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Equities Fixed Income External Managers 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.

Brown Advisory Equity Strategies

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.

Brown Advisory Fixed Income Strategies

External Managers

Investment Solutions Group

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.

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.

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.

Investment Insights and Thoughts from Brown Advisory
Fixed Income MLPs Are “Simplifying” Away Their Dividend Payouts
Lyn White, CFA
May 23, 2018

Investors like buying master limited partnerships (MLPs) because they want to earn yield. MLPs historically offered energy pipeline investors a powerful combination of low risk, high growth, and high dividend yields. But in recent years, various MLP structures have proven to be more of a pipe dream, leading to meaningful reductions in payouts to investors.

The MLP structure has always been complex. In exchange for that complexity, it offered tax advantages that often led to a lower cost of capital than traditional corporate structures could. At the risk of oversimplifying, today’s MLPs are running up against several structural walls that make their promises to investors unsustainable. A key challenge has been the Incentive Distribution Rights, or IDRs, that MLPs traditionally granted to their parent companies. IDRs essentially require an MLP to pay out an escalating percentage of cash over time, which eventually creates an unsustainable cost of capital—at some point, the MLP is unable to find new projects that offer high enough returns to justify investment.

As a result, many MLPs have either collapsed their MLP structures and returned to a more standard operating company model, or retained the MLP model but eliminated the IDRs. Companies often refer to these as “simplification transactions,” but in reality, these are effectively dividend cuts that address an unsustainably high payout. Kinder Morgan—historically the bellwether for the asset class—collapsed its MLP in late 2014, and a variety of others have followed suit.

MLPs That Have Been Collapsed or “Simplified” In Recent Years

MLPs That Have Been Collapsed or “Simplified” In Recent Years

Source: Bloomberg

This year, regulatory pressures are mounting for MLPs. Specifically, the MLP universe was surprised in March when the Federal Energy Regulation Commission (FERC) disallowed a rate-setting practice that was highly favorable to the MLP structure. Pipeline operators set their rates according to a FERC-regulated “cost-plus” formula. For many years, this formula included projected tax expenses—even within an MLP structure that did not actually pay those taxes. The FERC ruling removed this favorable treatment, eliminating a powerful structural advantage for MLPs.

On the heels of this FERC ruling, Enbridge and Williams Companies—two notable players in the shrinking MLP universe—recently announced plans to “simplify” their MLP structures. Enbridge announced it would acquire its four MLP vehicles (including Spectra Energy Partners, one of the largest MLPs in the U.S.), in a transaction financed by issuance of new equity from the parent company that is expected to reduce distributions by roughly $700 million per year. Williams announced similar plans to acquire its MLP vehicle, Williams Partners. The pending transaction offers some tax benefits for the company’s regulated pipelines, but Williams effectively cut the dividend payout last year when it eliminated the IDRs associated with Williams Partners. The key takeaway: Both Williams and Enbridge are meaningfully reducing the dividend payouts to investors from these energy assets.

MLPs face big structural and regulatory challenges, and these recent transactions are further evidence of those challenges. But MLPs are just one way to invest in oil and gas—there are still plenty of attractive opportunities in the energy sector. Equity investors can find an attractive and sustainable mix of growth and yield in the energy sector, and savvy credit investors can invest in corporate bonds of midstream companies offering attractive yields. 

The views expressed are those of 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 or asset classes mentioned. It should not be assumed that investments in such securities or asset classes 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.

Any business or tax discussion contained in this communication is not intended as a thorough, in-depth analysis of specific issues.