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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 The Mortgage Market: Ten Years Later
John Henry Iucker
September 11, 2018

In San Francisco’s historic Sunset District, there is a charming 1,289 square-foot 2-bedroom home, brimming with potential. That potential stems not from its character, but from its price tag: At $995,000, it is one of the few homes on the market in San Francisco for less than $1 million, and far below the city’s staggering median home price of $1.62 million.

We’re nearly ten years removed from the 2008-09 mortgage crisis, and one symbol of the recovery is the broad rise in home prices across the country. But in the past year or so, some investors have grown concerned that another potential crisis is around the corner, citing data points such as the eye-popping prices in markets like San Francisco, as well as recent housing starts reports that suggest slowing growth in new construction. While these data points deserve attention, we believe that the broader array of data reveals a much healthier mortgage market than the one that existed before the 2008-09 crisis. While a housing pullback may be inevitable, the mortgage market is in much better shape, in our view, to weather it.

Chart 1: Delinquency Rates Falling; Inflation-Adjusted Home Prices Well Below Pre-Crisis Peak, 2000-2017

Chart 1: Delinquency Rates Falling; Inflation-Adjusted Home Prices Well Below Pre-Crisis Peak

Source: Mortgage Delinquency Rate: Federal Reserve Economic Data (FRED); Home Price Index: Brown Advisory calculation derived by subtracting the housing component of the Consumer Price Index from the S&P/Case-Shiller 20-City Composite Home Price Index.

  • As shown in the chart above, delinquencies have fallen for eight straight years, reaching a cycle low of 3.7% in 2017, down from a peak of 10.9% in 2010. This metric still has a ways to go before it reaches the sub-2% level we last saw in 2005-2006, and there is fundamental room for improvement (legacy assets from the crisis era are still working through the foreclosure pipeline).
  • Additionally, home prices are indeed lofty in the Bay Area and several other regions, but price trends vary widely regionally. National prices have surpassed their peak in 2006 on a nominal basis, but after adjusting for home-price inflation, current real prices are still 24% below that peak level (shown in Chart 1).

Chart 2: Subprime Mortgage Origination Has Declined To Negligible Levels

(Mix of Borrower FICO Scores: Non-agency Mortgage Origination, 2005 vs. 2017)

Chart 2: Subprime Mortgage Origination Has Declined To Negligible Levels

Source: Goldman Sachs

  • This chart highlights how much underwriting standards have tightened since the financial crisis. The quality mix of newly originated loans is much higher today relative to pre-crisis mortgages. In 2005, non-agency lending was a huge component of the lending market, but today, government-backed mortgages represent the vast majority of the market. And, within that non-agency lending segment, loans to subprime borrowers make up less than 1.5% of total originations (using a credit score of 640 or lower as a cutoff metric for subprime). In contrast, in 2005 nearly 25% of non-agency borrowers had scores below 640. Simply put, subprime lending was the root of the mortgage crisis, and from a big-picture perspective, subprime lending makes up only a tiny sliver of today’s mortgage market.

We understand the concerns some investors have expressed: For years, the central narrative supporting rising home prices was limited inventory and new construction that wasn’t keeping pace with demand. Recent data challenged that thesis. Below-consensus numbers for new housing starts and existing home sales in the past few months suggested to some that the supply crunch had dissipated.

But it is dangerous to extrapolate big conclusions from single data points. The housing market is a product of a multitude of variables—existing home sales, inventory figures, construction spending, mortgage delinquencies and broad credit mix in the MBS market are just a few of many indicators that fixed income investors should consider when looking at the mortgage market. Housing prices may pull back eventually, and interest rates and other factors could impact mortgage pricing in the short term, but from a fundamental perspective, the mortgage market appears to us to be on solid ground. 



 

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.