harbinger capital loses a third in 3 months

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$5BN IN PROFITS WIPED.


Harbinger Capital loses a third in three months

By James Mackintosh in London

Published: October 13 2008 03:00 | Last updated: October 13 2008 03:00

Harbinger Capital, the activist New York hedge fund that shot to fame last year with a lucrative bet against subprime mortgages, has made and lost about $5bn this year after dropping by a third in the past three months.

The main $14bn fund of Harbinger, run by Phil Falcone, fell 17.9 per cent last month, to leave it down 5.4 per cent for the year so far.

Investors said it had given back all the gains of its first six months, when it made close to 43 per cent, and that there would be more losses from its exposure to Lehman Brothers, the failed bank.

However, Harbinger's problems pale in comparison with those of many other big hedge funds. They have been having their toughest year on record, with many down 20 per cent or more.

Mr Falcone secured his reputation last year with a well-timed bet against subprime mortgages, which secured a gain of 116 per cent.

Given the size of Harbinger, this gave the fund the second-biggest profit of the year in the industry in revenue terms, behind John Paulson's Paulson & Co.

The former Harvard University hockey player added to his reputation - and wealth - with aggressive moves against several high-profile companies, including the New York Times Company, where Harbinger and an ally won board seats.

Mr Falcone has a big position in miner Cleveland-Cliffs, where Harbinger last week failed to win changes to the company's shareholder rules, and is applying for approval to bid for London-listed satellite group Inmarsat and merge it with US rival SkyTerra.

The fund originally focused on distressed companies but then moved into other strategies.

According to a letter to investors last month, the fund had cut back Mr Falcone's use of leverage, in common with many other hedge funds.

Harbinger - started in 2001 as a unit of Harbert Management of Birmingham, Alabama - managed $21bn across its funds at the start of August, according to a regulatory filing.

It is one of many funds caught up in the crisis at Lehman, where it has estimated its losses from the collapse at 3.9 per cent of its flagship fund, on top of the falls for September.

This would amount to more than $600m, higher than the fund initially estimated.

Harbinger has missed out on fees of about $1bn, or a fifth of profits, that it would have earned if it had sustained the $5bn gains until the end of the year.

Mr Falcone was estimated by Alpha Magazine to have earned $1.7bn last year, mostly as a result of his share of performance fees and personal investments in the fund.

Harbinger declined to comment and Mr Falcone did not reply to an e-mail.