Falcone's Harbinger Is Said to Have Lost 10% Last Month in Illiquid Fund

Date: Friday, July 23, 2010
Author: Saijel Kishan, Bloomberg

Harbinger Capital Partners LLC, the hedge-fund firm run by billionaire Philip A. Falcone, lost about 10 percent last month in a pool of hard-to-sell assets that it’s divesting for clients, according to two investors.

The so-called side pocket, with about $2 billion in assets, has slumped 14 percent this year, said the people, who asked not to be named because the information is private. Hedge funds fell an average of 0.86 percent in June and 0.21 percent this year, according to Chicago-based Hedge Fund Research Inc.

Harbinger, started by Falcone in 2001, limited withdrawals from its biggest fund in 2008 to about 65 percent of assets and told clients that it may take as long as two years for the rest of the money to be returned. The firm lost money last month on its investments in battery and pet-food maker Spectrum Brands Holdings Inc. in Atlanta and Reston, Virginia-based wireless- network operator TerreStar Corp., the people said.

Hedge-fund managers created side-pockets to segregate their most illiquid assets and avoid selling them at fire-sale prices when investors sought to pull out their money after the industry suffered record losses in 2008. Clients must wait until the side-pocket holdings are sold before they can get their share of the funds back.

Harbinger had returned less than 10 percent of its side pocket as of the end of last year, people briefed on the matter said in January. A second payment was expected to be made earlier this year, another person familiar with the firm said at the time. That distribution hasn’t been made, according to the two investors.

Eliot Hoff, a spokesman for New York-based Harbinger, declined to comment.

Side Pocket

The value of the side pocket fell 3.6 percent in the first 11 months of 2009, according to a November investor letter. The firm doesn’t charge clients fees on those holdings.

Harbinger Capital Partners, its main fund, lost 4.8 percent in June and 9.3 percent this year, said the people. The fund, which focuses on distressed debt, gained about 45 percent last year through November after a 29 percent loss in 2008.

The hedge-fund industry lost an average of 19 percent in 2008, the most since Hedge Fund Research started tracking data in 1990, before rebounding 20 percent last year.

To contact the reporter on this story: Saijel Kishan in New York at skishan@bloomberg.net