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Pirate Capital: The next hedge fund implosion? |
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Sunday, 01 October 2006 |
It's been rocky times for hedge funds lately, as seen with the meltdown of Amaranth Advisors LLC, which lost more than $6 billion in a week.
Now, it looks like there are some problems brewing at Pirate Capital LLC. Over the past week, the fund has lost half of its staff.
Pirate has about $1.7 billion under management and focuses on so-called shareholder activism. That is, the fund takes big positions in a company's stock and agitates for change. It's a strategy that has worked for some legendary Wall Streeters, such as Carl Icahn.
What's the problem? Well, according to the Wall Street Journal, it looks like the Securities and Exchange Commission has issues with Pirate. That is, the fund may have bailed out of some of its positions, and delayed filing disclosures.
Actually, shareholder activism is not easy. After all, making it work means engaging in proxy fights as well as dealing with complex regulatory requirements. Also, the companies that are the targets of shareholder activism are usually in trouble.
So far this year, Pirate's domestic fund has chocked-up a measly return of 3.3%.
But, the founder of Pirate, Thomas Hudson, is undeterred. He is going to continue the fight – and according to a recent letter to shareholders – thinks he can generate 20% annual returns.
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Last Updated ( Sunday, 01 October 2006 )
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