Famed Norwalk, Conn., activist hedge fund Pirate Capital is adrift in rough seas yet again, facing regulatory storm clouds and a squall of investor redemptions, and doing it all short-handed.
Pirate founder Thomas Hudson wrote in a letter to investors this week that the firm, which has $1.7 million in assets under management, lost half of its investment staff with the resignations of bond manager Carl Klein and analysts Zachary George and David Lorber, and the firings of analysts David Muccia and Matthew Goldfarb. The letter also said the firm was closing its funds to new investors on Oct. 1, a move it had previously slated for the beginning of next year, when it expect to reach $2 billion in assets.
Earlier this month, Pirate spokeswoman Isa Bolotin told FINalternatives that the firm was “drastically decreasing our marketing efforts,” following the departure of its director of sales and marketing, Andrew Stotland, who was not replaced. The firm’s director of sales, Greg Teitel, also recently left the firm. A source familiar with the firm said that Hudson has been considering closing the fund following a series of investor redemptions over the summer.
On Sept. 14, Pirate found itself under scruntiny for potential securities laws violations. The firm received a letter from the SEC charging it with failing to disclose that it had sold its holdings in OSI Restaurant Partners and FreightCar America Inc. in a timely manner.
Although Hudson remained positive in his letter, writing that he, along with his family, continue to have 90% of their net worth invested in Pirate, stocks in which the firm holds a major stake took a hit on Thursday on fears that Pirate may sell its holdings.
Shares of CEC Entertainment were down 2.74% to $31.92 at the close Thursday in New York Stock Exchange composite trading. According to regulatory filings, as of August Pirate held 3 million shares of the Irving, Texas-based company.
In August, Hudson sent letter to investors admitting that The Jolly Rodger Activist Fund was sailing in murky waters, and that he had made mistakes in his strategy, though he promised to be “even more selective when entering new positions,” and to “cut losing positions more quickly.” He also refuted media reports that stated his two flagship funds were in negative territory, stating that while they were below historical averages, they were both positive for the year.
The latest figures show returns at Pirate’s onshore and offshore versions of its Jolly Roger Activist Fund at 2.86% and 2.77%, respectively, year-to-date through August. The firm’s two other funds, The Jolly Roger Fund and The Jolly Roger Offshore Fund have posted year-to-date returns through August of 3.33% and 5.17%, respectively.
Numerous calls to Pirate were not returned at press time.