Arrggh! Pirate Capital's Jolly Roger hedge funds sink 80%

Pirate Capital Bars Withdrawals from 2 Hedge Funds

By Katherine Burton
Bloomberg News Service
Tuesday, September 11, 2007

http://quote.bloomberg.com/apps/news?pid=20601087&sid=aKe6zEkVFGOg

NEW YORK -- Pirate Capital LLC, the hedge-fund manager run by Thomas Hudson, barred withdrawals from its two Jolly Roger Activist funds after the firm's assets declined by almost 80 percent in the past year.

Pirate designated the four stocks held by the funds as "special investments," meaning that clients won't be able to get money back until they are sold, according to an Aug. 31 letter to investors.

"In view of the activist nature of the funds, prior redemptions, market turmoil and their effect on the funds' individual positions and portfolios as a whole, we determined that the best way to manage the positions is through the Special Investment designation," Hudson said in the letter, a copy of which was obtained by Bloomberg News. The firm may also lift the designation without selling the stocks.

Hudson, 41, who founded Pirate in 2002, is known for acquiring stakes in companies and pushing management to make changes to boost their stock prices. The Norwalk, Connecticut-based firm's assets fell to $375 million as of Sept. 1 from $1.8 billion a year earlier.

The activist funds, which opened in January 2006, had $150 million in assets as of March 2006, according to a Pirate marketing document. They now oversee about $100 million. The funds lost about 1 percent for the year through June 30, according to a newsletter sent to investors.

The withdrawal halt doesn't apply to Pirate's two larger hedge funds, said Jeff Lloyd, a spokesman for the firm. Those funds invest in companies going through corporate events such as takeovers or bankruptcy reorganizations. One of those pools, the Jolly Roger Offshore Fund Ltd. gained 1.5 percent in the first half of 2007.

Hudson's letter didn't identify the four stocks held by the activist funds. Pirate's biggest holdings as of June 30 were armored carmaker Brink's Co.; auto-parts retailer Pep Boys-Manny, Moe & Jack; U.S. energy supplier Aquila Inc.; and Angelica Corp., a provider of laundry and textile-rental services. Together they represented about 96 percent of the firm's stock holdings, according to the SEC filing.

Hudson sits on the boards of both Richmond, Virginia-based Brink's, which has lost 11 percent since June 30, and Pep Boys of Philadelphia, which has dropped 21 percent. The two companies accounted for 82 percent of Pirate's stock holdings at the end of June.

Pirate is seeking two board seats at Angelica, and is pushing the Chesterfield, Missouri-based company to put itself up for sale. The company's shares have fallen 24 percent since June 30. Pirate is its second largest holder, with a 9.7 percent stake.

Kansas City, Missouri-based Aquila is set to be purchased by Great Plains Energy Inc., also of Kansas City, in the first quarter of 2008 for $1.7 billion. Its shares have lost 3.2 percent since the end of the second quarter.

Pirate will continue to charge its 2 percent management fee on the activist funds. It won't collect its 20 percent cut of any profits until the positions are no longer deemed special investments.

Hedge funds are private, largely unregulated pools of capital whose managers can buy or sell any assets and participate substantially in profits from money invested. The industry oversees more than $1.7 trillion, almost triple the amount five years ago, according to Hedge Fund Research Inc.

Fund managers lost 1.31 percent on average in August, the worst monthly performance since May 2006, the Chicago-based firm reported yesterday. Emerging-markets funds dropped 2.5 percent, and macro funds decreased 2 percent.

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