during the fourth quarter. The funds are little changed this year.

Recently, Cerberus asked clients of the two funds whether they wanted to stick with their investments, at a lower fee, or depart. Investors with more than 70 percent of fund assets not controlled by Cerberus partners elected to pull out.

Those who asked to exit will not receive all their money for as much as four years. Fund assets are put aside into a special vehicle that will liquidate them over time.

(Reporting by Joseph Giannone; editing by John Wallace)