John Walthausen launched his namesake firm and first mutual fund just as the housing bust was unfolding. Prescient moves since then are getting him noticed by small-cap investors.
New York City is home to some of the mutual fund world’s largest players. But not every manager prefers Manhattan. There is a series of well-regarded investment firms that have chosen to set up shop in towns just north of the city, such as Purchase (Alpine Woods Capital Investors), Mount Kisco (DSM Capital Partners) and Cobleskill (Fenimore Asset Management). Geography hasn’t been a disadvantage. Technology keeps these firms wired-in to market happenings, and they certainly hold their own against their Big City counterparts when it comes to quality of management and performance.
Another such firm is Walthausen & Co., which has quietly built a reputation for keenly investing in small- and mid-cap stocks. It’s based in Malta, N.Y., a town about three hours outside of Manhattan near the Vermont border. John Walthausen founded his namesake firm in August 2007, after 13 years as a portfolio manager at Paradigm Capital Management. That tenure included a stint running Paradigm Value
Walthausen’s road to fund company founder is a familiar one in the industry. Many mutual fund managers have left established firms to go it on their own, including David Winters, who launched Wintergreen
“There is always an unknown that [a manager] may not be able to make it work,” says Steven Krawick, president of West Chester Capital Advisors in Johnstown, Pa. He has looked at the Walthausen funds but isn’t an investor.
John Walthausen and team have been able to avoid the pitfalls that have befallen other firms, despite some poor timing. The firm’s first fund, Walthausen Small Cap Value
Walthausen chalks up the firm’s early accomplishments to several factors—an experienced team and a sensible strategy focused on long-term performance being chief among them. The firm also thinks its small-town location can give it an edge.
“We like it up here. The team has been very stable,” says DeForest Hinman, the firm’s director of research. “We try to avoid situations where we may get into a group think. We like to shift our focus from how the next quarter will look to what could happen to this company over the next couple of years. That helps us make better judgments.”
Sailing into a Storm
In the first letter to shareholders, a manager would prefer to tout the fund’s success during its inaugural year versus having to explain away some disappointments. Walthausen had the unenviable task of describing both situations to his investors. Walthausen Small Cap Value lost 29.5% its first 12 months through Jan. 31, 2009, which looked terrible at first glance but was considerably better than the 36.5% loss for the Russell 2000 Value Index. Walthausen didn’t exactly do a victory lap.