Falcone makes big bet on food products

By Svea Herbst-Bayliss

BOSTON (BestGrowthStock) – A deal to combine Corn Products International (CPO.N: ) and Bunge Ltd (BG.N: ) fell apart in 2008, but the two leading makers of agriculture and food products have been united this year in the $10 billion portfolio of hedge fund star Philip Falcone.

Stocks of both companies have suffered amid the global recession and fears that U.S. regulators may crack down on sales of food containing additives like high fructose corn syrup that have been linked to obesity.

That created just the kind of opportunity to snap up unloved bargains that has become Falcone’s trademark since he opened Harbinger Capital Partners, a multi-strategy hedge fund firm, in 2001.

With long hair and a penchant for attending high society events, Falcone stands out from some of his more drab peers. Married to a former model, the one-time junk bond trader lives in a $49 million Manhattan mansion that was previously owned by Penthouse magazine founder Bob Guccione. His 2009 salary was estimated at $825 million, making him one of the world’s 10 best-paid hedge fund managers.

But the flashy lifestyle has not blinded Falcone to the charms of even the dullest industries. He bought almost $250 million worth of Corn Products and Bunge shares in the first quarter, one of the biggest new equity bets in his portfolio, according to a recent regulatory filing.

Analysts say both Corn Products and Bunge are likely to grow quickly thanks to diversified product lines of everything from the raw materials for Argo cornstarch to animal feed. And there is still a possibility they might combine; Bunge raised $3.8 billion in January selling off its Brazilian fertilizer unit.

With over $4 billion in listed U.S. equities disclosed in two portfolios, Harbinger is one of the largest of 30 equity-oriented hedge funds whose stock picks are tracked by Thomson Reuters.

Since he coupled a big contrarian wager that U.S. mortgage defaults would surge with a bet that stocks of mining companies would soar, the 47-year-old Falcone has emerged as one of the hedge fund industry’s most closely watched investors. The two wagers helped Harbinger post an eye-popping gain of 116 percent in 2007.

The fund rose 46 percent last year, according to an investor, more than twice the industry average, after losing 22 percent in 2008.

Lately, Falcone’s portfolio has shown big changes.

At the end of the first quarter, when the fund was up less than 2 percent, Falcone’s single biggest U.S.-listed equity holding was Citigroup (C.N: ). He bought 70 million shares of the government-supported bank.

The purchase came before the big plunge in bank stocks over the past month. To be sure, Falcone’s complete investing strategy cannot be discerned from the filings, and he has been known to hedge his bets extensively. Investment firms are only required to disclose U.S.-listed equity holdings, not bonds, over-the-counter derivatives or cash. Short positions are also not disclosed.

Citi displaced power company Calpine Corp (CPN.N: ) as Harbinger’s biggest disclosed holding.

Calpine dropped off the list completely when Falcone sold his last 30 million shares, but the stock paid off handsomely in its more than five years in Harbinger’s portfolio, especially after it emerged from bankruptcy in 2008.

Falcone, who developed a reputation as an activist investor by pressing for change at companies like New York Times (NYT.N: ), is also known for sticking by his playbook but sometimes swapping out the players.

After Calpine management rebuffed a takeover bid by rival NRG Energy (NRG.N: ), NRG itself debuted in Harbinger’s portfolio in the first quarter. It replaced Walter Energy Inc (WLT.N: ), which Falcone liquidated after a strong run-up, as the fund’s third-biggest disclosed holding.

He has been liquidating his stake in New York Times since the end of last year as the stock has plunged despite his efforts to change the company.

SKATING TO IVY LEAGUE

Falcone, the youngest of nine children, grew up in Chisholm, a town of 5,000 in Minnesota’s Iron Range. He was a star hockey player and in school showed a gift for numbers.

His skill and work ethic caught the attention of Ivy League coaches who brought the teenager to the East Coast, where he saw the Atlantic Ocean for the first time.

He enrolled at Harvard University, graduated with a major in economics, and after a year of playing professional hockey in Sweden, joined legions of the school’s alumni on Wall Street.

Now he calls Manhattan home, living with his wife and twin daughters in a 27-room townhouse famed for extravagant details like a first-floor Roman-style pool.

Lately, his wife, Lisa Maria, has gained as much fame as Falcone, at least on the gossip pages of the New York Post and websites like Gawker, for her stylish dress. She has served as chairman of several galas put on by the New York City Ballet and American Museum of Natural History.

HAIRBRUSHES AND LOSS OF LIGHT

It hasn’t all been smooth sailing for Falcone.

A decade before he launched his hedge fund, he tried to operate a manufacturing company, becoming president of AAB Manufacturing.

When the company, which made hairbrushes and other items sold on the bottom shelves at drugstores, defaulted on its loan covenants, Falcone’s electricity was turned off and his bank accounts were frozen.

A more recent bump happened in 2008, long after Falcone had established himself as a savvy investor.

Temporary rules barring short-selling appeared to interrupt his strategy betting that the shares of some financial firms would sink during the credit crisis. And some of Harbinger’s assets were tied up with Lehman Brothers as it collapsed.

Rumors cropped up repeatedly that Falcone, whose early double-digit gains morphed into losses, was finished and would have to liquidate. Harbinger’s 22 percent loss in 2008 was just a touch more than the average fund’s 19 percent drop, but far less than the declines of up to 50 percent for some prominent rivals.

Then came Harbinger’s rebound in 2009.

Investment Research

(Reporting by Svea Herbst-Bayliss; editing by John Wallace)

Falcone makes big bet on food products