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Funds News

Falcone's flagship hedge fund sees more red

* Off 1.2 pct through mid-January -investors

* Harbinger Capital Partners ended 2010 down 12 pct

* Harbinger Capital Partners stopped reporting to HSBC

BOSTON/NEW YORK, Jan 20 (Reuters) - Philip Falcone’s flagship hedge fund started 2011 right where it ended 2010 -- in the red.

Additionally, Falcone, who rocketed to fame on a bet against the housing market, stopped reporting his Harbinger Capital Partners funds’ returns to HSBC’s Private Bank late last year.

HSBC tracks hundreds of hedge funds’ monthly returns and its periodic reports are closely monitored for trends in the secretive $1.9 trillion hedge fund industry.

According to several of Falcone’s investors, the Harbinger Capital Partners fund ended 2010 down about 12 percent and is off roughly 1.2 percent through the middle of January.

Last year’s returns would have surely earned Harbinger Capital Partners a top spot on HSBC’s annual list of the industry’s “bottom” funds. And it would have brought new unwanted attention in a year Falcone overhauled his holdings, faced regulators’ scrutiny and saw prominent investors, including Goldman Sachs, ask for money back.

For Falcone the decision to stop reporting makes him all but invisible to outsiders who try to follow the inevitable ups and downs of the world’s biggest fund managers, such as John Paulson, William Ackman, Dan Loeb and David Einhorn -- who all report their returns to HSBC.

Most important, it saves him plenty of potential embarrassment for having climbed from HSBC’s list of biggest winners -- for his 116 percent return in 2007 -- to its biggest losers in a year the average hedge fund gained 10 percent.

When asked about the performance numbers through the middle of January and whether he had stopped sending data to HSBC to avoid being the most prominent name on the 2010 list of underachievers, the former Harvard economics graduate responded with a one-line email.

“The investors are wrong and so is your rationale,” he told Reuters.

Many of the world’s biggest funds guard their performance numbers closely, refusing to divulge any data to tracking firms. But Falcone, who now oversees roughly $6.4 billion, was happy to report when he was doing well and assets peaked at about $26 billion in 2008.

A year ago, Falcone, whose credit-oriented funds have seen both quick drops and sharp recoveries, started January off strong with a 4.42 percent gain. By mid-July, however, he suffered a reversal and his Harbinger Capital Partners Offshore Fund I was off 10.7 percent, putting him on the list of losers. He climbed up the rankings for the rest of the year.

He may well want to forget last year.

While he reordered his portfolio with a big bet to build a new wireless network, assets under management shrank. And with the bulk of his portfolio locked up in his telecom bet, he apparently needs fewer staff. Departures of a number of people from his New York-based firm were announced recently. (Reporting by Svea Herbst-Bayliss and Matthew Goldstein; Editing by Gary Hill)

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