A successful community bank hedge fund manager is teaming up with a former bank turnaround specialist to create a fund that will invest in very small — and often very troubled — banks and thrifts.

Hoping to replicate the track record of its highly profitable $40 million hedge fund, Everest Managers LLC will launch its second small-bank fund, Everest Strategic Partners LP, on May 1, Everest founder and principal David Harvey said.

The Garderville, Nev., firm is marketing the $7 million to $10 million hedge fund around the talents of its newest partner, Steve Rippe, who salvaged Highland Bancorp before the $667 million-asset Burbank, Calif., thrift was sold last year to Jackson Federal Bank, a $1.13 billion-asset savings and loan in San Bernardino, Calif.

Mr. Harvey, a former banker, said the fund will invest in beleaguered banks and thrifts and then offer Mr. Rippe’s expertise to help turn the pumpkins into coaches.

“If a company is in trouble, they are looking for money, and they are looking for somebody like Steve Rippe to help them — either by being on the board of directors or by just advising them,” Mr. Harvey said.

Mr. Rippe, who has 29 years’ experience in banking, helped reverse the decline of Security Pacific National Bank before its parent, Security Pacific Corp., was sold to BankAmerica Corp. (now Bank of America Corp.) in 1992.

Campbell Chaney, an analyst at Sutro & Co. in San Francisco, said he expects the new fund to do well under Mr. Rippe’s leadership, but also because of Mr. Harvey. He noted that Mr. Harvey’s first fund, Everest Partners LP, is up 684% since its inception in 1994.

Mr. Harvey’s diverse background is a big reason for his success: He was one of Mr. Rippe’s loan officers at Security Pacific in the early 1980s, then a vice president of Silicon Valley Bank, and in the early ’90s was a mergers-and-acquisitions attorney.

With the first fund, Everest Managers has generally taken positions of less than 5% in “undervalued” community banks and thrifts, hoping to boost the stock with the aid of other investors who tend to follow wherever the company goes, Mr. Harvey said.

He said the second fund will take larger positions, as much as 35%, specifically in troubled banks. Everest Managers will then try to use that leverage to steer the institutions in a better direction, with Mr. Rippe’s help.

“If there is something that we can do to help them to devise and execute a strategy that will be successful,” Mr. Rippe said, “then that will create some value for us and for the other shareholders.”

One observer, who asked not to be named, was skeptical about the new fund, saying that what Mr. Harvey will probably do is recommend a sale of the bank or thrift — whether or not the institution agrees.

“At the outset,” the source said, “Mr. Harvey tells institutions that he’s a friendly, patient investor, and that he sees a lot of good upside potential. Then, after his ‘follow-along’ contingents take positions in the stock, he just gradually ratchets up the pressure to sell.”

Yet for banks and thrifts wanting to sell, Mr. Harvey can be their best friend, the source said.

“This guy can produce — he can drive up the stock and give banks opportunities to find a purchaser to get the stock in play. And that’s good. But if the bank has a long history of internal growth, is serving the community, and has no intention of selling, then the arrival of Mr. Harvey is going to be somewhat of a jolt to management and the board.”

Mr. Harvey is the first to acknowledge that if a bank or thrift underperforms, he will push for a sale. For example, he advocated the recent $39 million sale of BYL Bancorp in Yorba Linda, Calif., to PBOC Holdings Inc. in Los Angeles. “When a bank is only making 2% to 3% return on equity,” he said, “what the hell else are we going to do?”

But he insists this is not his modus operandi.

“Contrary to some popular thoughts, we actually like a lot of the companies we own,” Mr. Harvey said. “If a good commercial bank is doing their job wonderfully and makes a lot of money, then we make a lot of money and we never have to sell the stock.”

The president and chief executive of one such bank agreed.

“David has been very supportive,” said Steven A. Rosso of $125 million-asset Pacific State Bank in Stockton, Calif. “I feel that the information that he has given us has been very helpful, and his understanding of banking is solid. So far I think that he’s been more than fair with our organization.”

Sutro & Co.’s Mr. Chaney said Mr. Harvey does not deserve his reputation as an unruly shareholder bent on selling a company. When Mr. Harvey decides to push a company to sell, he said, it’s usually for a good reason.

“I don’t think he takes a position with the idea to be an activist shareholder; he takes a position in stocks where he sees unrealized value,” Mr. Chaney said. “More often than not it’s an underperforming thrift with a lot of capital and an entrenched management team that doesn’t seem to want to get their financial ratios where their peer groups’ are.”

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