The Blackstone Group's Hamilton "Tony" James has built his name and bank account chasing multibillion-dollar buyouts. When it comes to family investments, however, brothers Benjamin and David James target decidedly smaller plays. Swift River Investments, the family fund run by the James family, focuses squarely on lower middle-market opportunities, marrying investment acumen with operational know-how. Benjamin James spoke with Mergers & Acquisitions, discussing the themes behind Swift River and the trends he's seeing in the smaller deal realm.

Mergers & Acquisitions: Can you tell us about the Swift River partnership and what your investment philosophy is?

Benjamin James: We take some complementary skill sets and apply them to smaller middle-market companies, where we think we can add a lot of value. We take a boutique approach where we incorporate our high-level experience.

I have been in the private equity business for a number of years. My brother David has very senior operating experience, and we also have a very experienced vice president, Christina Pai, who is extremely smart and capable.

Many firms our size don't have the kind of senior operating experience that we do, and certainly not available as a full-time resource. In addition, all of our capital is family capital, so we don't have any limited partners.

We believe that the economy is going to get worse, and market conditions are going to get tougher, but we think that we can be very successful because of our experience and attention to detail. We are essentially entrepreneurs. Swift River is a family-owned operation that happens to be in the private equity business. This means that we understand and expect that there will be surprises from time to time, but also there won't be any secrets. This attitude makes us very appealing to owners of private businesses.

We have enough capital that we can invest in companies at multiple stages of growth, so if its is the right investment decision, we are able to hold a worthwhile investment for a longer period of time. We can be quite flexible in this regard. We enjoy this flexibility, and we are going to keep our firm very small.

Mergers & Acquisitions: Is there a point at which it won't make sense to stay as small as Swift River presently is?

James: We desire the flexibility to move in whatever direction we want, and that implies that we will not have limited partners. We are quite different from many private equity firms in that regard. Instead of having a bunch of home run investments in which there are big winners and big losers, we believe in having a lot of solid doubles and triples and developing real relationships with the companies that we are invested in.

This does not mean that we will operate the companies that we are invested in on a full-time basis. We want to support these companies.

We also have close relationships with lending sources that specialize in providing financing for smaller companies, so we can get financing done even in tougher economic times.

Mergers & Acquisitions: Given the recent deterioration in the credit market, have you found it more difficult to get deals done than it has been in the past?

James: We have thought for the past couple years that the market was too frothy. The firm was founded in May 2005, but we've only been in business investing for a couple years.

Mergers & Acquisitions: What are some of your more exciting investments?

James: One of our more interesting companies is in the high-end consumer food and beverage direct marketing industry, and it is growing rapidly. When I was a partner at North Castle Partners, we specialized in the healthy living and aging area of consumer products, and Christina also worked for many years in consumer funds, so this is an area that we are familiar with.

We have another company that is a more sizable industrial company, and we think that it will be very successful.

We also have an investment in a small consumer products company focusing on outdoor recreation. That was a minority growth investment, which is unusual for us, but we believed very strongly in the CEO of the company.

Mergers & Acquisitions: Would you say that Swift River has specialties in particular sectors, and if so, which industries?

James: We look at the consumer, but we are also focused on business services, areas within health care, as well as light industrial companies. We tend to stay away from real estate and high technology. In general, we are very selective when it comes to investing in cyclical companies. We will invest in them, but we will be selective when we do.

Mergers & Acquisitions: What are some of the more interesting trends that you have noticed in recent deals?

James: I think debt multiples have come down, but the good companies are still getting a lot of interest. The average quality of deals have come down in the last month or two because private equity is a cyclical business, so when you get toward the end of an up cycle, a lot of the better companies have already gone through the sale process.

Mergers & Acquisitions: How else do you differentiate from other investors?

James: We take a very senior approach and apply our complementary skill sets to our portfolio companies. As a result, the attention that our portfolio companies get is unparalleled. In addition, we don't have limited partners, so we can be patient and we can have the option of taking the longer view when it is the right decision. We really pride ourselves on collegiality and fair dealing.

Since we don't have to fundraise, we also have a more simple business model than many other firms.

Mergers & Acquisitions: Your brother Tony James is a director at Swift River. Are there any similarities between what Tony is doing at Blackstone, and what is done at Swift River Investments?

James: Not really. We are a mid-market private equity firm, and Tony is the president of the biggest private equity firm in the world.

Mergers & Acquisitions: Is there any overlap between the two?

James: Nope, zero.

Mergers & Acquisitions: As a director does he oversee any of the deals?

James: No. Tony's job is at Blackstone.

Mergers & Acquisitions: How do you leverage the relationship? Are there ever any deals that are too small for Blackstone that make sense for Swift River?

James: Tony has a lot of contacts, so he gets in deals because he is well known and well respected by just about everyone in the industry. So there are some investments that they would pass on that we would look at.