After 10 years as an independent spinoff from the iconic Alex. Brown & Sons, Brown Investment Advisory & Trust Co. announced yesterday its first acquisition, a move intended to extend its reach in the Washington area and build on its niche with wealthy clients.
The Baltimore company is acquiring Beaty Haynes & Associates, of Bethesda, which manages $1.1 billion in assets. The deal - "not something we do everyday," in the words of partner William L. Paternotte - makes Brown one of the largest independent advisory firms in Washington.
"There's loads of opportunity in Washington," Paternotte said. "First, there is a good deal of wealth being created with venture capital, companies starting up and biotech activity. Second, there's a lot of old money in Washington - clients who want to improve their service level and investment quality."
Brown Advisory was founded in 1993 as an affiliate of Alex. Brown, the Baltimore investment house that underwrote the public offering of the B&O Railroad and later became the financial sustenance behind industry-defining companies such as Microsoft and Starbucks.
Brown's managers took the advisory group private in 1997 after Alex. Brown was acquired by Bankers Trust Corp, just three years shy of Alex. Brown's bicentennial. At the time, 1,500 people worked for Alex. Brown in the Baltimore area. The next year, Bankers Trust was acquired by Germany's Deutsche Bank AG for $10.6 billion.
In a financial climate marked by morphing and merging, Paternotte said Brown Advisory is steadfast in its mission to being itself. "Because there's no significant need for capital, there's no need for us to sell the firm or be a part of another firm," he said. "There's no need or plan, not at all. We'd much rather be independent and accountable to our clients than some third party."
Brown will take on eight partners from Beaty Haynes, increasing its employees to about 160 - 135 of those in Baltimore, Paternotte said. The full-service firm has arms in brokerage, mutual funds, investment and tax planning, family wealth administration, trust services, investment management and asset allocation.
Despite doing little advertising, Brown has accumulated more than $12 billion in assets under management from high-net-worth clients, including $1 billion in Washington. It offers 15 mutual funds in the categories of growth equity, value equity, small-cap growth, small-cap value, opportunity, international, real estate, Maryland bonds and intermediate income.
"Brown Advisory could be the - with `the' in quotes - investment firm of choice in the Washington metro area," said CEO Michael D. Hankin. "It's very difficult to build an investment firm with people in different offices, which is why this is a very unique situation. We're serving clients in two large markets but from one main office in Baltimore."
He also noted that before talk of the acquisition surfaced, partners in Baltimore already were working closely with clients in Washington, making the added office a natural fit.
"I think what's underappreciated is the strong investment performance we have," Paternotte said. "We don't advertise that."
Brown's stock funds, particularly those in growth stocks, have generally performed well against their industry benchmarks as measured by Lipper Fund Research. A little before the middle of 2006, Brown's value equity fund began outperforming the Lipper index as well. It has not done as well in some other areas. Since 2005, Brown's institutional real estate fund has consistently underperformed Lipper's index.
While Paternotte said the firm is not likely to expand its investment lines any time soon, it is watching the private equity world to judge whether it's overextended in it.
"There also may be some fallout from high-yield bonds that are used to finance the buyouts of private equity firms," he said.
"It's something we are watching very closely."