Equities Fixed Income Hedge Funds Private Equity and Real Estate Sustainable Investing

Equities

We follow a philosophy that low-turnover, concentrated portfolios derived from sound bottom-up fundamental research provide an opportunity for attractive performance results over time. We have a culture and firm equity ownership structure that help us attract and retain professionals who share those beliefs, and we follow a repeatable investment process that helps us stay true to our philosophy.

We construct balanced portfolios for private clients, nonprofits and institutions depending on the needs of the client. We can be 100% open architecture, using third-party managers only, or we can put together a mix of internal and external strategies, whatever is in the client's best interest.

Fixed Income

We follow a philosophy that fixed income strategies built from a foundation of stability coupled with fundamental credit research can seek to generate alpha and control risk. We have a culture and firm equity ownership structure that attract and retain professionals who share those beliefs, and we follow a repeatable investment process that helps us stay true to our philosophy.

We construct balanced portfolios for private clients, nonprofits and institutions depending on the needs of the client. We can be 100% open architecture, using third-party managers only, or we can put together a mix of internal and external strategies, whatever is in the client's best interest. Meet the Investment Solutions Group.

Hedge Funds

Hedge Funds

The Investment Solutions Group is an investment-management team within Brown Advisory that specializes in asset allocation, manager selection, hedge funds and other alternative investment strategies. Dedicated to open-architecture solutions, our team has established a strong track record of identifying high-quality, third-party investment managers across the hedge fund, long-only and private equity universes. We leverage this expertise to help clients assemble portfolios that we believe best fit their needs and goals, offering clients a range of solutions from complete portfolio management to fulfillment of specific hedge-fund and alternative-asset mandates.

Founded in June 2002, the Investment Solutions Group now manages in excess of $3.4 billion for clients (data as of January 31, 2017) in a combination of managed accounts, advisory relationships and fund-of-fund offerings.

Private Equity and Real Estate

Private Equity and Real Estate

Brown Advisory has incorporated private equity and real estate investments in client portfolios since our founding. Today, we can provide that exposure in three distinct ways.

Feeder Funds and Multimanager Funds
We introduce clients to investment opportunities in early- and late-stage venture capital and buyout funds, as well as select real estate funds. We also construct these feeder funds into multimanager funds through our Private Equity Partners (PEP) and Real Estate Partners (REP) vehicles to make private equity investing as easy as possible for our clients.

Customized Private Equity Portfolios
For most clients, private equity is one component of a balanced portfolio that we manage. Other clients, however, come to us specifically for custom-built private equity and real estate portfolios.

For more information on private equity please click here or contact Jacob Hodes at 410-537-5315 or [email protected].

Sustainable Investing

Sustainable Investing Strategies

  • Multi-Manager Strategies
  • For clients seeking an open-architecture solution, we have access to several of the premier sustainable managers in the industry - all vetted by internal research.
  • Private Equity
  • Our private equity team is focused on evaluating the growing universe of private impact investments to identify standout opportunities that target various issues of particular concern to our clients. To date, we have placed assets in investments targeting a variety of impact themes such as community impact, microfinance, education technology, sustainable real estate, water initiatives and others.*
  • *Many alternative investments by regulation may only be sold to Accredited Investors (institutions with at least $5 million in assets) or Qualified Purchasers (institutions with at least $25 million in investments).

Customized Portfolios

This diverse assortment of solutions will meet many clients’ sustainability objectives; however, we understand the continued evolution of this space and seek to be able to react quickly to client needs.

For clients with unique missions, value-aligned investing programs, or who simply wish to ensure that they do not own certain controversial companies or have access to certain industries, we offer the following customized options:

Additional Screening: To the extent we have reliable data and can build rules into our compliance systems, we can add specific screens to a separate account to restrict companies (e.g. oil and gas providers) or industries (e.g. tobacco or weaponry).

Customized and Thematic Portfolios: Within a separate account, we can work together to solve for a sustainability need. From a universe of securities researched from both the bottom-up and for their ESG profile, we can assemble a custom portfolio of securities designed to meet many specific sustainable goals or outcomes.

