MIKE HANKIN, President and CEO
D
Welcome!
Brown Advisory is privileged to benefit from your interest and support as our clients, shareholders, colleagues and friends. We are pleased to share this report and look forward to discussing it with you and listening to your thoughts and questions.
As in past years, we have used the writing of our annual report to challenge ourselves. We address topics and questions that we believe deserve important consideration. Thus, past years have been centered around subjects ranging from “Nuance” and “Intangibles” to “Puzzles” and “Mountains,” all of which were aimed at helping us articulate both the challenge and opportunity presented by our growth. This process has been catalytic for us. It has allowed us to take time out from our daily routine to reflect, to sift through ideas and, in the simplest terms, to take time out to think. This year, we believe it is important —— perhaps even existential —— to focus on the value of thinking and the challenge of finding the time and space to do it well.
When do we have time to think? This is the question on our minds. Walk through an airport or hotel lobby, and nearly every single person is looking at a mobile device. Take a peek at just one of the devices we are holding (yes, it applies to all of us) and the relentless stream of information is very difficult to ignore. Our days in the office are filled with more meetings than ever as the ease with which someone can put a Zoom call on our calendars leaves little time for pause and reflection. Head home and we often find our evenings and weekends booked as well.
So, when do we have time to think? We are asked this a lot. It’s not part of a casual conversation but a sincere inquiry. With all the things taking up our days, how can we do our jobs? How can we invest successfully? How can we look after you —— our client?
We discussed these questions in part in last year’s annual report where, on the occasion of our 25th anniversary as an independent and private firm, we dedicated the report to this question: Why is independence so important? We argued that being independent is critical to being an independent thinker. This is only step one, though. We will only benefit from our independent ownership if we make time to think. We will make time to think only if we understand and value the benefit of thinking and we become equally familiar with the negatives of spending little or no time on thinking.
Until recently, we might not have spent much time considering the tension between reflection and distraction and what it means for the value of thinking. Likewise, very few of us would have argued that thinking was “overrated.” That changed with OpenAI’s release of ChatGPT in November of 2022. Subsequently, Microsoft, Google, Facebook and more were all launching their own AI-enabled large language model programs. It was not hard to find someone saying that thinking and writing could and would be replaced by these artificial intelligence tools. At that moment, we realized that the theme of this year’s annual report must be “thinking” —— why it is valuable and why we must make time to do it well.
We have learned a great deal in writing this annual report. All of us began the process with a sincere belief in the value of technology. While still new, we are also optimistic about the benefits of artificial intelligence on our collective productivity. Our thinking about thinking, however, will require us to slow down to make sure of two things: that the efficiencies promised by new technologies actually result in more time to think and that the outsourcing of thinking-adjacent tasks (e.g., writing) does not dull our thinking edge. It is also up to us to curate our schedules and to protect our time for thinking —— something that few of us have ever tried to do in a serious way. Time is clearly a non-negotiable prerequisite. Effective thinking requires contemplation, reflection, revisiting a question or issue, calculation, analysis, listening to alternative views and a lot more. It includes confronting our emotions as well. We believe mixing and matching these ingredients in unending and uncommon ways will allow us to create extraordinary things —— as investment and strategic advisors, as leaders in the workplace and in the community and, importantly, as family members and friends.
This exercise has also helped us appreciate that some of the best lessons on the importance of thinking have come from our clients. From the very beginning of Brown Advisory, we were challenged by our clients to build teams of portfolio managers, strategic advisors and client service professionals who would always be thinking about them. Our clients are busy —— building businesses, inventing new things, allocating capital, carrying out serious research, running institutions, endowments and foundations, and looking after their colleagues and their families. They look to us not just to propose answers and solutions to the questions on their minds but to think of the questions that they should be asking. Our clients have asked us to put things into perspective for them: How will all of the things that occupy the media impact them? What should they worry about? What can they do about these things? To do all of this successfully, our clients are counting on us to use our time to think and reflect for and about them.
In this report, our goal is to reflect both on how “thinking” has created value for our clients, colleagues and communities and on how we are dealing with the challenge of creating more time to think. We are all learning and endeavoring to adapt. This starts with reflecting on our past experiences and by observing and listening to others.
We have long stressed with our colleagues the importance of listening, but the benefits are not fully felt without taking time to think about what we heard. With the intense focus that working on this annual report has required, we have also identified some new tools and ways to create serious segments of time. We dedicated significant focus to this topic in our annual strategic planning session and have added it to the agenda of weekly team meetings. Our colleagues are creative! Bringing in experts to our offices to speak “live” versus a podcast on a broad range of topics. Launching a “think week” where teams can take time away from our daily routine to discuss books they have read. Eliminating internal meetings from afternoons (this one is brand new!). Encouraging “think walks” around the block for one-on-one meetings or personal reflection. Expanding our tuition reimbursement program to cover studies outside of a traditional MBA. These are just some of the things we are trying, and we look forward to hearing your ideas too.
As is customary, we also provide in this report some financial information on Brown Advisory. We ended 2023 with client assets of approximately $148 billion, up 20% from the year prior. This performance restored the firm to slightly above its position at the end of 2021, prior to 2022’s significant market slide. Revenues for the year were up $103 million on a run-rate basis, and EBITDA was up 43%. Yes, the markets seemed to be in our favor in 2023 with the S&P 500 up 24%. Most of you are aware, though, that this increase was due primarily to just seven stocks; the equal-weighted S&P 500 was up only 12%. For Brown Advisory, the difference was due to reassuringly high rates of client retention, nearly 99%, and very meaningful gross new business —— just under $20 billion. This strength has continued into 2024 —— as of the end of June, client assets were $159 billion, run-rate revenue was $625 million and gross new business for the year sat at $12 billion.
When we shared our 2023 results with our shareholders early this year, we noted that we believe we have made steady progress. These words contain important nuance for us; we have never set a goal to be a certain size or grow by a certain amount. As a private company, we are not under pressure from Wall Street analysts to comment upon how much or how fast we should grow. Our future is determined by whether we are in the best position to serve our existing clients. There are many components to answering this question, ranging from whether we have the right team in place, to our access to the best investment strategies, to the state of our technology platform. We are energized by the opportunity of new clients who often bring perspectives and dynamism that benefit others. But we are very aware that it requires a balance; hence, our focus is on steady progress.
For us, writing this report is about the future. What do we need to do to serve clients successfully? We need to invest in new investment strategies internally and through relationships with other firms around the globe. We need to continue to build out our technology platform. We need to remain independent and private. We need to continue to add to our team, bringing in talented colleagues who are intense, who care about each other and who get things done. We also know that celebrating the benefits of thinking and making more time for it will increase our colleagues’ capacity to drive value for clients.
In closing, we wish to express our gratitude for your continued interest and support. You have our commitment to make time for thinking and reflecting on your behalf.
Sincerely
MIKE HANKIN, President and CEO
GO BACK:
Introduction
UP NEXT:
Part I: The Value of Thinking
