Harbinger’s 3rd Quarter A Bloody Affair

The media continues to dog hedge fund managers at every turn...once private investor letters are now public fodder within hours of being released. Atticus Capital recently stopped writing mid-month updates because of the leaks, and many in Hedgistan are annoyed with the attention, particularly when they are sucking wind.

The latest letter by Harbinger Capital Partners Phil Falcone gives you a snapshot of where he stands, and he has gotten be wondering what hit him, given he was up nearly 50% YTD not long ago, and delvered furiously in July and August, contributing to the swoon in resource equities such as Freeport-McMoRan (FCX-NYSE) and other cyclical issues like AK Steel (AKS-NYSE) in which Harbinger partially puked up earlier this month.:

``We have reduced our exposure to some of the higher volatility issuers on both the long and short sides of the portfolio,'' Falcone, 46, wrote in a report to investors at the beginning of September. ``We believe we are well positioned to withstand additional volatility in the weeks and months ahead.''

Falcone, who works from New York, was not using borrowed money at the end of August, according to the letter. The use of leverage can enhance returns and deepen losses. The fund had 52 percent of assets in long securities, or those it expected to rise in price, while 48 percent was in short investments, or those Falcone was betting would fall. Bloomberg

Harbinger was up about 2% year to date through September 19th, which is ahead of most funds, but has clearly been crushed in the third quarter, with his top positions turning into a source of funds for other managers and a favorite target of hedge funds and independent prop traders to shoot against.

The worst is likely over for Phil, allowing him to get his head together while he figures out his next move. But he certainly appears ready to go to war over Cleveland Cliffs (CLF-NYSE), and has some dry powder now to defend his other positions from predatory attacks.

Phil no doubt is hoping we all return to minding our own business, and forget about his sheets, but the new SEC Form SH filings will soon alert us to his shorts positions, giving everyone a new game to play on the Street.

Although one good thing might come of all this-perhaps money will start to flow to smaller, more nimble managers who do not have to contend with turning around the proverbial battleship in a bathtub.
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Harbinger Falls 12% in September, Erasing Most Gains
Bloomberg
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AK Steel melted down just as the third quarter got under way, and Phil puked half of his stake in early September.

September 9th
Shares of AK Steel Holding Corp. dropped Tuesday after Harbinger Capital Partners reported lowering its stake in the steel company to about 4 percent.

According to a Form 4 filed with the Securities and Exchange Commission, the Harbinger Capital Partners Master Fund I Ltd. beneficially owns 4.5 million shares of the West Chester, Ohio, steel producer.The hedge fund previously owned 11 million shares, representing a 9.8 percent stake of AK Steel. It sold the shares on Sept. 4 and 5, according to the filing.

AK Steel shares fall after shareholder cuts stake
AP

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