INVESTORS SEEKING SUSTAINABILITY GAIN CONFIDENCE THROUGH SCREENING

Investors gain greater confidence in their investment plans by screening companies to ensure whether their portfolios align with their values.

Some Wal-Mart stores sell rifles, some Starbucks coffee shops sell alcohol and GE builds engines for jet fighters and bombers. While generating just a small part of their revenues from these products, these companies pose a dilemma to investors who want to purge their portfolios of connections with guns, alcohol or the military. Should they set a ban on involvement or merely a low-level limit?

The dilemma underscores how investors building a sustainable portfolio need to clarify the precise objectives of any effort to screen out industries that they deem to be undesirable. Before even beginning to vet companies, investors need to recognize the limitations and weaknesses of the screens available. This may mean screening out some methods of screening.

A selective approach to filtering helps investors avoid supporting companies that they believe have an impact on society or the environment that is not aligned with their values. Screening can also help investors to better know what they own, or gain a richer understanding of the components in their portfolio. Indeed, many fiduciaries and charities feel a duty to use screening to identify and track any potentially controversial companies.

However, screening can exact a cost, so we help clarify for clients the potential impact on risk and return. The California Public Employees’ Retirement System (CalPERS) said in April that it missed out on as much as $3 billion in gains between 2001, when it started to sell its tobacco stocks, until the end of 2014, when it completed the divestment. CalPERS is the largest defined-benefit pension plan in the U.S., with more than $291 billion in assets.

“Negative screening” is the most commonly used method among the many approaches to building a sustainable investment portfolio. By the end of 2014, institutional investors had invested more than $1.2 trillion using negative screening, according to US SIF Foundation, a Washington-based trade association promoting sustainable investing, of which Brown Advisory is a member. Screening can target myriad businesses beyond those already mentioned, including gambling, adult entertainment, nuclear power and faith-based concerns such as stem cell research.

The most common factor used in screening measures is the amount of revenue a company generates from a particular line of business. A cut-and-dried approach of zero tolerance is the simplest application of this method. Screening becomes more complex when investors are open to considering companies that generate revenue, up to a certain limit, from a line of business that they find undesirable. Screening grows especially complicated when an investor examines a company’s supply chain and related businesses.

Where There's Smoke

For example, an investor can easily determine the degree of their portfolio’s association with tobacco companies such as Altria, British American Tobacco or Phillip Morris. At first glance, the forbidden list would not include a company like Core-Mark Holdings, which distributes merchandise primarily to convenience stores in the U.S. Core-Mark, however, generates about 68% of its revenue distributing cigarettes and other tobacco products made by companies such as Philip Morris and R.J. Reynolds, according to MSCI, which provides data on companies’ environmental, social and governance (ESG) practices.

The same holds true with fossil fuel considerations. Investors can easily screen out oil, coal and other companies in the energy sector, but they may also want to exclude many chemical companies that own fossil fuel reserves but are not screened as fossil-based companies.

Investors can also gauge companies’ levels of carbon emissions, aiming to either identify those with high emissions or, through so-called positive screening, to find companies with a comparatively small carbon footprint. Investors should be aware that only 53 companies worldwide report 100% of their carbon emissions, according to a Bloomberg assessment of greenhouse gas emissions disclosure dated July 22, 2016. In addition, emissions reported by third parties are rough estimates, often based on a company’s industry and size. Such measures do not reflect the fact that companies within the same peer group can generate very different amounts of carbon dioxide.

In another example of positive screening, some 8,000 businesses have endorsed the U.N. Global Compact, which measures adherence to 10 internationally recognized principles for corporate behavior in human rights, treatment of workers, environmental stewardship and curbing corruption. ESG data providers such as MSCI apply these principles and grade companies as pass, fail or “on watch.” Investors can then use these broad measures for both positive and negative screening.

