NEW YORK (Bloomberg) - Pirate Capital LLC, the hedge-fund manager run by Thomas Hudson, and Wharton Asset Management, the London-based owner of the Y2K Finance Inc. fund, became the latest firms to restrict investor withdrawals.

Pirate designated the holdings of its two Jolly Roger Activist funds as "special investments," meaning clients will not be able to get money back until they are sold, an August 31 letter to investors said. The funds have about $100 million in four stocks, which the Norwalk, Connecticut-based firm did not identify.

Hudson, 41, who founded Pirate in 2002, is known for acquiring stakes in companies and pushing management to make changes to boost their stock prices. The firm's assets fell to $375m as of September 1 from $1.8 billion a year earlier.

Wharton Asset will halt redemptions from Y2K Finance, its biggest fund, until at least December because of credit-market turmoil, according to a statement yesterday.

Wharton Asset specializes in asset-backed securities. Investors are shunning bonds backed by home loans after late mortgage payments by US borrowers with poor credit rose to the highest since 2002. The firm joins at least 10 other investment managers, including New York-based Bear Stearns Cos., that were forced to shut down funds or suspend client redemptions since July.

Managers of asset-backed funds "could be in a lot of pain over the next few months," said John Godden, head of London- based IGS Group, which invests in hedge funds. "There are no decent valuations on any of this stuff."

The eight-year-old Y2K Finance, managed from Hamilton, Bermuda, dropped 7.31 percent in June, for a year-to-date loss of 5.24 percent, according to data compiled by Bloomberg.

Pirate's activist funds, which opened in January 2006, had $150m in assets as of March 2006, according to a marketing document. They lost about one percent for the year through June 30, according to a newsletter sent to investors.

"In view of the activist nature of the funds, prior redemptions, market turmoil and their effect on the funds' individual positions and portfolios as a whole, we determined that the best way to manage the positions is through the Special Investment designation," Hudson said in the letter, a copy of which was obtained by Bloomberg News. Pirate may also lift the designation without selling the stocks.

The withdrawal halt does not apply to Pirate's two larger hedge funds, said Jeff Lloyd, a spokesman for the firm. Those funds invest in companies going through corporate events such as takeovers or bankruptcy reorganizations.

Hudson's letter did not identify the four stocks held by the activist funds. Pirate's biggest holdings as of June 30 were armored-carmaker Brink's Co.; auto-parts retailer Pep Boys- Manny, Moe & Jack; US energy supplier Aquila Inc; and Angelica Corp., a provider of laundry- and textile-rental services. Together they represented about 96 percent of the firm's stock holdings, according to the Securities and Exchange Commission filing.

Hudson sits on the boards of both Richmond, Virginia-based Brink's, which has lost 11 percent since June 30, and Pep Boys of Philadelphia, which has dropped 21 percent. The two companies accounted for 82 percent of Pirate's stock holdings at the end of June.

Pirate is seeking two board seats at Angelica, and is pushing the Chesterfield, Missouri-based company to put itself up for sale. The company's shares have fallen 24 percent since June 30. Pirate is its second-largest holder, with a 9.7 percent stake.

Kansas City, Missouri-based Aquila is set to be purchased by Great Plains Energy Inc., also of Kansas City, in the first quarter of 2008 for $1.7bn.