Each year, Brown Brothers Harriman’s (BBH’s)
Private Banking business hosts Investor Day – an
event designed to bring together BBH clients, friends
of the firm and our investment teams in discussion
about the current market environment and both
our internal and external managers’ investment
philosophies. The 2016 Investor Day was held
in late September at The Plaza in New York City
and featured a variety of speakers in both panel
and interview formats. Participation was interac-
tive with our investment managers in attendance,
including AltaRock Partners, Barings, Burgundy
Asset Management, Clarkston Capital Partners,
Hitchwood Capital Management, Oaktree Capital,
Sandton Capital and Select Equity Group, as well
as members of BBH’s investment teams. Quality,
in-depth questions were addressed during formal
presentations and informal conversations.
Jeff Meskin, a BBH Partner and the head of Private
Banking, kicked off the day with a brief business
update, including a mention of our recently launched
branding campaign and acknowledgment of the
firm’s new Managing Partner, Bill Tyree. To set the
foundation for the remainder of the day, Meskin
shifted his attention to the current market climate
INVESTING
Author
Carson Christus
Investment Research Analyst
Investor Day:
Talking Markets and Philosophy with
BBH’s Investment Teams
Guest Speakers (left to right)
Row 1
Jenny Box, Oaktree Capital, Managing Director
Chad Clark, Select Equity Group, Portfolio Manager
James Crichton, Hitchwood Capital Management,
Founder and Portfolio Manager
Row 2
Anne-Mette de Place Filippini, Burgundy Asset Management,
Portfolio Manager
Jeff Hakala, Clarkston Capital Partners, Partner and CIO
Eric Lloyd, Barings, Head of Global Private Finance
Row 3
Mark Massey, AltaRock Partners, Principal and Portfolio
Manager
Rael Nurick, Sandton Capital, Managing Partner
Will Thorndike, Author of The Outsiders
1 Brown Brothers Harriman Quarterly Investment Journal
and BBH’s approach to investing, leading directly into a brief
panel discussion focused on the firm’s investment philosophy
and capital allocation strategy with Chief Investment Strategist
Scott Clemons and Brian Nelson, the head of our Investment
Research Group.
As the firm’s “chief worrier,” Clemons described our investment
approach as “worrying top-down and investing bottom-up.”
BBH’s Investment Research Group remains mindful of top-
down factors such as macroeconomic, political, currency and
regulatory changes. However, client portfolios are constructed
on a bottom-up basis, meaning that the characteristics and cur-
rent opportunity set of each individual underlying investment
manager drives allocation decisions. Meskin commented that
instead of trying to time markets, “we attempt to find manag-
ers that can compound capital over long periods of time” with
repeatable investment processes. He went further, stating: “A
CIO of an endowment office we respect recently described his
firm’s approach as ‘finding and allocating capital to 20 Warren
Buffetts early in their careers dispersed across the globe, getting
out of their way and letting them compound.’ That is essentially
what we are trying to do, too. While it is easier said than done,
we seek to combine high-conviction portfolios with prudent
geographic and asset type diversification.” BBH looks to allo-
cate to these managers over time in markets where attractive
asymmetric risk-adjusted returns can be achieved.
1
The next feature of the day was a panel of U.S.-focused eq-
uity investors, moderated by Will Brennan, a member of our
Investment Research Group and the co-portfolio manager of
BBH’s 1818 Partners strategy. Panelists Mark Massey, a prin-
cipal and portfolio manager at AltaRock Partners; Jeff Hakala,
a partner and chief investment officer at Clarkston Capital
Partners; and Michael Keller, a BBH Partner and the co-port-
folio manager of our Core Select investment strategy, shared
with the audience their respective firm’s investment philosophy
and approach. Not surprisingly, all three investors shared sim-
ilar investment criteria, though each portfolio looks slightly
different. For example, when selecting smaller market capital-
ization stocks for Clarkston’s small/mid-cap equity strategy,
Hakala seeks businesses that are simple, have high returns on
capital, possess competitive advantages that are unlikely to be
disrupted, are run by good stewards of capital and operate in
“micro-niche” oligopolistic industry structures that are not
large enough nor growing fast enough to attract large com-
petitors. As Hakala says: “We look for those where it is easier
to be right.”
