Philip Falcone and Harbinger Capital’s Wireless Adventure

Philip Falcone’s Harbinger Capital Partners dove into an illiquid and risky wireless adventure- one which proved to be a big concern for his investors. The adventure brought some legal troubles for both Harbinger and Philip Falcone.

HARBINGER

Philip Falcone is famous for betting against subprime mortgages, which made Harbinger $11 Billion in 2007. Harbinger Capital Partners Fund returned 116% that year. Harbinger was doing fine until mid 2008, but Falcone’s flagship fund lost half its value during the rest of 2008. Phil Falcone’s Harbinger returned 42% in 2009, which was much better than most funds. However, 2010 was very bad for him. He lost about 12% in 2010.

Harbinger’s assets under management reached $26 Billion at its peak, but recently went back down to around $7 Billion. Investors have been doubting Philip Falcone’s ambitious wireless investments. These investments both led to poor performance and redemptions. Falcone’s illiquid investments is also one of the reasons why he couldn’t meet redemption requests in a timely manner.

Some investors see Falcone’s LightSquared investment as a giant gamble. He’s building a wholesale wireless network that will compete with AT&T (T) and Verizon (VZ), and he’s been launching satellites to achieve his dream. LightSquared already raised $2 Billion but probably needs another $6 Billion to complete its network.

According to Reuters, Harbinger is reducing headcount to cut expenses. This week 39-year-old Lawrence Clark left Harbinger to start his own fund. Kenneth Turano, 29 year old trader, left Harbinger probably to join Clark in the new fund. Two other investment analysts Clark Baker, 49, and Eli Benson, 36, were laid off.

Philip Falcone’s Harbinger has other investments as well. Here are some of his holdings at the end of September:

1. iPath S&P 500 VIX Short-Term Futures ETN (VXX): Harbinger had more than $60 Million of VXX in its portfolio. VXX was one of the best stocks to short after the increase in volatility at the end of May. VXX declined more than 50% since September 30th, adding to Phil Falcone’s woes.

2. Cliffs Natural Resources Inc (CLF): Cliffs Natural Resources returned more than 39%. Insiders at Cliffs Natural were selling during the past quarter as the stock kept climbing.

3. Corn Products Intl. (CPO): The stock increased nearly 28% since September. Three insiders at Corn Products Intl were selling below $45, and there was another insider, James P. Zallie, who bought more than 3,000 shares at $46.87.

4. Crosstex Energy Inc (XTXI): Crosstex Energy returned 14.4% since September, beating the S&P 500 by 1 percentage point. Susan J Mcaden, VP Accounting, sold more than 10,000 shares in November.

5. Exco Resources (XCO): Harbinger had nearly $99 Million invested in XCO and the stock returned 31.5% since September.

6. New York Times (NYT): This is another failed investment of Harbinger. They still had $95 Million of New York Times stock at the end of September. The stock gained 32% since then.

7. SPDR Gold Shares (GLD): Harbinger is one of the hedge funds that invests in gold. Daniel Loeb’s Third Point and Brevan Howard are also investors in GLD.  There are several other hedge funds that invest in gold through gold miners or hold physical gold. (See Paulson & Co Holdings, Curtis Schenker’s Scoggin Capital, David Einhorn’s Greenlight Capital, and Mohnish Pabrai’s holdings)

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