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STAFF WALKS THE PLANK AT LISTING PIRATE CAPITAL

By RODDY BOYD

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September 29, 2006 -- There's blood aplenty on the decks of Pirate Capital, a $1.7 billion hedge fund that saw nearly half its investment staff depart this week.

Norwalk, Conn.-based Pirate has garnered attention by attracting Securities and Exchange Commission scrutiny for belatedly disclosing the sales of its stakes in OSI Restaurant Partners Inc. and Freightcar America Inc.

The fund specializes in taking substantial stakes in allegedly underperforming companies and agitating for management action, such as asset sales and share buybacks.

While Thomas Hudson, Pirate's general partner and a former distressed debt trader at Goldman Sachs, did not disclose the reasons for the departure of four analysts and one portfolio manager, the fund's much weaker-than-usual performance could not have helped.

Pirate is said to be up around 3 percent, trailing the 9.34 percent yearly return of the Dow Jones industrial average, and way below the 28-percent average returns of its first few years.

In an August letter to investors, he blamed the weakness on "shipwrecks" like its stake in OSI Restaurants, the parent of Outback Steakhouse.

In a letter to Pirate investors obtained by The Post, Hudson said he was planning on capping growth by closing its four funds, and that he would "refocus, streamline and navigate" the portfolio back to "the positive performance" he initially had.

Pirate is just the most recent well-heeled hedge fund to have problems. Amaranth Advisors lost $6 billion on an ill-timed bet on natural gas while others have also been hit by a steep drop in commodities prices.

Yesterday, The Post reported Narragansett Asset Management told investors it had liquidated about 80 percent of its holdings and will return a "substantial" part of the $1 billion fund to investors by the end of September. Its founder was taking a year-long vacation to surf.

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