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Goldman Sachs to pull out $120m from Falcone’s Harbinger Capital, Blackstone submits withdrawal notice too

Thursday, November 11, 2010
Opalesque Industry Update – Philip Falcone’s Harbinger Capital Partners, once one of the biggest hedge funds in the world, is having a terrible year. First, its flagship fund, the Harbinger Capital Partners Fund has fallen by 15% YTD (through Oct. 15, 2010). And second, two of the most significant investors into hedge fund have made clear their intent to pull their money out of the firm, various media reports said.

Goldman Sachs Group Inc., has submitted a request to withdraw all of its $120m from Falcone’s main fund because of lagging returns and reports that he borrowed $113m in October 2009 from a smaller fund that had suspended redemptions, to pay for his personal taxes, according to a report by Bloomberg.

In its September report, Bloomberg Markets Magazine disclosed that Falcone made the loan from- the Harbinger Capital Partners Special Situations Fund at a time when the investors were barred from withdrawing from the existing funds because some of its assets were tied up in the Lehman Brothers Holdings Inc. bankruptcy case.

But Falcone downplayed the effect of Goldman’s pull out decision and even described it as “a non-event” in an email sent to Reuters.

Reuters added that several investors have already expressed their concerns over the negative performances of several Harbinger funds in the past several months. Many stakeholders were questioning Falcone’s decision to launch an upstart internet company called LightSquared, which plans to bring broadband internet access across the United States using satellites and a network of land-based cell towers.

Investors do not need extra risk factor
Howard Eisen, co-founder of New York-based FletcherBennett Group LLC, a hedge fund consultancy, said that investors are wary of additional risk factors and such risk was highlighted by Falcone’s personal loan from one of his funds.

Eisen told Bloomberg, “We are in an environment with scarce capital inflows so if there is an additional risk factor from anywhere, including a large client redeeming, allocators won’t take the risk of ignoring it -- they at least have to look into it.

Dwindling assets
At its peak, Harbinger managed $26bn in assets, particularly after its success in betting against subprime mortgages in 2007. Currently, the fund has an estimated $9bn in AuM and with the announcement of these redemption notices, that is expected to slide even further.

Harbinger’s $2bn Special Situations fund has initiated to wind down its operations in September. Owners of 80% of assets in the fund have already opted to redeem their investments and are expected to receive their money back as the fund’s positions are sold.

More withdrawal requests
The Bloomberg report added that another Harbinger investor, the New York State Common Retirement Fund, also sent a request redeem $41m of its investments from the firm’s core fund.

Second major hedge fund investor reported to be redeeming from Harbinger is Blackstone Group, reported The Journal.

However, The Journal did not provide details how much money Blackstone would withdraw from Harbinger, although it clarified that a withdrawal notice does not necessarily mean a pull out of money. Rather, the notice or redemptions gives Harbinger 90-days to make the money available in case the investor finally decides to pull out his money, however the investor may change their mind prior to redemption deadline and opt to keep their assets invested in the fund.
- Precy Dumlao

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