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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
Asset Allocation Strong Defense: The Falling Opportunity Cost of Allocating to Bonds
Taylor Graff, CFA
July 24, 2018

For years, “defense” in portfolios—i.e., allocations to cash and core fixed income holdings—has meant a willingness to accept extremely low returns. But after many years of economic recovery, we finally have reached a point where defensive allocations once again provide a reasonable yield.

Many noisy political topics have dominated the investment discourse in 2018, but underneath that noise and volatility, the drum beat of rising interest rates in the U.S. has been steady and consistent. After nearly a decade sitting near zero, the effective Fed Funds Rate (as tracked by the St. Louis Fed) rose above 50 bps at the end of 2016, and since then has ticked up to 180 bps as of June 30, 2018. While still low by historical standards, the Fed’s hiking has spurred rates elsewhere (the 10-year Treasury yield briefly poked above 3% in April, and now sits between 2.8% and 2.9%).

The U.S. bond market's yield is at its highest level in over eight years.

Source: Bloomberg.

As a result, it may make sense for investors to consider decreasing equity allocations and increasing fixed income allocations within their portfolios. (As always, such decisions are highly dependent on a given investor’s specific circumstances.)

Three Factors Supporting a Shift from Equities to Bonds

We still believe that equities offer healthy opportunity, and the fact that the current economic expansion is simply “old” has never been a sufficient reason for us to lose confidence in it. But beyond the economic cycle’s age, several factors suggest that a more defensive mindset is worth considering:

  1. Valuations are elevated. This is true in various regions, but particularly true in the U.S. Robust Q1 2018 earnings growth improved the valuation picture for U.S. stocks, but they are still pricy by historical standards. It is worth noting that valuations are more reasonable in developed international and emerging markets; however, U.S. valuations are critical given the large role that U.S. stocks play in most investors’ core equity allocations.
  2. The economic expansion may be reaching its limits. Rising interest rates, a flattening yield curve, continuing inflationary pressures and unemployment falling to multi-decade lows—we believe that all of these facts are indicative of an economy that is at or beyond full potential. The flattening curve has received a good deal of attention recently (the 2-year/10-year Treasury spread has narrowed to a mere 25 bps as of December 31, 2016), while the more traditional measures of employment and inflation have offered reasons for caution for some time. (We always emphasize, however, that we can’t predict the near-term direction of the economy and don’t base investment decisions on such predictions.)
  3. Meaningful political and economic risks exist for stocks. We discussed some of these risks at length in our 2018 asset allocation report, “Confronting the Unknown.” While the military threat in North Korea has, for now, appeared to recede, the potential impact of protectionist trends on global trade has only strengthened since we issued our report earlier this year.

Indicators point to a U.S. economy near full potential

Source: Bureau of Labor Statistics for unemployment data; Bureau of Economic Analysis for inflation data; U.S. Treasury for yield spread data.

With all of this in mind, we believe that bonds have gained some ground on stocks in terms of the risk and potential reward each asset class represents. The opportunity cost of defense is lower today than it has been in many years. 

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.

Yield-to-Worst (YTW) is the lowest potential yield that can be received on a bond without the issuer actually defaulting. The YTW is calculated by making worst-case scenario assumptions on the issue by calculating the return that would be received if the issuer uses provisions, including prepayments, calls or sinking funds. This metric is used to evaluate the worst-case scenario for yield to help investors manage risks and ensure that specific income requirements will still be met even in the worst scenarios.
Bloomberg Barclays U.S. Aggregate Bond Index is a market capitalization-weighted index, meaning the securities in the index are weighted according to the market size of each bond type. Most U.S. traded investment grade bonds are represented. Municipal bonds, and Treasury Inflation-Protected Securities are excluded, due to tax treatment issues. The index includes Treasury securities, Government agency bonds, Mortgage-backed bonds, Corporate bonds, and a small amount of foreign bonds traded in U.S.
Bloomberg Barclays Indices are trademarks of Bloomberg or its licensors, including Barclays Bank PLC.
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