Philip Falcone's Harbinger Capital to Start New Hedge Fund ~ market folly

Monday, March 23, 2009

Philip Falcone's Harbinger Capital to Start New Hedge Fund

Phil Falcone is going back to his roots at Harbinger Capital Partners. Falcone first started his fund to focus on distressed debt and he is returning to those origins (having been focused on equities a lot of last year). He is starting the Credit Distressed Blue Line Fund aimed to buy 'troubled loans and bonds.' The $7 billion hedge fund has had an interesting year in which they've faced uphill battles in some of their equity holdings where they control large stakes. Additionally, their less liquid private equity investments led them to limit redemptions in their funds to 65% of assets. As we noted in our year end hedge fund performance numbers, Harbinger's Offshore fund finished -22.7% for 2008.

In Harbinger's latest letter to investors, they noted that they had covered their shorts on metal producers and financials and also got out of some credit default swaps. While they have been winding down equity positions, they are sticking with their major stakes in Calpine (CPN) and the New York Times (NYT). Falcone also mentioned that they had added trade claims on an energy company and credit default swaps on various consumer plays (retailers, products, & services). They have also been selling off some Cliffs Resources (CLF), essentially to ensure that their portfolio balance is where they want it to be.

Courtesy of Bloomberg:

"Falcone is starting the distressed fund to “seek to capitalize on the current dislocation in the credit markets,” he wrote in his letter. The new fund will buy credit-default swaps, which act like insurance against loan going bad.

It will purchase devalued high-yield bonds, bank loans and trade claims, which are debts that a bankrupt company owes to its suppliers. The fund won’t borrow money to make purchases, nor will it buy stocks. Harbinger expects the fund to be capped at $500 million to $1 billion, and to wind down after the credit crisis subsides.

Falcone also started a private-equity fund with a Korean company as an anchor investor, according to the letter. The Global Opportunities Breakaway Fund LP has a five-year term, and will draw down capital as it makes investments. Harbinger plans to open a Singapore office as part of the management of the new fund, the letter said."

Remember that we're in the midst of our hedge fund Q4 portfolio tracking series where we look at the portfolios of prominent hedge funds, covering a new fund each day. We'll be covering Harbinger's Q4 holdings here very soon, so stay tuned. In the mean time, read the Bloomberg article in its entirety.

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