SAN FRANCISCO --
Pivotal Asset Management
is finally flying solo.
Ralph Chechettini, who has been a principal, portfolio manager and investment committee member at
Amerindo Investment Advisors
, is formally leaving Amerindo on Jan. 1 to focus exclusively on Pivotal. Chechettini also is taking Amerindo's respected senior analyst Christopher Lord, who will be Pivotal's general partner.
"Our goal is to build the best technology shop in the country," explains the silver-haired, 35-year-old Lord. "We want to create the
of buy-side investing and you can only do that if you're driving."
The story of Pivotal's liberation is an intriguing tale that sheds light on the close-knit nature of the money management business. What's more, the Pivotal yarn provides a window into the latest techniques technology investors are using to stay ahead.
Pivotal was actually founded by Chechettini and Lord in July 1998, but both continued working for Amerindo. Chechettini, who opened Amerindo's San Francisco office and ran one-third of the firm's money, has worked as a sub-adviser for Amerindo since 1997. Pivotal has managed a $700 million portfolio for Amerindo, a relationship that will end with Chechettini's formal resignation. Pivotal also plans to move out of Amerindo's offices in San Francisco's Embarcadero Center and find office space to house its 10 employees. The two firms, however, will continue to invest together in late-stage private companies.
"I have no sadness or animosity or hard feelings whatsoever," says Chechettini. "We've had a good relationship through the years. But Pivotal has grown so rapidly. There's really not enough time to do a good job in both arenas." Amerindo didn't return several calls.
Amerindo mainly manages money for wealthy individuals, but it's best known through its
Amerindo Technology fund, which has $825 million in assets. Although the fund lost 18% in 1997, it gained 84% in 1998 and is up 230% this year.
Pivotal declined to disclose its performance figures. The firm only invests in technology companies and is heavily weighted in dot-coms. Some of its top holdings include
Obviously, such a focused strategy has plenty of risks, chief among them that tech stocks take a turn for the worst. But so far the strategy has paid off. According to a
California Public Employees' Retirement System
(Calpers) report, Pivotal returned 243% (net of fees) from the firm's inception to May 31, compared with 128% for the
Wilshire Internet Index
Pivotal is so confident that it turned down $300 million from Calpers, the world's largest and most powerful pension fund.
"They think we're negotiating," says Chechettini. "I keep reading that in the paper. We turned them down. I personally told them the terms and conditions are unsatisfactory." Indeed, Calpers says it's negotiating with Pivotal over the terms of its approved $300 million investment.
Pivotal, says Chechettini, has already lined up $500 million, mostly from rich individuals, including some Amerindo employees.
Pivotal has been able to get rich folks to kick down their money because of its investment strategy, which is based on hoarding proprietary information. Through an in-depth research process, the firm focuses on building a portfolio of 15 or 20 of the best-managed technology companies within the biggest and fastest-growing markets. It holds these investments for three to four years, before refreshing them with a new crop. Several factors could trigger a sale: senior management turnover, growing price pressure or products becoming commodities, drastic strategic changes, significant decrease in product demand, or bungling product transitions.
"Big-ass markets and great management teams. That's the secret sauce to investing," says Lord. "Great technologies with lousy management teams always go down the tubes."
And it invests up to 30% of its money in private companies close to going public. Pivotal accesses these deals through its Venture Capital contacts (it boasts a partnership with
, a hotshot early investor in
, among others) and after-market buying power: It pledges to buy up to one-quarter of a stock's post-IPO float.
Private Sector Investing
Some of Pivotal's biggest gainers have come from the private sector, including
The key to Pivotal's success, though, is the method by which it identifies the Kanas of the world. Put simply, Pivotal has built a potent network of in-the-know tech people. It created an advisory board of a dozen or so industry titans such as
CEO Tom Jermolak,
general partner Peter Wagner and
CEO Ross Garber. Next, it draws on the knowledge of its high-powered group of limited partners, which includes CEOs and top executives from other Internet companies and investment firms. Pivotal milks these connections by holding one-on-one conference calls with a few sources each month.
"You can't overuse the types of people we're talking about," says Chechettini. "I would rather talk to them than any of the analysts I know on Wall Street."
But even Pivotal gets its clock cleaned once in a while. To control risk, it shorts 10% to 15% of its portfolio. According to a
analysis of Pivotal's performance obtained by
, Pivotal shorted
last fall and ended up losing more than $1 million, or 107%, on that single trade. Pivotal is now one of RealNetwork's biggest stockholders.
At heart though, Chechettini is a buy-and-hold guy. "I've found that doing nothing is what wins," he says. But given Pivotal's techniques, it's clear that Chechettini and his cohorts are doing plenty.