John Paulson's Paulson & Co losses last year have gotten a lot of press attention – after all, one of his top funds lost almost 53% – but his other funds loss considerably less. In fact, one fund lost just 10%, which may not be great but it is a far cry from 53%. In Paulson's case, it was simply a matter of poorly times bets. Unfortunately, hedge fund Phil Falcone cannot say the same.
Falcone's Harbinger Capital lost almost as much as Paulson's worst performing fund last year, losing 47%. The fault was not owed to a series of poor bets. Falcone's largest position, over half of his 13F portfolio in fact, is in Spectrum Brands Holdings (SPB), a stake valued at $769 million at the end of the fourth quarter 2011. Since the beginning of the year, that position alone has returned almost 25% in the first quarter this year – hardly a bad bet. The Harbinger Group (HRG), the second largest position in the Harbinger Capital portfolio (accounting for over 32% of the 13F portfolio value) is up even more, returning nearly 35% in the first quarter. The third largest stake in Harbinger Capital's 13F portfolio at the end of the fourth quarter was Crosstex Energy (XTXI). It returned over 24% in the first quarter 2012. In other words, Falcone can pick a stock.
The thorn in Falcone's side and the reason for his massive losses last year can be summed up in one word – LightSquared. To date, his fund has invested over $3 billion in the company that had hoped to use the country's global position systems to provide voice and data service nationwide. The technology looks promising but there are those in the federal government that say the technology would interfere with those systems, possibly proving to be a security threat. Several government agencies have recommended against LightSquared and while the FCC has drawn some fire for its handling of the LightSquared case and Falcone is still fighting for his cause, but a company without much revenue isn't going to be around long. Already, LightSquared is laying off almost half of its 330 member staff but it could be a matter of too little, too late. Now, Falcone is considering bankruptcy, amongst other options – but, the decision may not be his for much longer.
"LightSquared’s creditors, including Icahn, 76, have agreed to wait until the end of the month before deciding whether to put the company in technical default as a result of the FCC’s announcement," reports Bloomberg. "If Falcone, who heads the firm’s executive committee, can’t persuade them to extend the deadline, LightSquared could file for bankruptcy and wage war against debt holders who want a rapid sale of his spectrum."