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.

BUILDING A PORTFOLIO TO OFFSET POSITION RISK

For years, our firm has built equity strategies that fit squarely into traditional style boxes, like “U.S. large-cap growth” or “small-cap value.” But when our clients tell us what keeps them up at night, they don’t speak in terms of style boxes; they ask for things like income, protection against a market correction or (of particular relevance to this publication) a way to offset the risks of a large, concentrated stock position they hold.

Today, we are focused on developing strategies that specifically address our clients’ stated needs. Working in close collaboration, our equity research team and private client portfolio managers have opened a new frontier in portfolio building, enabling us to offer truly customized portfolios that fit our clients’ specific circumstances.

As addressed elsewhere in this publication, we appreciate the many reasons that a client may want to maintain exposure to a large, concentrated stock position. Tax considerations may outweigh the risk of the position losing market value, and other factors may also come into play in the decision to hold the position. But to the extent that the client can deploy other funds—either from liquidating a portion of the concentrated position or from freeing up assets elsewhere—we can use those funds to construct a portfolio that can act as an anchor to windward that offsets the risk embedded in a client’s concentrated stock.

We recently had a situation where a client came to us with nearly his entire liquid net worth invested in one stock (the result of selling his business to a public financial services company). Let’s call the stock "XYZ." After consulting with the client, we decided to sell the XYZ shares over multiple tax years, but only if we could maintain the level of income currently generated in dividends from XYZ (the client relied on this income). So, our task was to build a portfolio of equities that matched or exceeded the XYZ dividend (approximately 3%) and whose performance was relatively insensitive to the specific attributes that drive the performance of XYZ. As a financial services company, those factors include interest rate sensitivity and financial-sector exposure.

Typically, we begin building a client-driven portfolio by targeting a specific metric or set of performance attributes. That was the case here: We were aiming for a specific minimum level of yield, plus a low level of sensitivity to the risks embedded in XYZ. By supplementing our research team’s fundamental stock-picking efforts with analytical tools to guide portfolio construction, we were able to target those specific income and risk reduction outcomes.

To begin, we analyzed XYZ stock’s performance over time in detail vs. that of a broad-market stock index to see how closely the stock tracked the index. We also tested its sensitivity to various economic and financial considerations (to identify what are commonly referred to as “macro risks”). Has the stock tended to move up or down in tandem with the financial sector? Has its performance been heavily influenced by changes in interest rates? Through our analysis, we found that the performance of XYZ stock was in fact strongly linked to both of these factors.

Armed with this knowledge, we then set about building a portfolio with reduced exposure to the primary macro risks we found in XYZ stock. The aim was to truly diversify the client’s risk—for example, if the financial sector suffers a major setback next year, we would expect XYZ stock to suffer, so we would want a portfolio that we believe could hold up relatively well in that scenario.

In terms of stock selection, we have a very strong head start: The body of research created by our global research platform (our equity research team performs deep due diligence on hundreds of stocks each year and meets with hundreds of management teams) gives us an ample universe of stocks that our team favors based on fundamentals and valuation. From this set of names, we can build a portfolio based on both our fundamental judgment (i.e., our highest-conviction stock ideas), alongside data that help us see how the addition of any name or the sizing of any position may influence the attributes of the overall portfolio.

What did all of this analysis eventually produce? After several iterations, we recommended a portfolio of 35 stocks—each of which were strongly recommended by our research analysts— that offered a yield of approximately 3%, volatility on par with the broader stock market and a low exposure to the macro risks embedded in XYZ stock. We determined that if the client sold 35% of his XYZ stock to fund this new portfolio, the resulting combined allocation (to be clear, 65% XYZ stock and 35% in this newly created portfolio) would cut nearly in half the client’s exposure to financial-sector and interest rate risk vs. the status quo of simply holding onto the initial position.

This exercise delivered a strong result for our client and also opened the door for a new solution that we can now offer other clients. Building an “offset” portfolio like this will not be the right answer for every client with a concentrated position, but we now have an additional solution to offer to clients in these situations.

The example shown is for illustrative purposes only. The investment team will customize portfolios to meet the guidelines, requirements, and risk tolerance of the client.

 

 

Any accounting, business or tax advice contained in this communication, including attachments and enclosures, is not intended as a thorough, in-depth analysis of specific issues, nor a substitute for a formal opinion, nor is it sufficient to avoid tax-related penalties.

The views expressed are those of the author 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 and should not be relied upon as investment advice and 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. The information provided in this material is not intended to be and should not be considered to be a recommendation or suggestion to engage in or refrain from a particular course of action or to make or hold a particular investment or pursue a particular investment strategy, including whether or not to buy, sell, or hold 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. 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, is for informational purposes only, and is not individually tailored for or directed to any particular client or prospective client.


⚑ Topics: Asset Allocation, Equities, Planning and Strategic Advice

Other articles in this publication include:

 

Introduction: How We Advise Clients With Concentrated Positions
⚑ Topics: Asset Allocation, Equities, Planning and Strategic Advice

Investment Planning Options
By Jane Korhonen, CFA, Portfolio Manager
⚑ Topics: Asset Allocation, Equities

Family Wealth Transfer Options
By Stuart Dorsett, Strategic Advisor and Head of Carolinas Office
⚑ Topics: Planning and Strategic Advice

Philanthropic Options
By Craig Standish, Strategic Advisor and Amy Seto, Strategic Operations Director
⚑ Topics: Planning and Strategic Advice

 

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