Phil Falcone, of Harbinger Capital Partners, reached notoriety in 2007 when his fund made $11 Billion betting against subprime mortgages, resulting in an 116% return for the Harbinger Capital hedge fund that year. At that point, Harbinger swelled to $26 billion.
Since then, Falcone’s performance record has been rife with ups and downs. For instance, he lost more than half the value of the Harbinger Capital hedge fund in the last half of 2008 alone. Then, Falcone bounced back in 2009 with an impressive 42% only to drop 12% in 2010, a loss that was largely the result of the 19.5% Falcone lost through his investment in a pool of illiquid and divesting assets.
Falcone’s ups and downs may appear to be leveling off, but Falcone is not doing so well this year. Since the end of the second quarter, Falcone’s stock picks in his 13F portfolio have returned a negative 18%*, compared to negative 9.3% for the S&P 500 over the same period. Some sources (like “The Economist”) have even gone so far as to identify Falcone was being “in trouble”.
In fairness, there could be some truth to the rumors; after all, Falcone has been trying to reduce his expenses by cutting his overhead and laying people off since the first of the year. Plus, rumor has it that Falcone is selling his spots on an exclusive waiting list to buy the world’s fastest plane for as much as $6 million; it appears he can no longer warrant the price of 3 new private jets.
Company | Ticker | Value (x1000) | Activity | Return Since June |
SPECTRUM BRANDS | 1,096,221 | 427% | -18% | |
HARBINGER GROUP INC | 717,468 | 0% | -18% | |
CROSSTEX ENERGY INC | 54,740 | 0% | -15% | |
CLIFFS NATURAL RES | 41,603 | 0% | -18% | |
NORTH AMERN ENERGY PA | 27,576 | NEW | -26% | |
SOUTHERN UN CO NEW | 10,038 | NEW | 6% | |
RESEARCH IN MOTION | RIMM | 8,655 | NEW | -7% |
GENON ENERGY INC | GEN | 7,611 | 0% | -20% |
GENERAL MOLY INC | 6,237 | NEW | -15% | |
CONSTELLATION ENERGY | 4,502 | 5% | -1% | |
CVR ENERGY INC | 3,693 | NEW | 3% | |
TRINA SOLAR LIMITED | 2,242 | NEW | -33% | |
OWENS CORNING NEW | 1,966 | 0% | -25% | |
MEDIA GEN INC | 618 | 0% | -47% | |
SOLUTIA INC | 122 | 0% | -25% |
One problem is that out of his top 15 stock picks, only two positions have created a positive return. Falcone earned 6% via his position in Southern Union Co (SUG) and just 3% through CVR Energy Inc (CVI), both of which are new positions for the Harbinger hedge fund manager. The revered Michael Lowenstein (Kensico Capital) is a fan of Southern Union while CVR is favored by big names like Dan Loeb of Third Point, who increased his position in the company by 356% in the first quarter.
Moreover, Falcone’s issue is that 13 of his top 15 stock picks have been losing since June and only 4 have outperformed the market since then. Falcone’s largest losses were in Media General Inc (MEG), in which he lost -47%. Luckily his position in the media company is relatively small; he owns just 161 million shares, which is roughly one-tenth what Chuck Royce of Royce & Associates owns in Media General.
Falcone also lost big in Trina Solar Limited (TSL), losing -33%. Luckily, again, this was another smaller position for him. However, in this case, timing could be the primary issue; seasoned investors, like Ken Griffin of Citadel Investment Group, have far more shares in the solar company than Falcone and still moved to further increase their positions last quarter.
We like Falcone because he wasn’t afraid to invest in illiquid or relatively unknown instruments (namely subprime mortgages). Currently his attention is focused on his wireless investments. Unfortunately his 13F portfolio doesn’t seem to be a no-brainer for individual investors to imitate.
* this number exclude Falcone’s foreign holdings, short positions, cash holdings, certain derivatives, commodities and forex holdings. Moreover there may be significant changes in Falcone’s portfolio since the end of the quarter.
Disclosure: I am long SPY.