2
The audience heard similar stories from Massey
and Keller, who each focus on the larger market capitalization
portion of the U.S. market.
Toward the end of the panel, Brennan asked Keller to discuss the
current market environment in which value-oriented investors
BBH Participants (left to right)
Row 1
Will Brennan, Co-Portfolio Manager of BBH 1818 Partners, L.P.
Carson Christus, Investment Research Analyst, BBH Private Banking
Scott Clemons, Chief Investment Strategist, BBH Private Banking
Row 2
Tim Hartch, Partner, Co-Portfolio Manager of BBH Global Core Select and
BBH Core Select
Michael Keller, Partner, Co-Portfolio Manager of BBH Core Select
Jeff Meskin, Partner, Head of BBH Private Banking
Row 3
Brian Nelson, Head of Investment Research Group, BBH Private Banking
Caroline Thomas, Investment Research Analyst, BBH Private Banking
Rick Witmer, Partner, BBH Investment Management
Investor
View
Brown Brothers Harriman Quarterly Investment Journal 2
have found it challenging to invest given elevated valuation
levels across most equity markets and sectors. Keller shared that
high valuations have certainly presented challenges for BBH’s
Core Select team, which focuses on identifying opportunities
to purchase shares of a company with a margin of safety,
3
or
buffer between price and intrinsic value.
4
For a strategy that
prioritizes business quality above all else, it has been difficult
to find these opportunities given that prices and valuations of
higher-quality companies and sectors, such as consumer staples,
are elevated in the eighth year of a bull market. Keller ended on
a high note, though, commenting, “The good thing is, you don’t
have to just stay along for the ride. We manage the portfolio to
first create, and then maintain, a margin of safety – not just in
each investment, but at the portfolio level overall.” As active
managers, Keller, Massey and Hakala are able to steer in and
out of investment opportunities depending on margins of safety.
A one-on-one interview with James Crichton followed, hosted
by Carson Christus, another member of the firm’s Investment
Research Group. Crichton is the founder of Hitchwood Capital
Management, which manages a global long/short equity strat-
egy. After providing an introduction to his firm and his team’s
investment approach and portfolio construction process,
Crichton discussed how he is approaching the current market
environment. Most interestingly, Crichton shared some of his
thoughts related to the ever-evolving investment landscape,
particularly for long/short managers. He began by admitting
that there is much more crowding into specific themes, ideas,
sectors and individual positions particularly among hedge funds
and that “with crowding comes the risk of ‘point volatility’ –
the idea that when a lot of long/short managers own a security,
there will be a lot more uncertainty around events or quarters.”
Crichton added, “From my perspective, when you are taking a
one-, two- or three-year view of a business, you have to be pre-
pared to underwrite that volatility.” When it comes to his team’s
investment process, he also acknowledged that as a result of
technological improvements over the past several decades, there
is now much more data available to analyze and that dovetailing
this work into Hitchwood’s bottom-up, fundamentally focused
investment approach is one way in which he has improved and
enhanced this process over time.
The next panel focused on non-U.S. markets. Anne-Mette
de Place Filippini, a portfolio manager at Burgundy Asset
Management; Chad Clark, a portfolio manager at Select Equity
Group; and Tim Hartch, a BBH Partner and the co-portfolio
manager of our Global Core Select strategy, participated in a
discussion hosted by Caroline Thomas, also of the Investment
Research Group. The panel’s structure mirrored that of the
U.S. equity panel; however, some of the themes or challenges
facing these investors differed given their focus on internation-
al markets, both developing and developed. As the portfolio
manager of an emerging markets strategy, de Place Filippini
discussed her intense focus on ownership structures and com-
pany management, as these structures and dynamics can be
very different in emerging markets from their more developed
counterparts. When asked about the role of cash in his strategy,
Clark explained that because Select Equity Group is not willing
to compromise on margin of safety to either buy a new position
or hold an existing one, the firm is comfortable holding excess
cash until more attractive opportunities present themselves.
