Pirate Treasures Turnaround

A big ski deal is giving Pirate Capital a timely lift.

The hedge fund has spent four years cutting a wide swath through the ranks of underperforming companies. But Pirate recently suffered through a nasty stretch of its own, highlighting the risks of the so-called activist investing style that the firm practices.

On Friday, private equity firm Fortress Investment Group unveiled a $1.8 billion buyout agreement for ski-resort operator Intrawest (IDR Quote - Cramer on IDR - Stock Picks). Pirate, which owns 18% of Intrawest, saw the value of its stake jump by a third overnight to $312 million.

That's good news for Thomas Hudson, Pirate's founder -- especially after the drubbing his hedge fund took in July over some big, ill-timed turnaround bets. The Intrawest deal puts Pirate firmly in the black for the year, but Pirate's four funds were down an average 7% last month. That made July one of the worst months in the Norwalk, Conn.-based hedge fund's operating history, sources say.

And even after the Intrawest deal, sources say Pirate is far from replicating the 28% annual return that Hudson's investors have come to expect of this saber-rattling outfit.

Ever since it launched in 2002, Pirate's game plan has been to take big equity stakes in what it sees as underperforming companies and then aggressively lobby for share buybacks, management shakeups and corporate buyouts. For the most part, Pirate's strategy of threatening to make management walk the plank has succeeded. Intrawest, for instance, had been the subject since early this year of Pirate calls to sell the company.