Pirate Swabs the Deck

The long knives are out at Pirate Capital.

The $1.7 billion hedge fund, which has struggled this year with poor performance and a regulatory investigation, is now seeing a wave of employee defections and dismissals.

This week alone at least two analysts and a bond portfolio manager have resigned from the four-year-old fund. Additionally, Thomas Hudson Jr., the fund's manager, has asked two other analysts to walk the plank.

The so-called activist hedge fund now has five people left in its investment management team, according to a letter that Hudson sent to his investors on Thursday. In the letter, Hudson says that the fund is closing to new investors and that he has "decided to return the firm to its roots."

The shakeup at Pirate comes as the once fast-growing fund has been hit with a number of investor redemption notices, say sources.

As an activist hedge fund, Pirate Capital made a name for itself by taking big equity stakes in underperforming companies and then aggressively lobbying for share buybacks, management shakeups and corporate buyouts. Up until this year, the strategy had worked well for Pirate and its investors, generating an average annual return of 28%.

But this summer, Hudson and Pirate stumbled. Many of the stocks of the companies Pirate has targeted performed poorly. Overall, Pirate is believed to be up about 3%, trailing the 7% gain in the S&P 500.