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Philip Falcone Voices Concern Over China

LAS VEGAS — Harbinger Capital hedge fund manager Phil Falcone says his view of Europe isn’t entirely dire.

Philip Falcone
CNBC.com
Philip Falcone

“They’re going to have problems,” Falcone said Wednesday at a SALT panel, “but I’m more concerned about how that ripple ... effects, especially China.”

China’s recent political dislocations — the most severe since the Tiananmen Square uprising in 1989 — and the fact that the country is dealing with slowing growth and inflation might prove fair bigger issues, he said.

You can’t “put Europe in a box,” Falcone said, adding that it’s not a binary scenario in which the continent’s economy either works or it doesn’t.

Falcone also said he was seeking more “permanent capital” for his fund, implying that an IPO for Harbinger could be in the cards. “I’m moving toward a more permanent capital vehicle so that we can focus more on control. I think control is a key thing in this marketplace, and that’s really what we’ve spent a lot of time on, buying control of companies.”

Asked to comment on the regulatory environment — a source of stress for Falcone, whose cellular company LightSquared was unable to get required approvals from the Federal Communications Commission and may now be seeking bankruptcy — he said it was a huge thorn in his side.

“I think, when I first started in this market it was in 1985, you didn’t really think about what was happening in China, about what the administration was necessarily doing with regard to policy other than money supply. ... Today it just seems there’s all these different dynamics. Now the new branch is the regulatory environment, and that’s a whole different dynamic,” he said.

“Personally I’m going through an issue right now where because of a policy change, it creates investment issues. We’ve seen it happen in 2008 with the shorting rule and with taking over AIG and with GM , and I think with all that the regulatory dynamic ... is affecting real free market enterprise that really got us to this point of growth and success, and I think there has to be always some regulations, but … regulatory intervention is bad for the market.”

Falcone echoed a theme that has been developing here at the Las Vegas conference — that even though investors may be leery of equities, they are the place to go right now. “Relative to the risk reward factors that you’re looking at in fixed income right now, there have been deals priced where you’re getting 4, 4.5, 5 percent [yield]. ... You’re not getting enough to overweight in fixed income,” he said.

“There are some real decent opportunities in dividend-paying equities,” Falcone added, “in real cash flow companies.” Those are some of the investments Harbinger is now making, he said.

- By CNBC's Kate Kelly

Follow Kate Kelly on Twitter: @katekellycnbc

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