Large Investors Favor Small-Cap Pickers

Chidem Kurdas

Big chunks of institutional and fund of funds money is still in long/short equity. Despite talk of wanting to increase diversification to strategies less correlated to stocks, some 35% to 45% of large investors’ allocations are said to be to stock funds.

But there may be greater attention to diversity within long/short equity. One name that keeps coming up suggests this.

The name is Clovis Capital Partners. Not a new firm—it was started nine years ago by two former mutual fund managers, Scott Scher and Michael Prober. The two and a third partner, Bill Cline, worked at Cramer Rosenthal McGlynn. In 2002 they launched Clovis with a long/short fund that specializes in mid- and small-cap stocks. Clients include a number of funds of funds.

Small companies that don’t get analyst attention often attract hedge funds looking for less crowded trades. But most managers do not specialize and can move quickly from one market segment to another. If they move in the same direction at the same time, investors’ long/short equity portfolios end up tilting excessively in that direction.

By contrast, specialist managers can be relied on to cover a certain market segment, enhancing the diversity of portfolios. That may be one of Clovis’ advantages.

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