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Falcone Says Investors ‘Passing Up’ Illiquid Investments

Harbinger Capital Partners Founder Falcone
Philip Falcone, founder of Harbinger Capital Partners. Source: APCO Worldwide via Bloomberg

May 9 (Bloomberg) -- Phil Falcone, whose hedge fund Harbinger Capital Partners LLC has invested about $3 billion in a wireless venture that’s fighting to avert bankruptcy, said investors are passing up good illiquid investments.

“What everybody is focused on right now is liquidity,” Falcone, 49, said today at the Skybridge Alternatives Conference in Las Vegas. “People are passing up I think pretty solid opportunities that are relatively illiquid because of the uncertainty with the investor base.”

Falcone’s main hedge fund has about 40 percent of its assets in LightSquared Inc., a startup broadband company fighting for survival after the Federal Communications Commission said in February it would withdraw preliminary approval for the company’s network. This week, Falcone received a second weeklong extension from creditors, who are negotiating with Falcone to give up some of his equity in the venture, a person with knowledge of the matter said.

Client money in his hedge fund has been locked up since December, when Falcone suspended redemptions for the second time in three years. Falcone, who rose to fame with bets against U.S. subprime mortgages in 2007, has said he plans to use Harbinger Group Inc., a publicly traded holding company he controls, rather than his fund Harbinger Capital Partners, to finance investments in the future.

‘Some Issues’

“One of the issues I’ve really struggled with in my career, which has created some issues for me in the past, was what vehicle and asset-liability mismatch,” Falcone said today. “I’m moving more toward a permanent capital vehicle so we can focus more on control.”

Falcone, who effectively has been running Reston, Virginia-based LightSquared since February, has already conditionally agreed to a request by creditors that he step down from the board and executive committee of the company, according to people familiar with the talks who weren’t authorized to speak publicly.

Falcone, speaking on a panel titled “Risk on, Risk Off: How to Generate Profits in a Macro Driven World,” said among the liquid investments, he sees more opportunities in stocks that are producing cash flow and paying dividends, rather than in bonds.

“You aren’t getting paid enough to overweight fixed-income,” he said.

His biggest worry, Falcone said, was how the troubles in Europe would affect other parts of the world such as China.

“If you could put Europe in a box and sift through their issues, they’re going to have problems,” Falcone said. “I’m more concerned about how that ripple affects other parts of world, especially China.”

To contact the reporters on this story: Kelly Bit in New York at kbit@bloomberg.net; Katherine Burton in New York at kburton@bloomberg.net

To contact the editor responsible for this story: Christian Baumgaertel at cbaumgaertel@bloomberg.net

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