Berkowitz's Right-Hand Man Decamps as Losses Mount

In news sure to cheer the denizens of Occupy Wall Street and their followers, billionaire hedge fund manager Bruce Berkowitz, founder of the Fairholme family of mutual funds, is facing tough times too.

His Fairholme Capital Management said in a regulatory filing that Charlie Fernandez, the co-manager of its flagship Fairholme(FAIRX) fund, and its $352 million Fariholme Focus Income(FOCIX) and the $194 million Fairholme Allocation(FAAFX) funds, has left the firm.

That leaves Berkowitz as sole manager of all three funds at a time when they are struggling.

Bruce Berkowitz, manager of the Fairholme family of funds

Fairholme fund's asset base of $8.9 billion is about half what it was last year due to declines in the value of investments and investor redemptions.

Fairholme is posting its worst results since its inception 11 years ago, losing 27% this year, versus the 4.7% average decline for its peers in the large-cap value category of funds. The S&P 500 Index is down 1.8% this year.

But Fairholme has an admirable 10-year record with an average annual return of 7.6%, about double that of the S&P 500 in that period.

Fairholme fund's returns this year have been hobbled by the very firms Occupy Wall Street have vilified, big banks, including Bank of America(BAC), Citigroup(C) and Goldman Sachs (GS). It also has taken a beating on American International Group(AIG), the financial-services giant that needed a huge government bailout to survive three yea! rs ago.

Berkowitz bet heavily on a financial-services rebound this year, making it 74% of the fund's assets, but that hasn't happened. Bank of America, for example, is down 51% this year and Citigroup, 36%, and AIG, 52%.

Fairholme Allocation has sunk 20% this year while Fairholme Focus Income has slipped 2.6%.

Berkowitz has a reputation as a contrarian -- and a successful one. His stock-picking acumen won him Morningstar's Domestic-Equity Manager of the Decade for the period 2000 to 2010.

No reason was given for Fernandez's departure, but Fairholme has been headed in a new direction with a focus on stocks, while Fernandez's expertise is in corporate restructurings and private equity deals. He joined the firm in 2008.

--Written by Frank Byrt in Boston.

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