EXCLUSIVE INTERVIEW: Brown Brothers Harriman Confident Of Delivering To Investment Goods In Europe

Tom Burroughes

11 November 2014

, we have been able to broaden our discussions in the UK to include investment-oriented advisors as well as to Institutions, directly and via the well-established consultant relationships we have in the US. All our clients are institutional investors or professional intermediaries – we do not engage in direct retail activity. The Global Core Select fund is also registered to assist our conversations in France, Germany, Spain and Italy, although these countries are a secondary and more reactive focus.

What sort of time-frame does BBH have in how it views a successful development of its business? Does it have something such as a five-year plan?
Our overall business strategy with respect to future growth includes our commitment to pursuing opportunities that align with our principles. We have heard from many sources that success for a US investment manager entering the UK (and wider Europe) is dependent on three key elements: “Commitment, commitment and commitment!” and to that point the BBH London office celebrated its 40th Anniversary this year. We are looking for opportunities to grow our business, selectively and thoughtfully - the primary focus is committing time and effort partnering with the right clients and building long-term relationships.

What sort of targets in terms of client numbers, AuM, revenues, etc, does it have for the UK sector? How many people currently work at BBH in the UK?
As a privately owned partnership we can and do take a long-term perspective on our business. Given our thoughtful and selective approach, our business objectives are as much qualitative as they are quantitative – and most importantly always aligned with the best interests of our clients. But as an indication, we would like to build the Global Core Select UCITS sub-fund to $500 million to $750 million over the next five to seven years. There are 94 employees in the London office.

How is the firm getting its message across to clients (word of mouth, intermediaries, networking, other)?
We seek to develop long-term relationships with informed investors who understand and appreciate our investment approach. Our team and differentiated investment approach have enabled us to meet such investors. Our clients include institutions, financial intermediaries, and substantial investors from around the globe. We communicate our message to clients and prospects through building strong relationships with institutions, intermediaries, and investment consultants. Additionally, new business opportunities occur from referrals from existing clients. Lastly, we also participate in a number of investment conferences in the UK and globally.

Can you give me an outline of the general approach BBH adopts in managing client money?
BBH’s investment mission is to protect and grow our client's capital over full market cycles through investment principles that are consistently applied across each of our investment strategies. We expect to achieve this goal through a core set of investment principles that are common to all of our investment strategies:

Focus on Capital Preservation: We view risk as the likelihood of sustaining a permanent capital loss on any investment, rather than market volatility;
-- Value-Based Approach: We believe that the best way to protect and grow capital is by owning undervalued investments. We always seek to invest with a margin of safety to mitigate downside risk;

-- Bottom-up Fundamental Research: our investment teams conduct in-depth, fundamental research on each investment. We insist on knowing exactly what we own and why we own it;

-- Long-Term Perspective: Our partnership structure and the stability of our client base allow us to take a long-term perspective when making investment decisions;

-- Discipline and Patience: We will only commit capital to investments that meet our strict investment criteria.

What is distinctive about the BBH money management approach?
BBH is a privately owned financial services firm. The partners of the firm are the first investors in our strategies. By investing alongside our clients, the firm creates a perfect alignment of interests. We also have very clear disciplines which guide our investing approach so that we can deliver significant wealth creation to our clients over time. Importantly, we do so understanding that a key to wealth creation in portfolio investments is to preserve capital during the inevitable difficult market environments. We have been successful at preserving capital and creating wealth by:

-- concentrating investments in a limited number of great, durable businesses that do well in a range of economic environments;

-- only purchasing these investments when they are available with a meaningful margin of safety, which means they must be accumulated at prices well below where we believe they should be valued.

This investment philosophy has led us to deliver industry-leading returns over time, with a strong capital preservation mindset. We seek to identify businesses with specific competitive and financial attributes that create a self-sustaining and profitably growing enterprise. We find that our investment criteria are powerful and differentiated.

It is often pointed out that risk and volatility are not the same thing when thinking about how to manage portfolios. What is your view about how to preserve/expand client wealth and the approach you take in talking to clients?

At BBH, we do not consider risk and volatility to be the same. We define risk as a permanent loss of capital and our primary risk management goal is to avoid the permanent loss of capital on each investment. In this respect, we do not use tracking error or other traditional risk metrics in managing our portfolios. Rather, we mitigate business risk through our fundamental analysis and focus on selecting companies that meet our investment criteria. We also mitigate risk through our margin of safety principle which is a key tenant in our investment philosophy for all of our strategies.

Almost six years on from the 2008 financial crisis, where do you see the global economy in terms of prospects, risks and opportunities?
The great majority (approximately 95 per cent) of our time and resources are devoted to bottom-up security selection. While we are obviously aware of prevailing macro-economic trends and circumstances, and take them into consideration when analysing a company, bottom-up analysis is the primary driver of our investment process.

What are your main asset allocation positions at the moment? (underweights, neutral positions, overweights)?
Our strategies generally consist of concentrated portfolios with exposure to the opportunities we believe offer the highest potential for excess return. We do not actively manage our portfolios against a benchmark.

Where have you changed your stance most recently?
We have not changed our investment philosophy for the strategies we manage.

How much of your asset management comes from a "bottom-up", or "company-specific" approach?
Our investment process is driven by bottom-up, fundamental analysis of individual companies.

What is your approach to alternative assets such as hedge funds, private equity/venture capital, commodities, infrastructure, property, other?
We do not invest in alternative assets within our BBH Investment Management line of business.

Does your firm make much use of the insights of what is called behavioural investing, and if so, how?
No.

How many funds that are available to UK clients do you have at the moment, and what are they?
BBH Luxembourg Funds / Global Core Select
ISIN LU0949790561

Global equity, capital preservation oriented, long only, unconstrained, concentrated.

Do you have other points you wish to make?
With approximately $58 billion AuM, BBH's Investment Management business is intentionally focused on a few strategies where we believe we can provide discernible value to our clients. As a result, to use the vernacular, we're more 'boutique' than 'big brand' - a position, with our significant support and counterparty infrastructure that serves our clients and us very well.

As well as our focused investment approach, we are also focused in terms of the clients that we like to partner with - and we expend significant effort in identifying prospective like-minded investors.