(Bloomberg News) Phil Falcone's Harbinger Capital Partners LLC lost 47 percent for investors in his main hedge fund last year as he was forced to slash the value of his troubled wireless venture by more than half, according to a person familiar with the results.
Most of the decline in the Harbinger Capital Partners Offshore Fund I came from Falcone's investment in LightSquared Inc., which plans to offer high-speed data service to as many as 260 million people. The Reston, Virginia-based company is awaiting final clearance from the Federal Communications Commission as regulators weigh test results that show the service's signals disrupt global-positional system equipment used by cars, tractors, boats and planes.
"The decline was primarily due to a conservative adjustment in the fund's holdings of LightSquared, to be consistent with the results of work done by the fund's third- party valuation firm," Lew Phelps, a spokesman for the New York-based fund, said in a statement. "The valuation takes into account uncertainty about the outcome of political issues related to alleged interference with the GPS system by LightSquared transmitters," added Phelps, who confirmed the fund's loss.
That the fund had to cut the value of its LightSquared stake by 59 percent illustrates the precarious nature of the investment on which Falcone, 49, is betting the future of his firm. Harbinger, which managed $5.7 billion at the end of last year, has put about $3 billion into LightSquared, and the investment accounted for 62 percent of the main fund at the end of May.
Jonathan Atkin, a San Francisco-based analyst with RBC Capital Markets LLC, said earlier this month that LightSquared may run out of money within six months.
LightSquared Chief Executive Officer Sanjiv Ahuja said in a Dec.9 interview that the company would be adequately funded through the government's review period, which he expects will last until early 2013. The company argues that GPS manufacturers should have planned to accommodate the company's use of the airwaves, and that technical solutions exist to resolve interference.
The fund's other losses came from a portfolio of private- equity investments that tumbled about 31 percent in 2011, according to the person, who asked not to be identified because the fund data is private. The biggest holding in the so-called side-pocket, which Harbinger is in the process of liquidating, is a 27 percent stake in Ferrous Resources Ltd., an iron-ore producer in Brazil that canceled plans to sell shares to the public in June 2010 because of volatile equity markets.
Investments in public companies, including a 54 percent stake in Spectrum Brands Holdings Inc., a Madison, Wisconsin- based manufacturer of pet food and batteries, accounted for the rest of the loss. Spectrum Brands tumbled 12 percent last year.
In December, the Securities and Exchange Commission told Falcone it is considering suing him and two other fund executives over alleged violations of securities laws. As a result of the potential suit, Falcone said he would suspend client withdrawals for a second time in three years.
The SEC is investigating whether Harbinger gave some investors preferential treatment by allowing them to withdraw money while barring others from doing so. Harbinger is also being investigated by the SEC and the U.S. Attorney's office over a $113 million loan Falcone took from one of his funds.