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.

THE ADVISORY | SHADOW CONSUMPTION

Economic recoveries usually feature a surge in consumption as employment and wages rebound. Current U.S. consumption data might instead suggest that many consumers are on the sidelines. But rather than clutching their pocketbooks, consumers are reaching for their smartphones and using digital technology to find bargains online and to share goods, potentially influencing the data.

The U.S. economy is in its sixth year of expansion, the housing market is strengthening, initial claims for unemployment insurance have hit a 41-year low, and yet there is one group that seems noticeably absent from the party: the consumer.

Consumer spending accounts for about 70% of economic activity, so any weakness drags down growth, employment, wage gains and stock prices—the biggest engines of prosperity. During the year through July, retail sales increased only 2.4% even though the job market strengthened and aggregate personal income rose 4.1%. Economists say consumers are holding back because of cyclical problems like slow wage growth, a lack of available credit and a focus by households on paying down debt and boosting savings. They also cite the collapse of U.S. home prices last decade for jolting households into a mindset of frugality.

But we think far-reaching shifts in consumer behavior driven by digital technology are partly responsible for the slow growth in standard measures for consumption. Well-informed digital consumers expect a lot more for a lot less and, through Amazon.com, for example, can find bargains with quick delivery in an increasing array of goods. Consumers are also prompting the sharing, rather than buying, of myriad products and services—from vacation homes and bicycles to parking spaces and cars. The boom in companies that are harnessing these behavioral changes underscores how growth and profits will probably spring increasingly from consumption done with mobile devices.

Uber Disruption

The success of car-sharing services like Uber underscores how digital technology will disrupt traditional industries along with the standard measures for consumption. Each shared auto used by such services could displace nine traditional vehicles, according to a Barclays Capital report dated July 9, 2015. Auto sharing in the U.S. could push down demand for vehicles by 40%, reducing revenues for auto makers by about $200 billion.

While digital technology makes sharing much easier for consumers, two financial busts in the past 20 years have made it more attractive. Since the burst of the bubbles in dot-com stocks and U.S. home prices, consumers have questioned the satisfaction from purchasing material goods. They increasingly prefer to pay for access rather than ownership, for renting rather than buying. (Please see more on this trend on page 8.)

Changing consumer behavior is a main theme for our analysis of individual companies and has already created stark winners and losers.

Guests Who Pay

HomeAway is the largest company in the vacation rental industry, featuring an inventory of more than 1.1 million homes worldwide. With nearly 100 million travelers visiting its online marketplace every month, HomeAway is capitalizing on the willingness of consumers to shun name-brand hotels in favor of accommodations more tailored to their needs.

HomeAway seeks to beat hotels by offering more space and a lower price. Increasing consumer trust in online services like HomeAway is competing with the trust traditionally placed in brand-name hotels. The company, with a market capitalization of $3 billion, builds confidence among customers with guarantees and website reviews.

Digital technology influences not just where consumers spend their disposable income, but how they shop. Smartphones enable consumers to efficiently compare the features of a product, read reviews from users and find the lowest price.

Intensified pricing pressure means that producers of many types of goods have lost pricing power. The explosion in free consumer reviews of products (think TripAdvisor) is allowing smaller producers to unseat big brands in many categories of goods.

 

No Longer Homebound
The rate of U.S. homeownership has fallen to a level not seen since the 1960s even though the housing market has recovered from the meltdown in home prices last decade. Many Americans are renting rather than buying their homes.


 

 

E-commerce is especially threatening to retailers, where digital sales totaled $300 billion last year with annual growth of about 15%. In one measure of the challenge to traditional stores and clothing makers, online sale of used clothes offers a $34 billion market opportunity, according to Barclays.

Winning Paradigm

Our equity research team believes that future winners will leverage digital technology to offer transparency on pricing and rival-crushing bargains. We currently own several companies across our portfolios that align with this paradigm, including Costco, TripAdvisor and Priceline.

Amazon enables consumers to find bargains across a vast assortment of products and expect quick, doorstep delivery. The company has pressured several categories of companies to step up their efforts in e-commerce and is currently challenging media companies with sales of digital content. Amazon is well positioned to leverage its efficiencies in pricing and service with forays into apparel and food, which were once considered beyond its reach.

TreeHouse Foods, the largest manufacturer of foods carrying the brand names of supermarket chains, is a small-cap stock that is flourishing as consumers increasingly prefer small, niche brands over large producers with long-established labels. TreeHouse, now at $3.2 billion in market capitalization, is also leveraging greater consumer sensitivity over a product’s price and ingredients. Consumers have gained, paying about 25% less for foods with a private label than for traditional brands.

Companies like TreeHouse and HomeAway could flourish as digital consumers flex their newfound power to shape the price and features of what they buy.

 

Smile, Click, Share
For “Digital Natives,” tying one’s identity to things like a house or a car is so 20th century. Instead of ownership, they seek access to services and goods that provide fresh experiences to be captured on a smartphone and shared: travel, socializing, sports, adventure. They build meaning and a sense of place not on a home’s foundation, but in the digital cloud.
-Richard Gamper, Strategic Planning Analyst, Brown Advisory

 

Please download The Advisory to read other articles in this issue including:

Europe's Slow Climb
By Mick Dillon, CFA, Portfolio Manager, Global Leaders Strategy and Priyanka Agnihotri,CFA, Equity Research Analyst

Greece’s debt crisis has dominated the headlines in Europe this year but has not halted regional growth or vitality among European companies showing unexpected earnings strength.

Rude Awakening
By Stephen Shutz, CFA, Tax-Exempt Portfolio Manager

As recently as 2012 Puerto Rico was able to sell to investors public-sector bonds despite its bleak fiscal outlook and shrinking economy. The commonwealth’s default last month on a portion of $72 billion in troubled debt spotlights not just an ill-advised investment, but a pitfall in the municipal bond market.

Dream or Opportunity?
By Taylor Graff, CFA, Asset Allocation Analyst

China’s plummeting stock prices, slowing economic growth and currency volatility have pushed many investors out of the market. Nevertheless, we believe that a discriminating investment strategy toward China and neighboring emerging markets has the potential to yield meaningful long-term gains, especially from growth in China’s middle class.

Before Tying the Knot
By Chad Larson, Strategic Advisor

Although the divorce rate has fallen for many years, the emotional and financial costs from a split-up are often very high. Protecting inherited assets from a claim by a family member’s ex-spouse can help limit those losses. Such protection can be a cornerstone for sound estate planning.

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. 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. The companies written in bold-face are stocks currently held by Brown Advisory strategies. Terms and definitions: Price-Earnings Ratio (P/E Ratio) and Price-to-Book Value Ratio are ratios of the price per share of a company’s stock compared to its per-share earnings and book value, respectively.


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