2011 was a brutal year for hedge funds, averaging a miserable -4% return for investors. Billionaire Phil Falcone was no exception as his huge bet on LightSquared dragged performance down to a whopping -47% on the year.
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 illustrating the precarious position Harbinger Capital is sitting in. The fund, 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. Not a smart play according to Jonathan Atkin, an analyst with RBC, who thinks LightSquared could run out of money within six months.
Falcone’s portfolio of private- equity investments didn’t help the fund either as they tumbled about 31 percent in 2011, according to an unidentified source who asked not to be named due to the privacy that surrounds hedge fund returns. The largest holding in the portfolio, which Harbinger is currently 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 market conditions.
via Falcone’s Harbinger Hedge Fund Lost 47% On LightSquared In 2011.