Hedge fund magnate Warren Lichtenstein is going soft on the porn business. Lichtenstein's Steel Partners is selling some of the huge 12.5% stake it has amassed in New Frontier Media ( NOOF), a fast-emerging competitor to Playboy ( PLA) in selling erotic films via cable and satellite television. Earlier this week, Steel sold 594,317 shares at an average price of $10, according to regulatory filings. Steel, which has about $4 billion in assets, is beginning to cash out after seeing the value of its investment in the Colorado-based company rise 66%. The hedge fund is lightening its load after earlier agitating for a management-led buyout of the company. To be sure, Lichtenstein, a so-called activist investor with a reputation for targeting companies he sees as undervalued, still owns a significant stake in New Frontier. At last count, Steel owned 2.96 million shares, making it far and away the company's largest shareholder. But the sale of stock is a clear indication of a shift in strategy by Lichtenstein, whose spokesman declined to comment. Then again, who can blame him for wanting to lock in some of the paper profit his fund has scored on New Frontier. The hedge fund, which first began gobbling up shares of New Frontier nearly two years ago, paid about $17.7 million for its stake, including brokerage commissions. Steel's holdings are currently valued at about $29 million.