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(Bloomberg)

Falcone's Harbinger lost 19.5% in illiquid fund last year

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Harbinger Capital Partners LLC, the hedge-fund run by billionaire Philip A. Falcone, lost 19.5 percent last year in a pool of hard-to-sell assets that it's divesting, according to a letter sent to investors this week.

Falcone was a hockey standout in his home town of Chisholm and played for Harvard University.

Falcone told clients in a separate letter this week that the so-called side-pocket would be paying $45 million to settle a civil suit involving Spectrum Brands Holdings Inc., one of the companies in the pool, said an investor who asked not to be named because the fund is private.

Harbinger, started by Falcone in 2001, limited withdrawals from its biggest fund in 2008 to about 65 percent of assets and told clients that it may take as long as two years for the rest of the money to be returned. The losses in the illiquid pool, which held $1.3 billion of Harbinger's $9 billion of assets as of September 2010, compare with a 15 percent gain, including reinvested dividends, by the Standard & Poor's 500 Index.

The settlement stems from a 2006 lawsuit filed by NACCO Industries Inc., a Cleveland-based company that makes small appliances and forklifts, against Applica Inc. and Harbinger's main fund. Through a series of mergers, Applica became part of Spectrum Brands, a Madison, Wisconsin-based company that makes the George Foreman grills, pet food, batteries and lawn-care products.

"On Feb. 14, 2011, the parties to this litigation entered into a settlement agreement in full settlement of the claims raised in the litigation," Harbinger said in a statement today.

Steve Bruce, a spokesman for the New York-based fund, declined to comment beyond the statement.

Hedge-fund managers created side-pockets to segregate their most illiquid assets and avoid selling them at fire-sale prices when investors sought to pull out their money after the industry suffered record losses in 2008. Clients must wait until the side-pocket holdings are sold before they can get their share of the funds back.