Goldman Sachs Said to Pull $120 Million From Falcone Hedge Fund

Philip A. Falcone of Harbinger Capital Partners
Philip A. Falcone, senior managing director of Harbinger Capital Partners. Photographer: Brendan Smialowski/Bloomberg

Goldman Sachs Group Inc. plans to pull all of its $120 million from Philip Falcone’s main hedge fund after returns lagged behind peers and Falcone disclosed he borrowed $113 million from a smaller fund that had suspended redemptions, said three people briefed on the matter.

Falcone, 48, took the loan from the Harbinger Capital Partners Special Situations Fund in October 2009 to pay personal taxes, Bloomberg Markets Magazine reported in September. At the time, investors were barred from exiting the fund because it had assets tied up in the bankruptcy of Lehman Brothers Holdings Inc. New York-based Harbinger Capital Partners disclosed the loan in the fund’s March 12 financial statements.

The firm’s main Harbinger Capital Partners Fund tumbled 15 percent through Oct. 15, according to investors. As of September, about 90 percent of the fund’s $3.4 billion in net assets were tied up in wireless-telecommunications investments, angering some clients who said the portfolio is too concentrated and too skewed toward illiquid investments.

“We are in an environment with scarce capital inflows so if there is an additional risk factor from anywhere, including a large client redeeming, allocators won’t take the risk of ignoring it -- they at least have to look into it,” said Howard Eisen, co-founder of New York-based FletcherBennett Group LLC, a consultant to hedge funds.

Andrea Raphael, a spokeswoman for New York-based Goldman, and Eliot Hoff, a spokesman for Harbinger, declined to comment.

$1 Billion Investment

Investors in Harbinger’s core fund are limited to taking out 25 percent of their investments per quarter, so that a full withdrawal is spread out over a year. Goldman will get back $30 million in January, and receive its final $30 million payment in January 2012.

At the end of 2008, Goldman had $1 billion invested in two Harbinger funds, according to the people, who asked not to be identified because the funds are private.

Another investor in the core fund, the New York State Common Retirement Fund, asked to redeem $41 million. Dennis Tompkins, a spokesman for the state pension system, declined to comment.

Harbinger is winding down the Special Situations fund, which had about $2 billion in assets as of September. Following the fund’s suspension, clients representing 80 percent of assets opted to redeem their investments earlier this year, and they will get money back as the fund’s positions are sold. Remaining clients will put their money into other Harbinger funds.

Harbinger’s Credit Distressed Blue Line Fund, started in April 2009, has returned 12 percent this year, according to an investor. The fund has pulled in $500 million in assets this year, the person said. Distressed funds have jumped 8.7 percent, on average, according to Chicago-based Hedge Fund Research Inc.

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