High Stakes

The filtering of companies involved in stem cell research and human cloning illustrates the nuance and ethical stakes that can come into play when building a sustainable portfolio. Some screening methods can be precise enough to rule out the use of stem cells from embryonic or fetal tissue but to not exclude companies engaged in research using adult stem cells.

The United States Conference of Catholic Bishops (USCCB) will not invest in companies engaged in human cloning and “in scientific research on human fetuses or embryos that 1) results in the end of pre-natal human life; 2) makes use of tissue derived from abortions or other life-ending activities; or 3) violates the dignity of a developing person.” The USCCB says new forms of research “will be evaluated on a caseby- case basis.”

MSCI screens out similar companies, along with businesses that produce technology that could be used in research involving human embryonic stem cells, fetal tissue or fetal cell lines. To date, MSCI has not identified any publicly traded companies engaged in human cloning.

In general, screening enables investors to know more about the companies they own and more closely monitor their holdings. This can be valuable for charities and foundations that want to ensure their holdings do not conflict with their mission.

One client we advise discovered from a screening exercise that 3.1% of its foundation’s portfolio was associated with fossil fuel reserves, weapons, tobacco and stem cell research—all of which contradicted the foundation’s objectives. Our clients determined that such a small percentage did not warrant immediate action but appreciated the deeper understanding of their foundation’s assets. Empowered by screening-based knowledge, the client and other investors can push forward with greater confidence in their long-term investment plans.

 

 

 

The views expressed are those of the authors and Brown Advisory as of the date referenced and are subject to change at any time based on market or other conditions. These views are not intended to be a forecast of future events or a guarantee of future results. Past performance is not a guarantee of future performance and you may not get back the amount invested. In addition, these views may not be relied upon as investment advice. The information provided in this material should not be considered a recommendation to buy or sell any of the securities mentioned. It should not be assumed that investments in such securities have been or will be profitable. To the extent specific securities are mentioned, they have been selected by the author on an objective basis to illustrate views expressed in the commentary and do not represent all of the securities purchased, sold or recommended for advisory clients or other clients. The information contained herein has been prepared from sources believed reliable but is not guaranteed by us as to its timeliness or accuracy, and is not a complete summary or statement of all available data. This piece is intended solely for our clients and prospective clients and is for informational purposes only. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication.

This communication and any accompanying documents are confidential and privileged. They are intended for the sole use of the addressee. Any accounting, business or tax advice contained in this communication, including attachments and enclosures, is not intended as a thorough, indepth analysis of specific issues, nor a substitute for a formal opinion, nor is it sufficient to avoid tax-related penalties.



⚑ Screening

This article appears in the September 2016 issue of The Advisory. Other articles in this issue include:

 

From our CEO: How We Help Clients Build Sustainable Portfolios
Mike Hankin, Brown Advisory President and CEO, describes a framework for helping clients incorporate their values into their investment portfolios.
By Michael D. Hankin, Chief Executive Officer
⚑ Sustainable Investing

Diving Deep: Achieving Outperformance By Using Environmental Research
Brown Advisory outperforms by finding undervalued stocks and bonds through original environmental research that dives deep beneath the surface of corporate disclosures, regulatory filings and investor releases.

By Karina Funk, CFA, Head of Sustainable Investing and Large-Cap Sustainable Growth Co-Portfolio Manager and Amy Hauter, Sustainability Analyst, Fixed Income
⚑ Sustainable Alpha

Five Ways to Invest That Make the World a Better Place
More than ever before, investors do not have to make a cut-and-dried choice between portfolio investment and philanthropy. We identify five options enabling them to do good while doing well.

By Ethan Berkwits, Private Client Strategy Analyst and Brigid Peterson, Endowments and Foundations Advisor
⚑ Impact

Case Studies Show Sustainable Investing Yields Varied Benefits
When embracing sustainability, families and institutions often affirm their highest ideals.

By Dune Thorne, Head of Boston Office, Portfolio Manager and Erika Pagel, Portfolio Manager
⚑ Case Studies

 

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