Hedge Fund's Adult Education

Hedge fund manager Warren Lichtenstein has never shied away from verbally skinning management when he perceives a stock he owns is underperforming.

But the 41-year-old firebrand, who runs the Steel Partners hedge fund, has been uncharacteristically silent when it comes to his big investment in New Frontier Media(NOOF), a company's whose stock in trade is in the skin business.

A little over a year ago, the $4 billion New York fund began gobbling up shares of the Colorado-based company, which distributes erotic movies via cable and satellite television. Beginning with an initial purchase of 2.6 million shares, Steel Partners now owns 3.55 million shares, or 15%, of New Frontier.

At last count, Steel Partners owned twice as many shares as any other investor in New Frontier, which is something of an upstart challenger to Playboy (PLA) in the adult-entertainment television movie business. In the most recent quarter, New Frontier had revenue of $12.9 million to Playboy's $51 million for adult-movie-related entertainment.

So far, however, Lichtenstein has yet to make any public demands on New Frontier's management for a share buyback or a board seat, and he hasn't called on the video-porn company to put itself on the auction block. That's all standard fare for Lichtenstein and Steel Partners, which most recently was in the news for its pending hostile takeover bid for electronics-material maker Bairnco(BZ).

Some observers on Wall Street, including other hedge funds that have a habit of shadowing Steel Partners' moves into lagging small-cap companies, are beginning to wonder when Lichtenstein is going to start rattling the cages at New Frontier.

Longtime Steel Partners watchers say about a year to a year-and-a-half after the initial investment is usually when Lichtenstein makes his move. Steel Partners first began acquiring shares in New Frontier in April 2005, some 16 months ago. By that calculation Lichtenstein, who declined to comment through a spokesman, could be gearing up for a charge on New Frontier's management.