DAVID Stevenson, doyen of the Edinburgh investment scene, has warned that smaller companies still face a "hostile environment" as he pitches in alongside founders Paul Jourdan and Douglas Lawson at specialist small cap boutique Amati Global Investors.

Mr Stevenson has joined Amati from Edinburgh-based Cartesian, a joint venture with Glasgow fund manager Ignis which he co-founded in 2005. He has also previously worked at Edinburgh funds house SVM Asset Management.

He has been hired by Amati to increase its fire power, particularly in researching companies towards the top end of its sector.

"We are cautious but optimistic," he said. "There is still plenty of uncertainty out there."

After seven years hunting in the crowded All-Companies sector at Cartesian, Mr Stevenson said he is happy to be back in relatively under-researched small caps, an area he explored when he managed the SVM UK Opportunities Fund until late 2005.

He said: "The skills a fund manager has got are better employed there. Amati offers me the opportunity to go back to that.

"The refreshing thing is you can find companies that can grow earnings at 20% on a sustainable basis."

But he said there were still big challenges for smaller firms.

"It is still a pretty hostile environment for companies. Banks are still pretty reluctant to lend."

Amati runs around £80 million in smaller companies money, including in the CF Amati UK Smaller Companies Fund, which Dr Jourdan has managed since September 2000 during his time with First State and then Noble Fund Managers. It also has two venture capital funds.

Mr Stevenson, who started his career as an accountant at KPMG before moving into private equity with Dunedin Fund Managers, said he will be pitching in on company research, particularly in the industrial sector.

He insisted he was happy without currently having lead manager status on any of its funds.

"I think we work together well as a team. If you look at (Edinburgh funds house) Aberforth, they have very much the team approach and they seem to have made a decent fist of it."