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.

PROPOSED TAX LAW CHANGES PROMPT ESTATE PLANNING REVIEW

Multi-generational planning, while best executed in prudent steps over long periods, sometimes requires a review because of changes in regulation or financial markets. Such is the case today amid consideration of changes to U.S. tax law.

A plan to maximize a family’s financial legacy usually saves the most tax by leveraging the longterm compounding of investments outside of the taxable estate. Adopting a program of planning early, and monitoring that program, often brings the best results. But saving tax is not the only objective— clients also need to know that their financial security is assured and that the long-term stewardship of family assets will be wise.

Harmonizing these concerns is particularly critical during times like today, when a change in law speeds up the planning process. The U.S. Treasury Department recently issued proposed regulations that would virtually eliminate valuation discounts on the transfer of shares in family businesses and investment pools held in Family Limited Partnerships or Limited Liability Companies, collectively known as FLPs.

The regulations are open to public comment and subject to change, and will not be effective before December at the earliest. Still, the possible elimination of the discounts in just a few months highlights the need for families with substantial assets to revisit their estate plans now.

Of course this is not the first time that a change in the law has spurred action. We undertook productive planning in 2012 when it appeared that gift and estate tax exemptions were about to shrink. Many trusts funded that year have grown outside of the grantor’s estate by 35% or more. During times like today, when looming deadlines accelerate the pace of decision-making, the fundamentals of prudent planning still apply:

Emphasize the key facts for the client’s consideration. Multi-generational planning can involve technical transactions that bear little resemblance to a client’s “real-world” experience. Explaining the technicalities is often only a modest help to clients. They need a practical understanding of what the proposed strategy will mean to them, and that varies from one client to the next.

As previously mentioned, gifts of interests in FLPs are a timely example. These entities provide centralized control and management of a pool of family assets. Many clients who have FLPs will soon be considering larger-than-usual gifts of FLP interests to take advantage of valuation discounts while they are still available.

To move forward, one client may need to understand her ability to borrow from the FLP if necessary. Another client may be interested in how the FLP can be used to engage her adult children in family finances. A client making gifts of a family business may be focused on the impact of succession planning. In each instance the planning process needs to emphasize the aspects of the transaction that are critical to the client. The same basic process and considerations apply to other irrevocable components of a multi-generational plan.

Build the plan over time. The best results are achieved with a long-term, persistent approach. This iterative process allows clients to build on past planning successes each year and take larger steps as their circumstances permit. Sometimes the best way to start is with annual cash gifts that are tax-free up to a current limit of $14,000 per individual. By making those gifts to trusts, and/or by transferring a share to a family entity like an FLP, clients can keep control or devise a plan for stewardship that meets their approval. FLPs can also be particularly helpful early in the construction of a multi-generational plan. Interests in these entities can be transferred in many ways without disrupting the management of portfolios or control of the FLP. This ability to regularly transfer assets can enhance the long-term estate planning process even if valuation discounts go away.

We collaborate with our clients and their outside advisors to generate and assess planning ideas. Our ongoing investment dialogue with clients gives us insight into many aspects of their lives, including their business assets, cash flow needs and family dynamics. By listening to clients, we seek to marry our understanding of their goals with our knowledge of strategies that best fit their needs.

A recent conclusion of an estate tax audit marked the end of a 30-year planning process for a family we will call the Smiths. An FLP funded with $30 million in 2002 was a key element of their long-term planning process. Given low liquidity needs and a long time horizon, the assets were invested for long-term growth.

By the end of 2013, when the surviving spouse died, the value of the FLP had expanded 2.6 times to $78 million and was largely owned by trusts that were outside of the estate. By the end of 2015, the partnership value had risen to $90 million, or three times its original amount. The entire partnership—along with its future growth—is now permanently sheltered from estate and gift tax in long-term trusts. A total of $10.5 million in gift and estate taxes was paid in connection with this planning. Absent the planning, $39.2 million of federal and state estate taxes would have been due at the surviving spouse’s death.

The savings for the Smiths illustrate the dramatic benefits that can be achieved through a thoughtful approach that avoids transactions made in haste and aligns closely with a family’s goals for governance of their assets over the long term.

 

 

 

* Private credit 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.



⚑ Strategic Advisory

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

 

Investors Facing Rising Risks Need Solid Defense, Savvy Offense
Increasing political and economic risk during the past year has widened the range of possible positive and negative scenarios for financial markets. Consequently, investors need to build a solid defensive position while seizing opportunities that arise amid the instability.
By Taylor Graff, Head of Asset Allocation Research and Ed Chadwyck-Healey, Head of International Private Clients
⚑ Investment Outlook

Falling Interest Rates Trigger Investor Hunger For Yield
Investors snapping up U.S. securities are seeking yield as much as safety as interest rates plunge toward record lows.

By Tom Graff, CFA, Head of Fixed income and Lyn White, CFA, Credit Analyst
⚑ Fixed Income

Defense Industry Stocks Gain Amid Rising Global Tension
Geopolitical instability and the end to nearly a decade of budget austerity have improved the prospect for defense industry stocks.

By Adi Padva, Equity Research Analyst
⚑ Equities

Private Credit Outshines Many High-Valuation Stocks, Bonds
Private credit occupies a sweet spot on the investment landscape, offering earlier distributions than private equity and higher yields than most publicly traded securities.

By Meera Patel, CFA, Director of Private Equity Fund Research and Jane Korhonen, CFA, Portfolio Manager
⚑ Alternative Investments

 

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