Let there be LightSquared? Guess not.
Who among us is so generous, so pure of heart, that they do not experience a teensy-weensy frisson of delight when we read that some hedge fund made a rather poor choice and lost a boat load. The frisson only lasts long enough for us to remember that the hedge fund investors may, in fact, be innocent civilians who were just trying to stay whole in a volatile and unforgiving world.
And then you read about Philip Falcone and the frisson reasserts itself.
Falcone’s fund took a dive because of an unfortunate investment in LightSquared, which his fund – Harbinger Capital Partners – bought nearly lock-stock-and barrel.
LightSquared – a wireless broadband network – was going to:
…unleash the boundless opportunity of wireless broadband connectivity for all. We believe that it is time to transform the broadband industry to one that truly fosters innovation, creativity, and freedom of choice—with limitless and unimaginable possibilities.
( There are times when I am embarrassed that I’m a marketer, and this is one on them.)
One of those no-doubt unimaginable possibilities was the possibility that LightSquared would go bankrupt, which it did a week or so ago.
Harbinger wasn’t just an investor in LightSquared, it owned 96% of the company.
LightSquared went wobbly because, in February, the FCC moved to rescind permission they had granted LightSquared to operate their wholesale wireless broadband network. Unfortunately, that wireless network supposedly interfered with GPS systems – oops – and the FCC wasn’t sure that the problem was one that could be solved with dispatch. And now that we’re all so dependent on GPS, so utterly incapable of finding either arse or elbow without it, we absolutely can’t risk going without it.
This incident brings to mind a datacenter construction oopsie that happened when I was with Genuity, back when The Internet Age was in its youth. This datacenter was going to be a super-duper one, so perfecto that customers would gladly fork over our premium asking price, deliriously happy to house their dot.com business there. Shortly before super-duper was scheduled to open, someone realized that some of the Internet connectivity was not buried underground, where it was safe from everything but a guy with a backhoe, but was coming in over above ground lines strung between good old-fashioned telephone poles. Which, in NJ, where the datacenter was located, were subject to failures due to things like ice storms, blizzards, and hurricanes – things that were actually known to occur on occasion in NJ. Darned the luck. Here we were going to open a super-duper datacenter, with super-duper Internet connectivity that was going to be super-duper “always on”, which would let us charge super-duper premium prices. Alas and alack.
To return to poor Harbinger, poor Philip Falcone, holding 96% of the LightSquared bag.
One thing I know about building out a network is that it’s expensive. It’s not just a matter of setting up a server or two, cobbling together some behind the scenes code, and slapping an interface on it. That scenario may end up being “worth” billions, but it doesn’t cost billions to build. Unlike a network.
So the LightSquared bag was a costly one.
But here’s what I want to know. If the purpose of a hedge fund is to hedge your bets, why would you take a colossal, near-100% ownership stake in anything? Isn’t that, kinda-sorta, like taking a pretty big, unhedged risk? Unless, in this case, they had a counter position in GPS systems…
Anyway, a fund that had peaked in the peak-piqued year of 2008 at $26B has dwindled to around $3B. Which, interestingly, is roughly the amount ($2.9B) that Harbinger/Falcone sunk in LightSquared.
Most agree he was reckless to plunge into such a long-term, illiquid investment. Mr Falcone has admitted his “asset-liability mismatch” and wants to raise more “permanent capital” instead. (Info source: The Economist.)
Inquiring minds always ask where that “permanent capital” might come from, given how diminished Harbinger is, what with the losses and the withdrawals. Especially given that, since December, you can’t even make a withdrawal. Maybe that’s what they mean by “permanent capital.”
Labels: business stupidity