Falcone’s Harbinger Said to Face $1 Billion in Redemptions

Harbinger Capital Philip Falcone
Philip Falcone didn’t tell clients whether subsequent redemptions would also be paid partially with shares of the wireless network. Photographer: Brendan Smialowski/Bloomberg

Harbinger Capital Partners LLC, the $6 billion investment firm run by Philip Falcone, is facing at least $1 billion in redemptions from its main hedge fund after assets shrank by almost $2 billion in 2010, according to two investors.

The main fund had $4.25 billion in assets at the end of 2010, 30 percent less than at the start of the year due to client withdrawals and losses, according to the people, who asked not to be identified because the information is private. Investors, who can pull 25 percent of their money every quarter, have asked to redeem $1 billion, which would be paid between now and next March, said the people, who have seen the fund’s financial statement.

Those who withdrew money at the end of the first quarter were required to take more than half of their payment in non-tradable shares of LightSquared Inc., Falcone’s mobile-phone venture. As of May 26, the shares accounted for 62 percent of the fund’s assets.

“In light of my high conviction in LightSquared, its size within our portfolio and the necessity of maintaining a controlling position while we join forces with a strategic partner, we have determined to distribute a portion of the withdrawal proceeds for March 31, 2011, withdrawal requests in-kind,” Falcone wrote to investors in a letter dated June 6.

Falcone didn’t tell clients whether subsequent redemptions would also be paid partially with shares of the wireless network. Steve Bruce, a spokesman for Harbinger, declined to comment.

Build-Out Plans

Last year, the main fund’s Class A shares lost 11.5 percent. This year the main fund is up about 2.2 percent, according to a person familiar with the firm. The firm’s credit fund, with about $800 million in assets, has climbed 8.5 percent, said the person, who asked not to be identified because the returns aren’t public.

Falcone entered the telecom business in 2005, when Harbinger bought shares of a satellite company called SkyTerra Communications Inc.

That investment became the basis of Reston, Virginia-based LightSquared, which plans to build a network that would serve 260 million mobile devices using both terrestrial towers and satellites.

LightSquared needs to raise an additional $3 billion to fully fund its build-out plan, on top of the $1 billion it has on hand, Jonathan Chaplin, a Credit Suisse Group AG analyst in New York, said in a May 24 research note.

Sprint Deal

The firm is close to a deal to pay Sprint Nextel Corp. as much as $20 billion over 15 years to share the cost of building the network, two people familiar with the talks said last week.

Harbinger has an unfunded commitment of $250 million to LightSquared, of which the main fund’s share is $175.5 million, the investors said. If LightSquared sells shares or raises outside money, the firm’s commitments would be reduced.

Yesterday, 66 U.S. House members said LightSquared’s planned network may cause “severe interference” with global-positioning system devices used by aircraft, tractors and military gear, yesterday.

LightSquared shouldn’t be allowed to proceed until it demonstrates it won’t interfere with GPS, the lawmakers said in a letter to Federal Communications Commission Chairman Julius Genachowski.

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