Sept. 29 (Bloomberg) -- Pirate Capital LLC founder Thomas Hudson, seeking to calm investors after half of his staff left, told clients of the hedge-fund company that he plans to deliver returns of more than 20 percent.

``I fully intend to refocus, streamline and navigate the portfolio back to the positive performance I began the firm with,'' Hudson, a 40-year-old former trader at Goldman Sachs Group Inc., wrote in a letter to customers yesterday.

Pirate Capital, which oversees about $1.7 billion, this week lost four analysts and a money manager who quit or were dismissed. The departures come almost three weeks after regulators started examining the Norwalk, Connecticut-based firm for failing to properly disclose the sale of holdings in OSI Restaurant Partners Inc. and Freightcar America Inc.

The shakeup at Pirate Capital emerges amid increasing turbulence in the hedge-fund industry after Amaranth Advisors LLC said it lost $6 billion on natural-gas trades. Pirate Capital's Jolly Roger domestic fund rose 3.3 percent in the first eight months of this year, trailing the average 5.8 percent gain of equity hedge funds tracked by Chicago-based Hedge Fund Research Inc. and the 41 percent advance recorded by the fund in 2003, its first full year of operation.

Hudson wrote in his letter that he plans to shut the firm's four funds to new customers on Oct. 1, so he can concentrate on managing them rather than courting clients and overseeing analysts. Hedge funds are private pools of capital that let managers participate substantially in the gains on investments made on behalf of clients.

``I have no intention of liquidating positions or closing the firm,'' Hudson wrote in the letter.

Staff Departures

Pirate Capital, started in July 2002 with $2 million, is known for pressing companies to make changes to boost their share price.

Hudson disclosed yesterday that analysts Zachary George and David Lorber resigned on Sept. 26, and Carl Klein, the firm's fixed-income portfolio manager, quit the next day. Hudson then fired analysts David Muccia and Matthew Goldfarb, according to his letter.

The letter didn't give a reason for the staff departures and Hudson declined to comment. Stephanie Tran, Peter Desloge, Glenn Haberfield and Chadd Kirk are still at Pirate Capital working with Hudson.

``What Hudson wrote in the letter to investors is a blatant mischaracterization of the circumstances of our departure,'' Goldfarb and Muccia said yesterday in a telephone interview. ``We are currently exploring appropriate legal remedies.''

`Shipwreck'

September has been a rough month for the $1.2 trillion industry. In addition to Amaranth's meltdown, regulators in the U.S. and Malaysia are investigating Mount Kisco, New York-based Aeneas Capital Management LP after bets on Malaysian stocks caused losses of about 60 percent in one of its funds, people familiar with the situation said earlier this month.

Returns at Pirate Capital suffered this year as some of the roughly 35 stocks in the portfolio declined. In a newsletter sent to investors in September, Hudson called James River Coal Co. the ``shipwreck of the month.''

Pirate Capital, which owns 14 percent of James River Coal, last month pushed the Richmond, Virginia-based mining company to add three new board members. The stock has since tumbled 28 percent.

Hudson also has had victories. In August, resort owner Intrawest Corp. bowed to pressure from Hudson and sold itself for $1.8 billion to Fortress Investment Group LLC, 20 percent more than the share price before it went up for sale. Pirate Capital held an 18 percent stake in the Vancouver-based company.

Stocks Drop

Stocks held by Pirate Capital declined yesterday. CEC Entertainment Inc., the Irving, Texas-based owner and franchiser of Chuck E. Cheese pizza restaurants, fell 2.7 percent to $31.92 in New York Stock Exchange composite trading. Pirate held 3 million shares, or 9 percent, as of August, regulatory filings show.

Shares of PW Eagle Inc. dropped 3.9 percent to $29.98 in Nasdaq Stock Market trading. Pirate owned 2.7 million shares, or 22 percent, as of this month. Shares of Chesterfield, Missouri- based Angelica Corp., which sells laundry services and uniforms to hospitals and health-care workers, fell 6.5 percent to $17.10 on the NYSE. Pirate owned 1.2 million shares of Angelica, or 13 percent, according to a regulatory filing this month.

To contact the reporters on this story: Katherine Burton in New York at kburton@bloomberg.net; Jenny Strasburg in New York at jstrasburg@bloomberg.net

Last Updated: September 29, 2006 03:48 EDT