Harbinger Plans New Distressed Debt Hedge Fund

Mar 25 2009 | 2:04am ET

Philip Falcone is going back to his roots with a new distressed credit hedge fund.

The Harbinger Capital Partners chief is launching the Credit Distressed Blue Line Fund, the firm wrote to investors last week. The new fund will use a strategy similar to that employed by Harbinger’s flagship when it launched in 2001, investing in distressed loans and bonds while shorting higher-rated debt.

Harbinger Capital Partners I returned an average of 22% annually from inception until March 2004, when the distressed credit cycle ended and Harbinger refashioned itself into an equities and activist fund. That fund, which now manages $5 billion, was forced to restrict redemptions last year after as it posted losses of 28%. All told, redemptions and investment losses cost the firm more than 70% of its assets; it dropped from $26 billion to just $7 billion.

Harbinger said it expects to cap the new fund at between $500 million and $1 billion. And unlike its flagship, when this credit crisis ends, the firm plans to close the fund.

Falcone is also moving what’s left of Harbinger I back into distressed debt. The flagship will make the same investments as Blue Line, although it will continue to invest in stocks and private equity, as well.

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