Harbinger Rises More Than 65% in 2007 on Subprime, Commodities

Date: Thursday, October 4, 2007
Author: Jenny Strasburg, Bloomberg

Oct. 4 (Bloomberg) -- Harbinger Capital Partners, the New York-based hedge fund company run by Philip Falcone, generated returns of more than 65 percent this year for investors, helped by bets against subprime-mortgage bonds and gains on commodities.

Harbinger's $2.5 billion Special Situations fund increased 9.9 percent last month and more than 100 percent in 2007, said two of the firm's investors. The $11 billion Harbinger Capital Partners fund rose 5.4 percent last month and 65 percent this year. The Standard & Poor's 500 Index gained 9.1 percent, including dividends, in the first nine months of 2007.

``Almost every theme they play has worked out for them,'' said Mathieu Klein, chief executive officer of Paris-based investment adviser Darius Capital Partners, which isn't a Harbinger client.

Falcone's gains compare with the industry's average return of 4 percent in the first nine months, according to the HFRX Index, an estimate calculated daily by Chicago-based Hedge Fund Research Inc. Boston-based Sowood Capital Management LP shut earlier this year after losing about $1.8 billion on corporate debt. The $8.5 billion Raptor Fund, run by Greenwich, Connecticut-based Tudor Investment Corp.'s James Pallotta, declined 8 percent in the first two weeks of August.

Falcone, 45, a former head of high-yield trading at Barclays Capital, expected bonds backed by subprime mortgages to lose value, and benefited as foreclosures set a record in the second quarter. His holdings of commodities such as steel and copper rose in value as the S&P GSCI Commodity Index climbed 26 percent in the first nine months of 2007.

U.S. Steel

Harbinger owned 6.75 million shares of Pittsburgh-based U.S. Steel Corp. as of Sept. 21, according to an Oct. 1 regulatory filing. Shares of the biggest U.S.-based steelmaker gained 47 percent this year.

Falcone declined to comment. The investors asked not to be identified because the firm's returns aren't publicly released.

Atticus Capital LLC, the hedge fund company founded by Timothy Barakett that oversees more than $14 billion, rebounded in September. The firm's Global Advisors fund rose 10.4 percent. The gain followed a 10 percent decline in the New York-based fund in August and brought the 2007 advance to 13.8 percent.

Barakett has increased his stakes in mining and transportation companies, including Burlington Northern Santa Fe Corp., the second-largest U.S. railroad, and Freeport-McMoRan Copper & Gold Inc., the world's second-biggest copper producer.

Railroads, Metals

Atticus owned 7.5 percent of Freeport as of Aug. 17, up from 6.4 percent in June, the hedge-fund firm said in regulatory filings. Phoenix-based Freeport shares have advanced 38 percent since the beginning of June.

Burlington Northern shares gained 10 percent this year as it and other railroad operators attracted investors including billionaires Warren Buffett and Carl Icahn. Atticus owned 1.8 percent of the Fort Worth, Texas-based company's shares as of June 30, according to an August regulatory filing. Atticus spokesman Andy Merrill declined to comment.

Hedge funds are mostly private and unregulated pools of capital where managers can buy or sell any assets, participating substantially in the profits of the money invested. The funds typically charge a fee equal to 2 percent of assets and take a 20 percent cut of investment gains.

To contact the reporter on this story: Jenny Strasburg in New York at jstrasburg@bloomberg.net