A Test of Blackstreet's Strategy

Gunty said he finds his opportunities through a network of brokers, bankers, accountants and bankruptcy lawyers. "What's amazing is that nobody brings him a deal unless they expect to get very little for the deal," Rice said. By most accounts, according to his investors and board members, Gunty is scrappy, intense and a round-the-clock worker.

At times, he is almost too intense, Pincus said: "It's my job to soften him up a bit."

Two years ago, Gunty sparked a dust-up online when he tried to censor a blogger from writing about an embarrassing episode from Gunty's college days: He had resigned from the Harvard Business School's Finance Club after manipulating an election for officers. As punishment, he also wrote an ethics paper. He felt some Internet accounts of the incident were inaccurate.

These days, Blackstreet's investors appreciate Gunty's ability to find companies they haven't heard of, turn them around and make a profit. "He's a very intelligent guy, but I know a lot of intelligent guys," said Ken Malm, the chief executive of local builder Craftmark Homes. Malm also invested in Blackstreet because of its connection to Pincus. "Murry also has common sense. He boils things down to the meat of the matter very quickly. He doesn't waste your time."

Gunty is particularly interested in divisions of larger firms that are moving in different directions and neglecting parts of their business. He also targets companies that have lost their way through poor management. Florida Tile is a case in point, mingling both approaches.

The tile maker, founded by the Sikes family 54 years ago, was purchased in 1990 by Premark International. Nine years later Illinois Tool Works bought the business. A few years after that, Illinois Tool Works fingered Florida Tile as a noncore business and put it up for sale.

Gunty says that while consumers wanted to buy basic large-format floor tile, Florida Tile was trying to sell expensive, trendy products that won lots of design awards but did not have a wide following in flooring showrooms. "Often what we do in fixing companies is get back to basics," Gunty said. "We are not financial engineers. We try to simplify things. What does the customer want and how do we get it to them?"

After purchasing the company, Gunty immediately fired the senior management team and brought in his own people to focus on more mainstream tiles. He also closed production plants that weren't meaningfully contributing to Florida Tile's core products. Two years ago, Gunty sold Florida Tile to Italy's Panariagroup for 14 times the initial investment. Representatives from the new owners could not be reached for comment.

"This is old-line business," Rice said. "A lot of what Murry does is in old-line manufacturing America. He does a better job running them and then hands the opportunity to the next company down the line."

Pincus has been happy with the fund's performance: "We've had singles, doubles and home runs. We haven't struck out, yet." It remains to be seen whether Blackstreet's deal in April to buy the assets of Simplicity will be a winning investment.

On Aug. 27, the Consumer Product Safety Commission warned consumers to stop using certain Simplicity bassinets after a second child died when her head got caught in the bassinet's metal bars. The CPSC said it was forced to issue a warning because Blackstreet affiliate SFCA, which owns Simplicity's assets, would not recall the bassinets. SFCA said it didn't take on legal responsibility for assets purchased from Simplicity, which included the bassinets.

It is not clear whether SFCA can escape liability. In one case, Maryland's highest court ruled that a company that bought the assets of another is not liable for the defunct company's products. In another case, the California Supreme Court ruled the opposite. On Sept. 17, retailers recalled 600,000 Simplicity cribs that were made before SFCA bought Simplicity, and the CPSC said that, this time, SFCA was cooperating by working with retailers on the recall.

Rice, for one, is not overly concerned about Blackstreet's potential liability. While he said it is a "terrible, terrible, terrible tragedy when somebody loses a baby" -- he has grandchildren -- Rice also stressed that he didn't think Blackstreet had any liability. "I don't think I'm exposed to a darn thing," Rice said. "I don't think the fund is exposed." But even if the Simplicity deal does turn bad -- if people stop buying the products altogether -- Rice said, "If Simplicity gets wiped out and the equity gets wiped out, it's just a loss."

Staff writer Annys Shin contributed to this report.