In Depth

Pirate Capital Says Ship Is Still In Shape, Isn’t Replacing Marketer

Sep 8 2006 | 12:00am ET

By Jonathan Shazar & Deirdre Brennan

After several months on rocky seas, it was smooth sailing in August for Thomas Hudson’s Pirate Capital. According to estimated returns on HedgeFund.net, all four of Pirate’s funds had a big August, with both the onshore and offshore versions of its Jolly Roger Activist Fund up 11.9%, pushing the pair into the black year-to-date, at 2.86% and 2.77%, respectively. In a letter Hudson sent to investors last month, he acknowledged that the Activist fund was off 2% on the year, though some media reports had it even deeper in negative territory.
 
The flagship Jolly Roger Fund and the Jolly Roger Offshore Fund weren’t up quite so spectacularly, at an estimated 7.48% and 4.68% respectively (3.33% and 5.17% YTD), but neither had been as badly battered as the activist fund.
 
A big bet on a ski resort operator put Hudson and his Norwalk, Conn.-based firm on a Rocky Mountain high: Fortress Investment Group’s $1.8 billion buyout of Intrawest, in which Pirate holds an 18% stake, gave Hudson a $312 million windfall. That helped boost the firm’s AUM, which had reportedly dipped to $1.5 billion from a nearly $1.9 billion high earlier this year. The firm currently has $1.8 billion in assets, and has pledged to soft-close at $2 billion.
 
This week, the firm won another victory when healthcare linen provider Angelica Corp. agreed to give two board seats to hedge fund Steel Partners, which, along with Pirate, had threatened Angelica with a proxy battle. In addition, last week Hudson won a seat on the board at Pep Boys, whose financial performance he has criticized. The firm also won three seats on the board of Virginia’s James River Coal Co., an investment that reportedly has lost the firm almost $30 million.
 
On the heels of months of bad press, culminating in media reports last month that his funds were facing huge investor redemptions, Hudson sent the aforementioned mea culpa to his investors, acknowledging mistakes in his strategy and promising to be “even more selective when entering new positions and will cut losing positions more quickly.” But, he added, even before his robust August was out, “While our YTD returns are below our historical averages, contrary to some inaccurate reports in the media, our two flagships funds are positive for the year and our activist fund is down just 2% YTD.”
 
The firm is still suffering from some of what Hudson called “shipwrecks.” Last week, the firm finally abandoned its stake in Outback Steakhouse chain owner OSI Restaurant Partners, a case where Hudson admitted his “investment thesis” was incorrect. The investor letter also listed GenCorp and Cendant as disappointments.
 
Meanwhile, Pirate’s senior director of sales and marketing, Andrew Stotland, has left the firm. Pirate spokeswoman Isa Bolotin said that since the firm is expecting to soft-close by the beginning of next year, there are no plans to replace him. “We’re drastically decreasing our marketing efforts,” she said. Before Stotland’s departure, the firm had just launched a new marketing campaign which included a 15-minute video that can be seen by qualified investors on Hedge Connection’s Web site (http://www.hedgeconnection.com/).
 


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