The past few months have been hard on Harbinger Capital Partners and its founder, Philip Falcone. After a good start to the year (it was up more than 40 percent through June), the New York–based hedge fund firm gave up those gains. Falcone’s main fund dropped 17.9 percent in September alone, leaving it down 5.4 percent on the year. Over the summer Falcone lost money going short financials and long energy, a common trade that cost many hedge funds dearly when it reversed in July. Much of what he was doing in that regard — and is still doing — hasn’t played out very well; Harbinger is also one of the hedge funds with a big exposure to the Lehman Brothers bankruptcy, with $250 million at risk, according to court filings.
But it’s not all doom and gloom for the $21 billion firm. Buying opportunities abound, and Falcone, whose main fund was up more than 117 percent in 2007 and who made an estimated personal fortune of $1.7 billion that year, is sitting on billions in cash (he won’t say how much). He wants to put some of that money to work by buying distressed middle-market companies. Because banks, with their own balance-sheet problems, are reluctant to provide financing to corporate America and traditional private equity managers are up against the same problem, cash-rich hedge funds have the chance to step up. Harbinger is eager to be among them.
“I am seeing more quality assets at better value-price points right now than I have seen in ten years,” says David Maura, director of investments at Harbinger. “You can’t get capital right now. The banks are closed. And my competition is going to have a hard time raising financing.”
His boss, Falcone, knows a thing or two about distressed assets, having previously headed high-yield-debt trading for Barclays Capital in New York. Last year Harbinger struck a deal to acquire 92 percent of Salton, the home-products distributor best known for the George Foreman Grill. Harbinger merged Salton with APN Holding Co. (which it owned), creating a conglomerate that handles brands like Black & Decker, Toastmaster and Farberware. And at the end of August, Harbinger acquired a minority stake in Island Sky Australia, which makes machines that turn atmospheric humidity into drinking water. The firm continues to look for similar holdings.
Make no mistake, Harbinger is one of many firms facing serious problems, but it’s also one of many with cash on hand, eager to take advantage of the market chaos.
