Reuters‘ Mat Goldstein and Svea Herbst Bayliss have written a blockbuster article on Phil Falcone and his $3 billion Wireless Broadband tech bet. The investment is considered one of the riskiest in hedge fund industry ever.
Falcone, who manages the $8 billion Harbinger Capital hedge fund, made over a billion dollars betting against subprime mortgages in 2007. According to the article, Falcone’s newest bet on a so-called 4G, or fourth-generation, wireless network that relies on satellites and ground-based transmission facilities to provide consumers with high-speed mobile broadband access to the Internet, is so astounding in its riskiness that Harbinger’s high net worth investors may need “more than intestinal fortitude going forward.”
Reuters notes that Harbinger’s two main investment funds are the owners of LightSquared, an upstart Reston, Virginia-based telecom company that plans to use two orbiting satellites to bring high-speed Internet service to some 260 million in the U.S. by 2015.
The investment is roughly $3 billion, which equates to 40% of Harbinger’s assets being tied-up in LightSquared. The co., formerly known as SkyTerra Communications, is the hedge fund’s single largest and most concentrated bet – making this massive trade, if the position goes against Falcone, unbelievably risky.
Several investors contacted by Reuters said they’d redeem more of their money from the funds if Falcone would permit it. The main reason? Concerns about LightSquared, they say. “We are being paid to be more skeptical these days and we are quite frankly concerned by what he seems to be doing,” said a representative for an institutional investor.
“Falcone’s wager on the future of satellites and mobile telecom is more daring than his highly profitable bet on the collapse of the U.S. subprime housing market, which made the 48-year-old former college hockey star an instant billionaire, say several people familiar with Harbinger.
By any measure, it is an ambitious venture. If LightSquared proves to be the next big thing in mobile telecom, it would cement Falcone’s reputation as a visionary trader.”
If LightSquared crashes, Falcone risks destroying the fund and Harbinger’s investors along with it.