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Harbinger Capital Will Pay Redemptions...In Illiquid LightSquared Equity

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Pop quiz: you're a hedge fund manager named Philip Falcone. Last year investors got pretty bent out of shape when you loaned yourself $113 million in order to pay personal taxes, from a gated fund. Many of them, including Goldman Sachs and Blackstone, redeemed, and among the ones who stayed, well, they're still not so happy, on account of the fact that you've tied up most of the fund's money in a side project building walkie-talkies. A bunch of them put in requests to get their money back a couple months ago and you know they're gonna just fa-reak (like they always do) if they don't get it but you don't have the scratch. You've been hoping the problem would just go away but it hasn't and you need to think of something fast! What do you do? Whereas most managers wouldn't have the foresight, you come up with something so genius you can't wait to tell everyone about it.

"In light of my high conviction in LightSquared, its size within our portfolio and the necessity of maintaining a controlling position while we join forces with a strategic partner, we have determined to distribute a portion of the withdrawal proceeds for March 31, 2011 withdrawal requests in-kind,” said Falcone in a June 6 letter to investors..."While we have had opportunities to monetize a portion of our LightSquared position in recent months, I feel strongly that any sale by our funds of an interest in LightSquared would have been premature and would not only have jeopardized the ability to join forces with a strategic partner, but also would have limited the substantial upside that I am convinced will come to all of our investors as our plan is executed.”

Oddly, not all investors are thrilled.

“He’s presenting it as ‘Hey, we’re helping you and doing you a favor,’ which is just his way of trying to make it sound like he hasn’t side pocketed. But that’s exactly what this is,” one investor told AR, the ingrate. And apparently there are others out there who agree with him. So fine, they don't want a piece of this, they don't have to have it. There's no cash to be had but if anyone has any other ideas about what could be offered to investors in lieu of actual money, feel free to suggest at this time. And before you even go there, know that the singing and dancing pig no longer does weeknight shows other than his regular gig at the Duplex, so that's out.

Harbinger Redemptions To Be Paid In Illiquid LightSquared Equity [AR]