CityWire: Amy Zhang

JUL 2018 16

INSIDE OUT

MANAG E R P RO F I L E

I WAS A SCHOLARSHIP KID. I FELT THEY TOOK A CHANCE ON ME

changes and which have the potential to become large, successful companies. ‘We define smallness in terms of revenue because I think revenue is a better indication of size than market cap,’ Zhang says. ‘Market cap could be arbitrary.’ Zhang and her team generally look for companies with annual operating revenues of less than $500 million at the initial point of investing, but that figure can be a lot less in many cases. ‘Our sweet spot is probably $100 million to $200 million because we’re looking for the companies to double their revenue in three to five years. I call that the law of small numbers,’ she explains. GAUGING GROWTH A growing and durable revenue stream is important to Zhang because it suggests good financial quality and a chance for future growth. But an equally important metric for her is a company’s ‘moat’ – its competitive advantage. Zhang and the team spend a lot of time contemplating companies’ competitive advantages, especially if they are getting stronger over time. ‘Many of the companies that we invest in can transform their industry or create a new industry that is disruptive to the legacy players,’ she says. ‘They are usually science-based companies with proprietary products and services that are truly differentiated.’ One company that meets all the criteria is Pleasanton, California-based Veeva Systems, a cloud-based tech firm that provides subscription-only software applications for the pharmaceutical and life sciences industries. Veeva, which started out handling customer relationship management (CRM) for life science companies through a long-term partnership with Salesforce.com, has since branched out into developing a content management business called Veeva Vault. It is aimed at helping its customers manage very complex content-centric processes in what is a highly regulated industry. ‘There is a pattern to what we invest in. I always like a company that has strong cash-flow generating capabilities to support

ZHANG’S SMALL CAP FOCUS FUND HAS PULLED AHEAD OF THE RUSSELL 2000 GROWTH INDEX THIS YEAR DATA TO JUNE 30, 2018 / SOURCE: CITYWIRE/LIPPER

ALGER SMALL CAP FOCUS FUND RUSSELL 2000 GROWTH

80

70

60

50

TOTAL RETURNS %

40

30

20

10

0

10

20

FEB 15

JUN 18

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