Citigroup has caught the eye of hedge fund manager William Ackman because he expects the financial services company to soon be able to return billions to its shareholders and to enjoy big tax benefits.

Two weeks after first announcing his Citigroup bet at a conference, Ackman, who runs $5.5 billion Pershing Square Capital Management, told investors in more detail why he recently bought 146.5 million shares of a company rescued with $45 billion in government bailout money.

The letter, first reported by Website, was sent to investors on Tuesday.

We think there are two important elements of Citi that the market does not fully appreciate, wrote Ackman, who tends to make only a few concentrated bets at a time.

Citi, he wrote, will benefit from a $21 billion operating deferred tax asset that will shield its future earnings from taxes over the next years. Also, Ackman said he expected the company to have $24 billion to $30 billion in capital to return to investors as it sells businesses it no longer wants.

During the financial crisis, Citi was considered the worst among the big banks. But the company has taken drastic steps to remake itself since Vikram Pandit became chief executive officer in 2007.

Citi announced a year ago that it would split itself into two entities -- Citicorp and Citi Holdings -- and sell off businesses it no longer wanted.

At its recent price of $3.64, Citi trades below tangible book value, and at five or so times management's earnings guidance, Ackman wrote.

Pershing Square committed 9 percent of its main fund's capital to the Citi stake. The fund returned 7 percent in the first quarter.

At Wednesday's close, Citi's stock price had risen 16.9 percent this year. In the last month however, it lost 3.3 percent as financial firms suffered because of fear that Europe's crisis would harm growth here.

Shares of Citi were up 1 percent at $3.91 in morning New York Stock Exchange trading.

Ackman is the latest prominent hedge fund manager to buy Citi after John Paulson and Philip Falcone also made bets.

Arguing that it is a favorable moment in history to be a large-scale financial institution, Ackman said Citi would benefit from its robust capital position and, with less exposure to the housing market, be insulated from late-cycle credit issues.

(Reporting by Svea Herbst-Bayliss; Editing by Lisa Von Ahn)