Sparrows Point Capital Management was launched by Kirk Streckfus in 2023. Kirk has worked at a wide range of investment companies, including Thrivent Asset Management, Calamos, TAMRO Capital Partners, and Stifel, Nicolaus & Company, where he held portfolio manager and analyst roles, specializing in growth investing and stock selection in the healthcare, technology, consumer, and industrial sectors. His two decades of experience throughout investment cycles have given him an in-depth understanding of managing risk and expert knowledge in his core industries.
The Shift To Investment Management
Kirk didn't always intend to go into investment management. As a student at Franklin and Marshall College in Pennsylvania, he completed an internship at a public company that served the telecommunications sector. During his time there, he witnessed the effects of the dot.com bubble and subsequent market crash on those around him, including his family, friends, and colleagues.
Kirk told Ashton Global that one of his co-workers suggested he should study finance because "if they had a better understanding of markets and investing, they would have been better able to protect their retirement fund," which struck a chord with him.
Instead of going into pre-law as he had intended, Kirk began to read obsessively about investing, from Warren Buffett shareholder letters to academic business books. It fascinated him that Buffet's company, Berkshire Hathaway, largely avoided the tech bubble and emerged unscathed, prompting him to question what Buffet saw that was ignored by so many.
This instilled an early understanding of the importance of process, style, and discipline in investing – knowing one's strengths and weaknesses and adhering to a strategy that leverages those traits. After just one year, he opened a brokerage account and began investing from his dorm room – finding opportunities in what he believed were high-quality franchises that the market had left behind.
The Birth Of Sparrows Point Capital Management
After progressing through the ranks at several investment companies, Kirk became senior portfolio manager at Thrivent Asset Management, where he co-managed the small-cap and mid-cap growth strategies. During his tenure, the Thrivent Small Cap Growth fund outperformed 94% of funds in its peer group. His life suddenly turned in 2022 when he was called home to Baltimore because of a family emergency. Alongside his brother, Kirk decided to step in and help run his family's 130-year-old business with one condition – that he would also launch his fund.
Sparrows Point is named after the industrial area in Maryland where his family's manufacturing business is based. Kirk told Ashton Global that he decided on the name because “some of the most important U.S. infrastructure was produced from steel from Sparrows Point, such as the Golden Gate Bridge and the Empire State Building, coming from an unassuming but historically important place."
Investment Strategy And Philosophy
When choosing where to invest, Kirk implements a long-bias strategy and a bottom-up thematic framework called CRD, which stands for Compounding, Reversion, and Disruption. He looks for businesses that offer superior compounding potential or disruptive change.
Sparrows Point invests in companies that demonstrate consistent and sustainable long-term return on invested capital trends (Compounding) as well as multi-year laggards undergoing a strategy or leadership transformation (Reversion) and companies displacing an industry standard (Disruption).
The firm is focused on generating long-term consistent returns rather than following short-term trends. This is where Kirk uses his extensive knowledge of the growth universe to understand the potential addressable markets for products and services and ensure that companies address the unmet needs of large populations.
Case Studies: Identifying Compound Growth In Canada
One example of a Compounder is Canadian-based Constellation Software, an acquirer and perpetual owner of vertical market software businesses. Kirk usually avoids highly acquisitive companies, as they typically have compressed return profiles and do not produce the superior compounding dynamic he seeks for the portfolio.
He believes Constellation is unique in that its acquisition strategy focuses on paying attractive valuations for smaller, highly profitable software businesses entrenched with customers but operates in smaller markets with lower organic revenue growth profiles on average.
"Constellation management is one of the best allocators of capital I have ever seen. The company has compounded cash flow at a 28% CAGR while maintaining a return on invested capital of well over 20% since coming public in 2007 by identifying the right assets, retaining management, and providing them the proper incentives to operate independently and in a manner aligned with shareholders. Given its relatively low market share, the company has shown it can execute larger scale acquisitions, opening up the potential to see continued above-average growth within the VMS space."
Another example of a Compounder is the Canadian-based FirstService Corporation, the leading provider of property management services in North America. The company operates a boring and predictable service model with open-ended potential for consolidation, low capital requirements, high inside ownership, and a value-creating roll-up strategy focused on tuck-under acquisitions. Altogether, FirstService has generated 19% compounded revenue growth over the past 25 years, of which over half is organic.
"This management team is very smart at identifying complimentary markets adjacent to its leading residential business and growing within those verticals organically and through M&A. The largest opportunities in its portfolio are currently in restoration and roofing, which are both significantly larger addressable markets than property management but with longer runways for growth as these markets are more fragmented," Kirk says.
Investing In Market Disruption
Fintech and software-as-a-service provider Toast is a Disruptor that Kirk has held in the portfolio since its inception. Toast provides cloud-native software and payment solutions for the restaurant industry. Kirk sees a continued shift from on-premise to cloud-based solutions in the restaurant space that should benefit the company directly.
"This market has long been a duopoly between MICROS and NCR, but the pandemic served as a catalyst for more innovative solutions to take share," Kirk says. His checks have found that Toast offers the most comprehensive, homegrown digital ecosystem that serves restaurant operators' front and back-end needs with low upfront hardware costs and high ROI for the customer.
Additionally, the company has relatively low customer acquisition costs, with most new restaurants gained through inbound marketing channels and another 20% through referrals. Toast currently has over 15% market share of U.S. restaurants, with more room for that share to grow in the coming years while benefitting from software module cross-selling within its customer base, expansion into international markets where there are an estimated 6 million POS systems, and finally moving laterally into serving hotel restaurants as well as food/beverage locations.
"I tend to gravitate toward founder-led companies, including Toast. Management is successfully balancing investment to capture its addressable market opportunity with growing profitability – which should continue to grow as it implements targeted pricing initiatives to bring legacy customers in line with its company average."
Generating Alpha With Private Equity-Style Underwriting
Kirk has learned a lot as the owner and operator of an industrial company and makes public market investments with a private equity lens to underwriting. While he typically steers clear of investing in commodity-based businesses, he has gained knowledge about the cyclical nature of industries such as aluminum and steel. He has also seen the value of incorporating new technologies to enhance business operations, providing him with customer and investor experience.
This same approach is applied to Sparrows Point. Kirk uses a qualitative process to screen potential companies before digging deeper to determine if the identified opportunities are consistent with the fund's strategy. This narrows the opportunity set meaningfully before he conducts extensive research, including interviews with customers, competitors, and former employees.
"Often, I follow companies that meet the CRD framework for years before ultimately investing in them, as valuation requirements are strict for new positions in the fund. I always lead with identifying the right opportunities and only then consider the prices I am willing to pay," told Ashton Global.
Forging Partnerships Driven By A Commitment To Investors
Kirk said that during his extensive time working in investment management, he learned that the worst thing a fund manager can do is deviate from their strategy. "Stay true to what you're doing and keep it consistent," he told Ashton Global. Regarding Sparrows Point's future, "There's no plan to deviate at all, and if the statistics deviate, then you shouldn't invest with me because I'm chasing performance, and that's not how you're going to win long-term."
Kirk's investment strategy is long-term, and he looks to create lasting relationships with investors who believe in his approach and process. He told Ashton Global, "This is first and foremost a partnership, and the strategy unapologetically reflects how I invest my own money with most of my family's liquid net worth invested in the portfolio. I am eating my own cooking, and interests are well aligned."
Ashton Global was struck by how Kirk has combined his investment knowledge with his operational experience in the industry to provide a tailored service to investors that differs from more conventional funds. We expect to see the fund expand significantly in the coming years. Contact us to learn more about Sparrows Point Capital Management or to schedule a call with Kirk.
