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.

DIRE CALL: HELPING WHEN IT IS MOST NEEDED

After years of serving clients, we have found that the depth of our relationships is especially valuable when helping them adapt to the most difficult news.

Terms like “estate planning” and “wealth transfer” provide little shelter from a painful reality—a large portion of what we do as advisors focuses on the issues associated with our clients’ mortality.

We have worked with clients on these issues for more than 25 years. You might think that after all that time, it gets easier to receive a call from a client with news of a grave medical condition. It has not—it is a gut punch every time. Our relationships with our clients are generally quite close, and calls from clients we have known for years can have an impact as if they were coming from a member of our own family.

It is a privilege to be placed in a position of trust at a moment when a client is facing many difficult decisions. We know that we are not the only people outside a client’s family who help shoulder such heavy news. But we are honored to be on a short list of people— doctors, spiritual advisors and lawyers—who can provide tangible assistance in these situations.

We are honored to be on a short list of people who can provide tangible assistance during challenging times.

Earlier this year, we received one of these calls from a client. After we discussed her diagnosis and her health care options, she asked that we move forward with whatever plans would be most beneficial to her family given her short time remaining.

By sharing some of the steps we take in these situations, we hope to highlight that when one’s circumstances change drastically, thoughtful action can often bring meaningful benefits. Here is what can be done in such situations:

Lifetime Gifts

When someone’s life expectancy is suddenly shortened, their financial objectives usually change. They no longer need a plan that supports their lifestyle and long-term health care expenses. In these situations, giving away assets to loved ones or charities may become more practical and advantageous.

For various reasons, making lifetime gifts may be more efficient from an estate and gift tax standpoint than transferring assets through a last will and testament. When clients have sufficient assets to warrant estate tax planning, we often recommend transferring a considerable amount of their estate to trusts that benefit family members. This may generate an immediate federal gift tax liability. But it may also reduce the eventual estate taxes levied by a state by hundreds of thousands of dollars, or as much as 9% of an estate’s total value. The savings often exceed the immediate federal gift tax.

Income Tax and Basis Considerations

We also want to ensure that clients think about minimizing their income taxes, which sometimes competes with estate and gift tax techniques. In these kinds of situations, we always look for ways to optimize the two considerations.

Some readers may be familiar with the “step up” in cost basis that occurs upon the death of an asset’s owner. If someone purchased an asset at $100 and it is currently worth $200, there is an embedded tax liability in that asset—you would pay taxes on the $100 gain were you to sell that asset. But when an asset owner dies, the cost basis of assets held at death is stepped up (or down) to fair market value, eliminating any embedded income tax consequences.

To take full advantage of this rule, we seek to have clients retain the highest concentration of appreciated assets possible within their estates. When it comes to transferring assets as gifts, we select securities with a high basis relative to their market value. When the transfer of assets with a loss is contemplated, we often recommend selling such assets to recognize the loss followed by a gift of the proceeds. Additionally, many sophisticated trust plans allow the creator to exchange assets with the trust. When possible, it is advantageous to swap assets into an existing trust with minimal embedded tax liability, in exchange for highly appreciated assets or property held by the trust. Each of these strategies aims to eliminate considerable capital gains taxes on the appreciated assets.

Further, we often advise clients to borrow cash to make gifts and to retain highly appreciated assets. Doing so can minimize estate taxes while also eliminating the built-in income tax liability of the retained assets.

Roth IRA Conversion

If clients have sizable regular IRA accounts, we may recommend converting to a Roth IRA. The amount converted is subject to income tax at ordinary rates, but this income-tax liability reduces the size of a taxable estate. Beneficiaries—often children or grandchildren— will be required to take distributions, but by converting to the Roth, the distributions are not likely to be taxable. This step helps reduce estate tax liability, provides beneficiaries with assets that will continue to grow tax-free and avoids the creation of a new tax liability for those beneficiaries.

Charitable trusts and Donor-Advised Funds

Creating trusts that benefit family members as well as valued charities can help provide for a family’s long-term well-being while mitigating taxes and encouraging charitable pursuits. In the March edition of The Advisory, we wrote about charitable lead trusts, which provide income to a charity during one’s lifetime and eventually pass the assets of the trust to designated heirs. Another option is a charitable remainder trust, which essentially does the opposite—it provides income to one’s family while the trust’s assets eventually pass to a charity in an income tax-deductible manner. Beneficiaries of these trusts can be donor-advised funds. This vehicle provides designated family members greater flexibility and control over the future disposition of the funds to various organizations.

When people are handling the most difficult kind of news, they are understandably reluctant to spend their remaining time discussing complex estate and tax planning. Nonetheless, taking some of the steps described above can make a real difference— a great deal can be accomplished when one no longer needs the financial cushion required for an indefinite retirement.

Ultimately, the most meaningful lesson we take from this recent experience is the value of building relationships over time. Because we have known each other for years, the client trusted that her needs were understood, and that we could adapt to her circumstances and plan in a relatively short period. Although the depth of our relationships make certain phone calls painful to receive, that depth also gives us the ability to step in and help when it may count the most.

 

 

 

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, indepthanalysis of specific issues, nor a substitute for a formal opinion, nor is it sufficient to avoid tax-related penalties.



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

 

Moral Courage Amid Disruption
Brown Advisory colleagues recently gathered with clients to explore how disruption in technology and other fields calls for bold, even-handed decision-making and what we call moral courage.

By Brien White, Head of Washington Office, Portfolio Manager

Profits, Not Vapor: Titans Emerge in Cloud Computing
Three companies have brought down to earth the long-elusive goal of selling corporate customers computing power through the Internet.

By Maneesh Bajaj, CFA, Portfolio Manager and Emmy Mathews, CFA, Equity Research Analyst

In Too Deep? The Risks From Sub-Zero Rates
Six central banks try to spur growth by introducing negative rates despite potential hazards from the unprecedented policy.

By Tom Graff, CFA, Head of Fixed Income and Quintin Ings-Chambers, Portfolio Manager

Market Chill: Holding Fast To Fundmentals
Volatility in equity markets has persisted as investors run from risk and search for yield. In times like these, we stay true to a bottom-up, value orientation.

By Sid Ahl, CFA, Chief Investment Officer of ISG and Stephanie McCormick, Portfolio Manager

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