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Dauphin Capital Partners Founder James Hoover Weighs in on Preference for Smaller Managers

James Hoover, founder of Dauphin Capital Partners, his New York-based family office which evaluates investment opportunities across hedge funds, real estate, private equity, venture capital and direct private company investments, argued that emerging managers present more attractive investment opportunities than their larger peers, especially at a challenging time for the hedge fund industry.  

At EisnerAmper’s June 13 Emerging Manager Roundtable which attracted about one dozen up-and-coming hedge funds and private equity funds, Hoover discussed why he is bullish on that group of managers. 

“From my perspective, I much prefer smaller firms and younger firms,” he said. “I look for those identifiable inefficiencies, a less crowded strategy.” 

Hoover also specified a number of other factors important to him when evaluating managers: 

 

  • Managers should have a conviction to a limited number of ideas. The argument is there is a small number of good ones and, furthermore, as time is a limited resource for younger firms, they should be more focused on those select few. 
  • There must be a strong alignment of interest between the general partner(s) and manager. The general partner(s) should have a substantial amount of their own capital in the fund and ensure they have skin in the game. 
  • Liquidity. It should be aligned with the underlying securities the manager is pursuing. 
  • Finally, the quality of service providers is a top priority. The ones the managers select are an important indicator of the psychology of manager. He specified managers who cut corners to save money are giving a demonstration of their integrity and trustworthiness.  

Elana Margulies-Snyderman is an investment industry reporter and writer who develops articles, opinion pieces and original research designed to help illuminate the most challenging issues confronting fund managers and executives.

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