Fortress Investment Group is liquidating part of its hedge fund arm, according to people familiar with the matter, the latest hit to a business that has increasingly become a drag on the firm.

Fortress is selling off all investments that it makes in other hedge fund managers through its Partners funds, the people said. That unit was created to emulate the bets of university endowments and other deep-pocketed investors, and managed $1.7 billion at its peak in 2010.