Investor brain trust to reunite

The Baltimore Sun

After a New York company acquired Alex. Brown Inc. in 1997, divisions of the venerable Baltimore investment firm - which helped finance companies ranging from the B&O; Railroad to Starbucks - began to go their separate ways.

And for almost that long, ever since his Brown Advisory division went independent in 1998, Chief Executive Michael D. Hankin has dreamed of bringing some of the brain trust back together. Yesterday, he announced an official reunion: Alex.Brown Investment Management's 25 employees will move from their downtown offices this fall to Fells Point, where they will merge with Hankin's team of about 170 people.

Terms of the transaction, expected to close in mid-August, were not disclosed.

The move restores to Baltimore some of the old Alex.Brown investment house glory at a time when another old-line investment firm - Ferris, Baker Watts - is being absorbed by the Royal Bank of Canada. Alex.Brown, now part of Germany's Deutsche Bank AG, was the country's first investment bank, a powerhouse long before T. Rowe Price or Legg Mason took hold in Charm City.

The combination of the two former affiliates, which will operate under the Brown Advisory name, will manage $18 billion in assets for several thousand clients ranging from institutional investors to wealthy individuals. It will have 20 analysts and the kind of diversified product portfolio that's necessary for survival in today's investment world, Hankin said yesterday from London, where his company has an office. The company also has eight mutual funds of its own, all of which are open to the public.

"Each of us has thought about this for a long time," Hankin said. "The investment business is challenging, even more so today with all the different alternative approaches to trying to make money. And given this increased complexity, having people who are bright and thoughtful under one roof, who can challenge each other, we thought would provide greater opportunities to make sensible investment decisions for our clients."

Where the investment house of even a decade ago was more akin to a general practitioner, knowing a little about a lot, most of today's firms have to specialize. There are thousands more funds - mutual, hedge, equity trust - to choose from compared to 1998, and asset managers are expected to be up on the ins and outs of each product and style, or they risk losing clients to those who are.

Bringing these two Brown firms together increases the investment approaches they can offer.

"What they're essentially trying to do is make a one-stop shop for your investing needs," said Joseph M. Seidel, an investment services analyst with the research division of Stifel Nicolaus. "It can just be daunting to your typical person that really doesn't know that much about investing with all the different options out there. The kind of trend you're seeing is more and more of your fund companies are moving toward a simpler solution for these people."

Alex.Brown Investment Management specializes in something its executives call a "flexible value approach."

"We really like the characteristics of a good growth business, but we don't want to pay much for it," said Bruce E. Behrens, one of two ABIM co-presidents. When his firm melds into Brown Advisory, he will become a partner and retain a lead management role.

Brown Advisory is a bit more diversified and more likely to invest in a pricey technology stock than ABIM, though that firm was once invested in AOL and IBM. About 80 percent of ABIM's clients are institutions, and the remainder high-net-worth individuals. It's the opposite for Brown Advisory.

Both companies began as affiliates of Alex. Brown & Sons, founded in 1800. It organized the country's first initial public offering of stock (the Baltimore Water Company in 1808) and helped found the Baltimore and Ohio Railroad in 1827. It went on to become the investment banker for hundreds of companies, underwriting the initial public offerings of stock for high-growth businesses including Microsoft, Oracle Systems, United Healthcare, Starbucks and Outback Steakhouse.

In 1997, it was acquired by Bankers Trust New York Co. in a deal valued at $1.7 billion. Two years later, the new firm was acquired by Deutsche Bank.

Hankin was the second employee of Brown Advisory, which was formed in 1993 as an affiliate within Alex.Brown. After the sale to Bankers Trust, Brown Advisory employees and directors bought the business and took it private in 1998. ABIM employees followed suit in 2001.

The two firms stayed closely linked over the years, with their businesses often overlapping and old friends meeting for lunch to swap ideas. Rick Bernstein, a senior portfolio manager for value equity at Brown Advisory, often got together with R. Hutchings Vernon, a director and portfolio manager at ABIM. The two men have known each other for 20 years, and would often trade thoughts about their respective businesses.

"I'm very excited about the opportunity to work with Hutch. ... This is sort of in a sense formalizing the relationship that Hutch and I have had over a long period," Bernstein said yesterday. "These are people I've respected and known very well my entire professional life. It's a challenging period in the investment world. The chance to work with a lot of raw talent with like minds is good stuff."

For Hankin, that relationship summed up the merger.

"You have two investment professionals who have shared ideas while at different firms choosing to team up together, and that's a big part of the story here," he said, stopping just short of calling the deal a financial version of getting the band back together.

"Each firm shares a very deep belief in fundamental analysis, and the idea that if you can find good businesses and own them a long time, you can make a lot of money," he said. "There are nuances that are particular to each group, but the core philosophies are shared."

Brown Advisory

Founded: 1993, as an affiliate of Alex.Brown & Sons. Employees bought it and took the company private in 1998.

Leadership: Chief Executive Michael D. Hankin.

Employees: 170

Headquarters: 901 S. Bond St., Baltimore

Focus: About $13.5 billion in separate accounts, mutual funds, and securities assets

Alex.Brown Investment Management

Founded: 1974, as the asset management arm of Alex.Brown & Sons. Principals took the company private in 2001

Leadership: Co-presidents Bruce E. Behrens and Lee S. Owen

Employees: 25

Headquarters: 217 E. Redwood St., Baltimore

Focus: About $4.5 billion in separately managed accounts

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