Citigroup (NYSE: C) is set to relaunch its unit that contain its troubled hedge fund operation after two years of lackluster performance, internal division and unrest among its investors. Various sources are reporting that the company will relaunch the unit that has $14 billion worth of assets under its management, including private equity operations, from Citi Alternative Investments (CAI) to Citi Capital Advisers.

The move comes after months of negotiation and positioning between CAI’s management and several of the bank’s top executives about what to do with the struggling business unit. CAI’s fate has been a particularly sensitive issue within Citibank because of CAI’s close association with Citi’s current CEO, Vikram Pandit. The executive formerly from Morgan Stanley joined Citigroup as head of CAI in 2007 when the bank paid about $800 million for Old Lane, a hedge fund that has since become defunct.

John Havens, another Old Lane and Morgan Stanley veteran, now heads Citigroup’s securities business and will oversee Citi Capital Advisers.

The New York Daily News recently reported that John Dorfman and Jim O’Brien, who are also Morgan Stanley Alumni and now run CAI, were hoping to drop Citi from the unit’s name in an effort to distance itself from its troubled past, but the idea was dropped. Dorfman and O’brien had suggested using the name Carlton Hill, the fund manager they sold to Citigroup in 2007, for at least part of CAI. However, some Citigroup executives feared that dropping the Citi name would be a prelude to a spin-off of the unit as an independent company or to winding down the unit. Most insiders believe that a separation between CAI and Citibank will be unlikely, since half of its internal hedge funds, worth over $2.7 billion,

CAI is hoping to raise about $2.5 billion worth of external capital over the next year and is targeting sovereign wealth funds and other investors in emerging markets. Currently the unit has only raised $150 million of their $2.5 billion goal.