Speaking at a time when his strategy held a significant amount
3 Brown Brothers Harriman Quarterly Investment Journal
of cash, Clark was optimistic that he would again have the op-
portunity to capitalize on attractive investment opportunities in
the future as market conditions evolve and views cash as having
option value in today’s environment. Hartch followed by noting
that “the amazing thing about individual securities is they are
very volatile, so if you are patient, you get an opportunity.”
The feature of the event was a fireside chat with Will Thorndike,
author of The Outsiders, and Rick Witmer, a BBH Partner,
long-time investor and member of several equity investment
teams at the firm throughout his career. During the discussion,
Witmer spoke with Thorndike about his book, which explores
eight unconventional CEOs that excelled at allocating capital,
as well as his investing career in the public and private domains.
When asked to summarize the key themes of The Outsiders,
Thorndike responded:
The best analogy for the book is duplicate bridge. Duplicate
bridge is an advanced form of bridge in which a group of
teams of two show up in a room. They are then divided into
tables of four, each of which is then dealt the exact same
cards in the exact same sequence – minimizing the role of
luck. At the end of the evening, the team with the most points
wins. So, it is designed to be a pretty pure test of skill. …
I would contend that over long periods of time within an
industry, it is duplicate bridge. If one company massively
outperforms its peer group, it is worthy of study.
In discussing the themes that spanned across each of the CEOs
profiled, Thorndike explained that “there are two things that
CEOs need to do to be successful over the long term. They need
to optimize profits of the business they are running, and they
then need to invest those profits – deploy the capital created
by those profits.”
5
To round out the day, BBH Partner Meskin hosted a panel fea-
turing three private credit investors – Jenny Box, a managing
director at Oaktree Capital; Eric Lloyd, the head of global pri-
vate finance at Barings; and Rael Nurick, a managing partner
at Sandton Capital. The panelists discussed the current fixed
income investing environment and how their strategies attempt
to generate attractive risk-adjusted returns in different parts
of a company’s capital structure. Lloyd described his strategy
at Barings as being focused around “not losing money and
picking up an attractive illiquidity premium that provides an
attractive current yield to investors – frankly, the more ordinary,
the better for us.” He added, “What we really do is provide
senior secured first lien loans … in the institutional market.”
In contrast, Nurick and Box focus on distressed credit oppor-
tunities both domestically and abroad. Sandton seeks illiquid
distressed business loans, which the firm buys directly from
commercial banks or workout desks, while Oaktree’s distressed
group purchases distressed debt across a wide variety of indus-
tries and geographies.
Overall, the event was a success, and BBH looks forward to
hosting our next Investor Day in fall 2017. Should you have
any questions about the event, please do not hesitate to reach
out to your BBH relationship manager.
1
For more information on BBH’s differentiated approach to building invest-
ment portfolios, read our fourth quarter 2016 InvestorView article, “BBH’s
Approach to Portfolio Construction.”
2
For more information on Clarkston Capital Partners’ investment approach,
read our second quarter 2016 InvestorView article, “Manager Spotlight: In-
terview with Jeff Hakala from Clarkston Capital Partners.”
3
Margin of safety: when a security meets our investment criteria and is trad-
ing at meaningful discount between its market price and our estimate of its
intrinsic value.
4
Intrinsic value: BBH’s estimate of the present value of the cash that a business
can generate and distribute to shareholders over its remaining life.
5
For more insights on The Outsiders, read our fourth quarter 2015 Investor-
View article, “Book Review: The Outsiders: Eight Unconventional CEOs and
Their Radically Rational Blueprint for Success.”
Investor
View
Brown Brothers Harriman Quarterly Investment Journal 4
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