J. Carlo Cannell is stepping down from the daily management of the hedge funds Cannell Capital runs, but will leave his family's money in them.

Cannell Capital, a San Francisco hedge fund manager that runs the Cuttyhunk Fund, the Tonga Fund and the Anegada Fund, now manages $765 million, following a 15% distribution to investors last month.

Cannell, speaking at a recent conference, said the balance of financial success and family responsibilities prompted him to turn over management of the funds and a pair of separate accounts to Kenneth Heller and Annabelle Wong. Heller, 36, and Wong, 30, are longtime Cannell Capital employees. They will assume their new duties when Cannell leaves, which he plans to do by June.

"Whoever has the most gold when they die doesn't win," Cannell said in a prepared statement. "I seek a break. It may be six months. It may be forever."

Cannell, 40, will be going out on a roll. Tonga Partners, which had about $273 million after the distribution, was up 23.4% last year; the $132 million Cuttyhunk Fund was up nearly 19%.

One industry observer said that Cannell's "more time with my family" declaration is probably more grounded in truth than similar declarations made by other executives.

"If there was any bad stuff going on, they probably would have closed down the funds," one hedge fund industry observer said. "The two people he's leaving behind have probably been running the shop for a while, and he is leaving his money in those funds."

The firm has scaled back its operations in the last few months, closing a fund focused on small Japanese companies and scrapping a similar fund for European ones. The firm did not disclose the number of layoffs connected to the fund reduction, but Cannell now has 11 employees, most of them doing equity research. It has returned $257 million to investors since 2001.

"The mortality rate of hedge funds managing over $1 billion is very high," Cannell said. "I would like to think we are exercising prudence over greed."

The firm has made its money investing in less heavily covered companies, because Cannell said he believes heavy sell-side coverage leads to cautious consensus and limited stock price movement. At the end of last year, 57% of Cannell funds' long positions were in companies covered by three or fewer analysts.