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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 Subprime Auto Loans: Should We Be Worried?
John Henry Iucker
June 11, 2018

In recent years, signs of weakness have crept into the leading indicators for the three key consumer finance sectors—mortgages, auto loans and student loans. It’s true that indicators, such as delinquency rates for average consumers, have come off their post-crisis lows. But context is essential for understanding the real story, and whether these data points are a cause for panic, blips on the radar, or something in between.

Take, for example, subprime auto lending: Delinquency rates have been ticking up in this space for several years (see chart below for data on delinquency rates and market share in subprime auto lending market), unnerving some investors and leading to recent headlines like “Consumers Are Skipping More High-Rate Auto Payments than during Crisis.” However, context is key. It’s important to understand how the rapid growth of higher-risk lenders is skewing the data on delinquency rates.

In any lending market, there is a mix of responsible lenders and pockets of higher risk. Subprime auto is no different. The segment’s benchmark lenders, all owned by General Motors or Santander Bank, are experienced underwriters and generally maintain strict lending standards. In 2012, these lenders controlled nearly 90% of the subprime market, and since then they have kept a lid on default and delinquency rates.

Today, their market share is much smaller—benchmark lenders now only control about 50% of the subprime market. It’s not because they are shrinking; rather, it’s because new, aggressive entrants who see a high-risk, high-reward opportunity are growing rapidly. These new issuers often extend loans at high rates to the weakest borrowers. Many of them lack operating experience and do not have proven business models; in some cases, their alignment with bondholders is questionable. Their default rates are higher than more “traditional” subprime lenders and rising more quickly; because they are gaining in share, they are having an increasing impact on the aggregate credit profile for the overall segment.

THE RISE OF RISK

The subprime auto loan market has changed markedly since the financial crisis, with a host of new, aggressive lenders coming on the scene, driving market growth and gaining share. Benchmark issuers have kept default rates below 10%, while default rates for this new class of issuers are climbing back toward 15%.

Market Share and Default Rate Trends, Benchmark vs. Non-Benchmark Subprime Auto Lenders (2006-2018)

Source: Wells Fargo. As of Mar. 31, 2018.

Even though the data suggests that risk is somewhat concentrated in this higher-risk segment, rising delinquency is still meaningful. After all, one could say that the subprime mortgage crisis also started with looser underwriting among a subclass of lenders. But we also see a good deal of positive consumer data to counter concerns about consumer credit. Current consumer debt as a percentage of income sits near 10%, its lowest level since the 1980s. The economy is essentially at full employment, and consumer sentiment is near its post-crisis peak. Importantly, the Fed’s Senior Loan Officer Survey indicates that auto loan and credit card lending standards are tightening, not loosening. While caution in the subprime auto space is certainly warranted, a deeper dive beyond the headlines can help investors direct their caution more precisely and target their credit investments accordingly.

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.

AUTHOR

John Henry Iucker

Fixed Income Investment Team