Harbinger Capital, 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 given more than half of their payment in non-tradable shares of LightSquared Inc., Falcone’s mobile-phone venture, which as of May 26 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.
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, the person said.
LightSquared, based in Reston, Virginia, plans to build a network that would serve 260 million mobile devices over a network of 40,000 terrestrial towers, using airwaves once reserved primarily for satellites. The network may cause “severe interference” with global-positioning system devices used by aircraft, tractors and military gear, 66 U.S. House members said 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.
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 this week.
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