Best solution would be to just release him.
Exactly. Whoever he managed would probably just become a joke & lose all their creditability.
It's all in the presentation. If you have Finlay-era Hornswoggle as the manager, yes. Or a shirtless Hornswoggle (like in the video)...yes. But dress him professionally, clean him up. And possible rename him. Use his verbal skills, taunting and the fact of his diminutive height (who would dare strike him?). It's a counterintuitive play, like having a female bodyguard for a wrestler.
The key would be if Hornswoggle has the verbal chops and wit to carry on his end of the deal.
As an experiment, you would ideally try it first with a lower-level tag-team like The Prime Time Players and see where it goes. If it had legs and enhances the tag-team, then you start adding other pieces to the 'Swoggle stable and go from there.
So many complain about how people are under-utilized or not utilized at all...this is his best fit at this point in his career.