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 | DIAMONDS IN THE ROUGH

Weak commodity prices and flagging emerging market economies have dimmed the outlook for energy and metals companies, and are shaking up the high-yield bond market. Through conservative, bottom-up analysis, we are taking advantage of current market dynamics to buy attractively priced debt in companies with solid revenues and limited vulnerability to an economic downturn.

More than at any other time this decade, finding attractive high-yield bonds is like unearthing diamonds in a minefield. Debt in well-managed companies positioned to weather an economic slump return nearly three times the 2.3% yield of the 10-year Treasury bond. But at the same time, with 5% of high-yield bonds selling at distressed levels, we see a market indication that corporate bankruptcies may rise in 2016.

The market for high-yield bonds has become increasingly polarized as falling energy prices and slowing emerging market economies have broadly crimped company revenues. Within the $450 billion high-yield market, less than 60% of high-yield bonds sell for more than face value compared with more than 90% in June 2014.

Further, among the $195 billion in debt with yields at least 10 percentage points above the yield of the 10-year Treasury, only $3 billion was sold this year. The low volume indicates a reluctance among investors to roll over debt for stressed companies.

Critical Eye

Market weakness presents an opportunity to find attractive securities through bottom-up research and a detailed assessment of downside risk. In our search for diamonds, we are taking a conservative approach and vetting each high-yield bond based on a hypothetical scenario of a U.S. recession, even though we do not believe the U.S. expansion will end in 2016.

We are especially leery about securities issued by companies in the commodity sector, including oil, gas, metals and mining. Many of these firms borrowed heavily to fund acquisitions or capital projects based on overly optimistic forecasts for growth. Yields as high as 20% do not, in our view, compensate for their credit risk and the prospect that commodity prices will remain depressed.

Instead, we are buying debt sold by companies with comparatively low vulnerability to the economic cycle and business models that provide steady revenue streams. Here are some of our recent purchases, yielding between 4% and 6%:

Synovus Financial, a commercial and retail bank operating primarily in the Southeastern U.S., built up substantial reserve capital while recovering from the Great Recession in 2008-2009. We consider Synovus, based in Columbus, Georgia, an attractive target for acquisition or an upgrade to an investment-grade rating.

"History offers many examples of investors burned by high-yield bonds sold by overleveraged companies."

Isle of Capri Casinos operates casinos in the U.S., primarily in the South and Midwest. The company has no operations in Las Vegas, Atlantic City and other tourist hubs, relying instead on more stable visits by “day-trippers.” The company, after reducing its debt, gained a ratings upgrade from Moody’s in September to B1 from B2.

Carroll’s Restaurant Group, the largest Burger King franchisee in the U.S., has increased both gross sales and profit margins on improvements in the fast-food restaurant’s menu and marketing. Carroll’s is viewed as a valuable partner for Burger King and is often asked to turn around floundering franchises.

History offers many examples of investors beguiled and then burned by high-yield bonds sold by overleveraged companies, from telecommunications firms in 2000 to homebuilders in 2007 to coal mining companies in 2014. By following a disciplined and patient approach, we hope to avoid these “value traps” and instead invest in bonds with robust yields and limited risk of default.

 

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

Off the Beaten Trail
By Taylor Graff, CFA, Asset Allocation Analyst

Investors should expect the market swings of 2015 to carry over into the new year, driven largely by concerns over weak global growth. We are recommending that clients consider high-yield bonds and other asset classes that can offer the prospect of solid gains that diverge from the path of traditional stocks and bonds.

Anchoring Expectations
By Mark Kodenski, Private Client Portfolio Manager

Stock market corrections can prompt investors to impulse selling or other moves that are often harmful to their long-term financial well-being. By walking through four steps with a client, we can refocus his or her mindset on the fundamental issues that help safeguard financial stability and achieve steady outperformance.

Ensuring Legacies Last
By Joe Ferlise, Strategic Advisor

Heirs who are unprepared for an inheritance may find that a big windfall can quickly become a mixed blessing. An essential step in estate planning is making sure beneficiaries know all the responsibilities and challenges that accompany the management of increasing wealth.

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.


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