Investors are fleeing Phil Falcone’s Special Situations fund for two reasons, says an article in the New York Times about the headlines that have recently scandalized the subprime winner.
First of all, Falcone has invested 40% of the fund’s money in a 4G wireless network that he’s hoping will sell bandwidth to a phone network like T-Mobile. The investment is unusual and thus scary for hedge fund investors who are used to Falcone’s investing in stocks like US Airways or the subprime market. Many, most famously Goldman and Blackstone, have pulled money from the fund.
Second, Falcone has been taking a lot of loans recently. The one everyone’s really worried about is the $113 loan Falcone took from his Special Situations fund, but there’s also another personal loan Falcone took out recently, says the NYTimes, backed by his personal art collection for an undisclosed amount.
He won’t do it again, he told the Times, because it’s gotten such negative feedback, like this comment, for example, from a rival hedge fund manager, Brad Balter at Balter Capital Management, a fund of funds, who told the Times:
“One of the core tenets of due diligence is looking at how the manager handles his own money. With a fund this size and enormous personal wealth, why are you borrowing off an art collection?”
After commenting, Balter presumably went back to *not* adding value.
But more importantly, what was “Fashion Phil” (his nickname at Harvard) wearing during his interview?
He wore a rumpled white shirt, opened two buttons down. Beaded bracelets, made by his two daughters, peaked out from his French cuffs.
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