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.

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. Several options have emerged, enabling them to do good while also doing well.

Henry David Thoreau did not live to see the rise of impact investing, but he captured the spirit of it with a simple insight—“Goodness is the only investment that never fails.”

Impact investors align their assets behind their advocacy, whether it be for advances in environmental stewardship, human livelihood or public policy. Although simple in intent, impact investing is often complex in execution. Each investor needs to find, personally, the most comfortable balance between generating financial returns and pursuing their environmental or social goals.

Philanthropies faced that same challenge in the 1960s while laying the groundwork for impact investing in the U.S. Organizations, including the Ford Foundation, succeeded in 1969 by winning federal approval for so-called program-related investments that generated income from projects rooted initially in philanthropy.

While determining their preferred mix of doing good and doing well, investors need to set clear goals, clarify their tolerance for risk and establish an expectation for financial returns. In short, they need to decide how they define success. Taking those initial steps opens up several avenues for achieving impact with varying possible returns— from thematic investments in stocks that offer the potential to outperform the broader market, to token returns in structures with an approach closer to outright philanthropy.

Publicly traded companies. Many companies contribute to society beyond the creation of jobs or the promotion of prosperity. “Impact stocks” can vary on a risk/return basis as much as any other shares. An example of investors backing certain impact efforts is in the clean-tech sector, which encompasses products and services including lighting, electric motors, energy efficiency, recycling and renewable energy.

While clean-tech companies are focused on overcoming some of our most critical environmental problems, many shares in such companies have been especially volatile. During the past five years, two exchange-traded funds—Guggenheim Solar and PowerShares Wilderhill Clean Energy—have each fallen more than 39%.

Active research can lead to meaningful returns in impact stocks based on the simple logic that the way to make money is to invest in companies that are fundamentally strong. Take Acuity Brands. By far the leading lighting distributor in North America, Acuity has grown thanks to its strong fundamentals and demand for its energy-saving LED lighting systems. During the past one and five-year periods as of Sept. 6, 2016, Acuity stock has surged 35% and 564%, respectively.

Green bonds. These securities fund environmental or climate related projects. The benefits of the projects are often certified through a process developed under the Green Bond Principles. But in most respects, green bonds perform like other bonds, with similar credit and duration profiles. Our Core Sustainable Fixed Income strategy makes liberal use of green bonds within its portfolio. We purchased a Georgia Power green bond in 2016 that is backing the production of 250 MW of wind energy—an amount that can provide power to more than 50,000 homes. We assess the potential return and risk for a green bond no differently than we do for any other bond that we buy for clients.

Shareholder engagement. Stockholders can push for change through proxy votes, shareholder resolutions and/or dialogue with company executives. Through formal shareholder channels, investors have achieved many worthwhile changes, such as increased reporting of climate risks. But investors can sometimes influence a company just by posing thoughtful questions. In routine communications with Akamai in 2015, Brown Advisory portfolio managers inquired whether the company planned to transition to renewable energy sources. At the time, the company cited challenges to adopting clean energy because of its need to operate data centers in several countries to mitigate risk. The following year, however—citing advocacy for a carbon footprint reduction from shareholders and dialogue with institutional investors, including Brown Advisory—Akamai executives announced plans to reach a 50% renewable energy target by 2020.

Social impact bonds (SIBs). These bonds finance public private partnerships aimed at providing social services through a performance-based contract. SIBs are backed by government entities but tap private impact investors for initial funding. If an SIB program succeeds, the government repays principal and a modest return to the impact investors. On the flip side, if it fails, the impact investor does not receive repayment. Given the structure of SIBs, investors should view these differently than conventional bonds. SIBs are not backed by tax revenue or the creditworthiness of the issuer. The return hinges on the outcome of a government-backed social program.

SIBs typically fund preventive programs and are attractive to governments aiming to spend money on projects that will avert greater costs in the future. Social Finance, a global nonprofit that pioneered the SIB concept, sold the first social impact bond in 2010 to fund programs aimed at reducing convict recidivism. Since then, SIBs have sought to address issues ranging from homelessness, youth crime and asthma among the poor. In a U.S.-based example, Goldman Sachs, J.B. Pritzker and United Way created the first social impact bond aimed at financing early childhood education in 2013. The Utah-based program expands access to preschool in order to avert the expense of high-cost remedial programs or special education for students in grades ranging from kindergarten through high school. We are very interested in seeing how SIBs evolve. The concept is still young, and many of the SIB structures to date have been first-of-their-kind initiatives.

Private funds*. Private equity and angel investors were among the first to back impact investing through the financing of businesses and myriad projects, including clean-tech, water, agriculture and infrastructure. Today there are many options for qualified purchasers, from private equity funds from managers such as Generation, to microlending investments with entities such as Microvest or Root Capital, to real estate investments focused on affordable housing or on redevelopment in targeted areas. Private funds vary on a risk/return basis, and each requires a careful, case-by-case review.

The potential return from a private-fund impact investment can rival that of conventional private equity or, for projects with a philanthropic intent, can be quite modest.

For many years investors faced a stark choice between devoting their capital either to philanthropy or to their investment portfolios. Impact investing opens up a spectrum of opportunities in between. As Thoreau would have perhaps put it, today there are many more ways to invest in goodness.

 

 

 

*Private funds may be only available to Qualified Purchasers and/or Accredited Investors.

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.



⚑ Impact

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

Investors Seeking Sustainability Gain Confidence Through Screening
By screening their portfolios, investors align their assets with their values and gain greater confidence in their long-term investment plans.

By Chad Larson, Strategic Advisor and Emily Dwyer, Equity Research Analyst
⚑ Screening

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

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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