02/25/2009

Falcone Buys Out Early Backer of Harbinger

Philip Falcone, chief of hedge fund heavyweight Harbinger Capital, is buying out the firm that backed Harbinger at its inception.

Harbert Management, a Birmingham, Ala., alternative-investment manager, acquired a stake in Falcone's New York firm when it provided $25 million of seed capital for the launch of Harbinger's first fund in 2001. Falcone is buying back Harbert's stake for an undisclosed sum.

The decision to split appears to be mutual. When the deal is finalized, Falcone will own 100% of Harbinger, which has $9 billion under management. But Harbinger will continue to rely on Harbert for operational support.

Harbert will also maintain its current investments with Harbinger's funds: the flagship, multi-strategy Harbinger Capital Partners Fund 1, Harbinger Capital Partners Special Situations Fund, and the two vehicles' offshore versions.

Falcone began positioning Harbinger to be more independent from Harbert last year when his flagship fund was riding high, up nearly 42% during the first six months of 2008. He hired Blackstone Group's Park Hill unit to take over marketing of his funds. At that point, Harbinger had assets under management in excess of $26 billion.

Since then, however, Harbinger's funds have fallen sharply. Its flagship ended 2008 with a 27.8% loss, while Special Opportunities Fund slid 56.1%. Losses and redemptions have left the firm with just $9 billion under management.

It's unclear how much Harbert has under management with Harbinger. Over the years, Falcone has done well for Harbert, posting gains every year until 2008. In 2007, Harbinger's flagship fund gained 116.1%, while Special Situations Fund jumped 170.4%.

Falcone runs a multi-strategy shop with a special-situations bent, placing bets on equities and distressed-credit products. The Special Situations Fund employs a longer-term outlook with its investments, and has been known to sometimes take an activist approach. Last year, Harbinger aggressively challenged management of the New York Times, winning two seats on the publisher's board of directors.

Back Print