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Falcone’s Harbinger Lost 19.5% in Illiquid Fund

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Falcone’s Harbinger Said to Lose 10% in June
Philip A. Falcone, senior managing director of Harbinger Capital Partners. Photographer: Brendan Smialowski/Bloomberg

Feb. 16 (Bloomberg) -- Harbinger Capital Partners LLC, the hedge-fund run by billionaire Philip A. Falcone, lost 19.5 percent last year in a pool of hard-to-sell assets that it’s divesting, according to a letter sent to investors this week.

Falcone also told clients in a separate letter this week that the so-called side-pocket would be paying $45 million to settle a civil suit involving Spectrum Brands Holdings Inc., one of the companies in the pool, said an investor who asked not to be named because the fund is private.

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 losses in the illiquid pool, which held $1.3 billion of Harbinger’s $9 billion of assets as of September 2010, compare with a 15 percent gain, including reinvested dividends, by the Standard & Poor’s 500 Index.

The settlement stems from a 2006 lawsuit filed by Nacco Industries Inc., a Cleveland-based company that makes small appliances and forklifts, against Applica Inc. and Harbinger’s main fund. Nacco said yesterday that Harbinger agreed to pay $60 million in total to settle claims that it tried to hamper the company’s bid for Applica, according to a regulatory filing. The case had been scheduled to go to trial Feb. 28.

Harbinger said today in a statement that the parties agreed to settle the dispute on Feb. 14, while not disclosing any amount. Steve Bruce, a spokesman for the New York-based fund, declined to comment beyond the statement.

The Nacco lawsuit accused senior management at Applica of tipping Harbinger advisers to confidential merger negotiations allowing the hedge fund to succeed in a bidding war.

Applica Shareholders

Applica paid Nacco $6 million to end the deal in October 2006. Applica shareholders approved Harbinger’s $8.25 per share offer, completing the buyout in January 2007. Nacco bid as much as $8.05 a share before withdrawing its offer.

Through a series of mergers, Applica became part of Spectrum Brands, a Madison, Wisconsin-based company that makes the George Foreman grills, as well as pet food, batteries and lawn-care products.

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.

To contact the reporters on this story: Katherine Burton in New York at kburton@bloomberg.net; Sophia Pearson in Wilmington, Delaware, at spearson3@bloomberg.net.

To contact the editors responsible for this story: Christian Baumgaertel at cbaumgaertel@bloomberg.net; John Pickering at jpickering@bloomberg.net.

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