Anthony Brenner co-founded Pivot Point Capital with Raj Moorthy in 2005 after having spent nearly five years as Managing Director at Crosslink Capital. Mr. Brenner has over three decades of experience in venture capital, private equity and small-cap public investments. He obtained a BA degree in Economics at the Yale University and an MBA at the Stanford Graduate School of Business, where he graduated in the top 10% of the class. Mr. Moorthy obtained his MBA at the Harvard Business School and prior to joining Pivot Capital, had worked in the private equity group at Audax Group.
The San Francisco-based hedge fund invests in US-listed small-cap companies and has a small investment team, which aside from Mr. Brenner and Mr. Moorthy also includes Vice Presidents Namir Chowdhury and Andy Juang. Pivot Point holds a concentrated portfolio, which generally includes from eight to twelve positions. The fund has a watch list of 80 to 100 companies, which typically have a market capitalization between $500 million and $3.0 billion. It identifies companies based on the quality of their business model, competitive position, revenue growth potential, high free cash flow, and the strength of their management team. After selecting companies for its watch list, it keeps monitoring their activity looking for events that could send its stock below its long-term intrinsic value.
Brenner’s fund focus on a small group of companies, allows them to focus extensively on research and analysis and, because they invest primarily in small-cap companies, they can enjoy bigger profits due to the high growth potential that small-caps provide over their larger peers. Pivot Point often invests in companies whose stock has plummeted due to market overreaction to developments that are considered as threatening to the financial performance, but, due to extensive research, the fund can assess the real impact on the stock price and invest in undervalued companies. The strategy also involves holding stocks for one to three years until the issues affecting the stock price is resolved and investors again have a positive opinion about the company. In addition, large and concentrated investments allow Pivot Point to be a large shareholder, which, in turn, offers good access to management. However, this approach also poses some risks, such as the volatility of the small-cap stocks and the higher loss potential due to lack of sufficient portfolio diversification.
Pivot Point Capital currently has $230 million in regulatory assets under management. In its latest 13F filing, it disclosed an equity portfolio worth $108.14 million as of the end of June, down from $151.56 million a quarter earlier. In line with the fund’s strategy, the portfolio contains only five holdings after the fund closed four positions during the second quarter. On the next pages, we are going to take a closer look at the companies that Pivot Point Capital is currently invested in.
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Following funds like Pivot Point Capital can be a good strategy to identify profitable investment opportunities without having to pay large fees that these funds require from their investors. Larger investors have more experience and more skills that they use in their research process and because they invest more capital they can enjoy more access to a company’s management than smaller investors. Another way to piggyback on larger funds is to analyze the stocks that they are collectively bullish on. This is what we do at Insider Monkey, where we follow over 650 different hedge funds and analyze their quarterly 13F filings in order to identify the best small-cap stocks to follow them into. We share the stock picks from our investment strategy with subscribers to our monthly and quarterly premium newsletters (see more details here).