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). 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.

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)

plunged by $27 million. The hedge fund's 3.7 million-share investment in water-piping company

Walter Industries

(WLT)

dropped by $37 million. And Pirate's 7 million shares in restaurant operator

CKE

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( CKR) 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.

One of Pirate's strategies has been to gang up with other activist hedge funds and come after a company's management from all sides.

"I view them as real tag-team activists," says Damien Park, president of Hedge Fund Solutions, which counsels companies on how to deal with activist hedge funds. "You often see them in companies where other activists have accumulated positions."

Park notes that Pirate lined up behind Barington Capital in the New York hedge fund's successful proxy battle to win for seats on the board of

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. He adds that Pirate often aligns itself with Warren Lichtenstein's $4 billion Steel Partners activist fund.

But Hudson, a former Goldman Sachs vice president and distressed-bond trader, also has demonstrated a willingness to fight his own battles. In a recent letter to

OSI Restaurant Partners

( OSI), the operator of the Outback Steakhouse chain and other eateries, Pirate skewered management for "its legacy as an aimless brand aggregator" and its "lost credibility among both investors and Wall Street research firms." Pirate, which owns 3.9 million shares of OSI, is advocating a variety of measures to boost the company's stock price, including a spinoff of some its properties.

Hudson also has not been averse to tooting his own horn. At an April conference in New York City for activist hedge fund managers, Pirate handed out baseball caps bearing its name, a skull and cross bones and the slogan "surrender the booty."

More recently, Hudson has tried to cash in on Wall Street's love affair with blank-check IPOs -- stock deals for fledgling companies in search of a business plan. Last month, Pirate filed a registration statement to raise $100 million in an initial public offering for a newly formed blank-check company called

Doubloon, which will raise cash from investors to buy an existing financial-services firm -- or even another hedge fund.

To some degree, it's not surprising that Hudson would find his niche in the hedge fund world as a corporate rabble rouser. In 2000, he unsuccessfully sued

Goldman Sachs

(GS) - Get Goldman Sachs Group, Inc. (GS) Report

, claiming he was fired from his bond trader job because he was having an extramarital affair with a co-worker.

A New York state judge, in dismissing the suit, ruled that adultery isn't a "protected 'recreational activity.'" She said the firing may have been an attempt by Goldman Sachs, which didn't comment, to avoid paying Hudson a $5 million bonus.