SMART MONEY PROFILE-Falcone makes big bet on food products

* Citigroup Falcone’s top disclosed holding on March 31

* Added food ingredient makers Bunge Ltd, Corn Products

* Falcone bounced back from 2008 with 46 pct 2009 gain

* Played pro hockey for a year, then to Wall Street
(For other stories in this series on hedge fund activity in
the first quarter, click on [ID:nN27273775])

By Svea Herbst-Bayliss

BOSTON, May 27 (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.

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For a table on Falcone’s biggest positions and changes

in the 1st quarter, see http://r.reuters.com/myv66k

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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.

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For a list of the funds comprising the “Smart Money” 30,

click on http://link.reuters.com/huq95k

For a summary of their portfolio weightings at the end of

the first quarter, click on http://link.reuters.com/kut95k

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Investment

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

SMART MONEY PROFILE-Falcone makes big bet on food products