Pirate Treasures Turnaround
08/15/06 - 07:01 AM EDT
Matthew Goldstein
But Pirate's own underperformance this year points out the peril of eyeing undervalued companies. One wrinkle in this new style of corporate raiding is that it can take time for an investment in a languishing stock to pay off, which can tax the patience of some investors.
In fact, sources say Pirate's sour performance in July led a number of investors to file redemption notices in the past few weeks. Pirate, which declined to comment, permits investors to withdraw money at the end of each quarter. Pirate's problem this year is a simple one: Too many of its big investments are taking on too much water. A quick look at three of Pirate's larger bets, based on the fund's holdings as of June 30, illustrates why July was so brutal. The value of Pirate's 2.4 million-share stake in mining company James River Coal (JRCC Quote - Cramer on JRCC - Stock Picks) plunged by $27 million. The hedge fund's 3.7 million-share investment in water-piping company Walter Industries (WLT Quote - Cramer on WLT - Stock Picks) dropped by $37 million. And Pirate's 7 million shares in restaurant operator CKE (CKR Quote - Cramer on CKR - Stock Picks) ended up worth about $14 million less. To be sure, every hedge fund is entitled to a few bad months, and Pirate, which operates its main funds under the Jolly Roger flagship name, hasn't experienced many. In fact, Pirate has enjoyed quite a run. Three summers ago it had about $25 million in assets. Today, it has a little over $1.7 billion.
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