Asset Manager Research Overview of Baird’s Due Diligence … · Overview Our philosophy is built on the same principles that have made Baird a nationally-recognized ... She has

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Asset Manager Research Overview of Baird’s Due Diligence Capabilities

2 Robert W. Baird & Co.

Overview

Our philosophy is built on the same principles that have made Baird a nationally-recognized

name in equity research. We believe that due diligence is both an art and a science. As

such, we spend considerable time identifying investment opportunities that meet high

standards; however, we spend even more time trying to identify the “story behind the

numbers.”

• Professional oversight (as of 12/31/16)*

Manage $6+ billion in discretionary portfolios

Oversee $15+ billion

• Research coverage

80+ mutual funds

60+ separate account managers

25+ model portfolios

• Activity (average, on an annual basis)

325 conference calls

100 in-person visits

50 on-site visits

• Credentials

5 CFA (Chartered Financial Analyst) charter holders

4 post-undergraduate degrees

Average 10+ years experience

Due Diligence defined

Due diligence is the process

of investigation into the details

of a potential investment.

At Baird, it refers to the

process set in place to

research and monitor

investment managers before,

during and after that manager

is recommended to a client.

*Discretionary assets include those invested in Baird’s ALIGN Strategic or UMA Select portfolios. Oversight assets include those invested in Baird’s Recommended Managers and Mutual Fund programs, for which due diligence oversight is conducted.

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Asset Manager Research Team

Portfolio Management/Oversight

Robert W. Baird & Co.

Research

Laura Thurow, CFA Director of PWM Research, Products and Services

BA, Trinity College

MBA, University of Chicago

Year joined Baird/industry: 1999/1999

Previous Experience: equity research

Kathy Blake Carey, CFA Director of Asset Manager Research

BA, Yale University

MBA, University of Colorado


Previous Experience: equity research, portfolio management

Scott Osborne, CFA Senior Portfolio Analyst

BBA, Fort Hays State University


Previous Experience: bank examiner

Aaron Benson, CFA Senior Portfolio Analyst

BBA, University of Wisconsin - Milwaukee

MS, University of Wisconsin - Milwaukee


Previous Experience: performance measurement

Joe Lorbert, CFP Portfolio Analyst

BBA, Marquette University


Previous Experience: Private Wealth, due diligence

Maggie Savage, CFA Portfolio Analyst

BBA, Marquette University


Previous Experience: Equity Analyst

David Manke Portfolio Associate

BBA, UW-Madison


Previous Experience: Private Wealth, Operations

Portfolio Consultation

Geofrey Banda, CIMA Portfolio Consultant

BBS, University of Dayton

MBA, University of Cincinnati


Previous Experience: investment consulting

Debbie Binder

Asset Manager Research Coordinator

Carolyn Hagie

Analytics Specialist

Support

4 Robert W. Baird & Co.

Kathy Blake Carey, CFA

Kathy is the Director of Asset Manager Research for the Private Wealth Management

division. She is a co-portfolio manager for the ALIGN Strategic portfolios where she is

involved in the investment, asset allocation and rebalancing decisions as well as due

diligence of the portfolios. Kathy is also a voting member of Baird’s Equity Recommended

Portfolio and sits on the firm’s Investment Policy Committee.

Background

Prior to joining PWM Research, Kathy spent 9 years as an equity analyst and sector portfolio

manager at Northwestern Mutual’s public investment subsidiary Mason Street Advisors.

Before that she was a senior associate in Baird’s Equity Research Department covering

Utilities and Financial Technology for 4 years.

Education / Licensing

Kathy received a BA from Yale University and a MBA from the University of Colorado-

Colorado Springs. She has earned the CFA charter and is a member of the CFA Society of

Milwaukee. She also holds a Series 7 and 24 license.

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Due Diligence Process


1. Proprietary Screening Model

Model includes several quantitative metrics that resonate with the expectations of our client base. These include risk-adjusted

performance, consistency of performance, and down market risk.

2. Preliminary/Detailed Portfolio Analysis

Conduct conference calls with portfolio managers to understand what competitive advantages the firms/team has.

3. On-Site Due Diligence

Mandatory on-site meeting with key decision-makers where the objective is to assess how the team operates with one another.

4. Written Investment Thesis

A formal compilation of all relevant information discovered during the due diligence process that answers the question “why should

we hire this manager?”

5. Committee Approval

This process of checks and balances ensures that multiple perspectives are taken into account.

6. On-Going Due Diligence

Conduct regular conference calls and periodic on-site reviews to assess performance relative to our standards. Remove and

replace options as necessary.

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Metric

What It Measures…

Performance-Related Measures

Alpha Excess return after incorporating market sensitivity

Information Ratio Excess return relative to active risks taken

Risk-Related Measures

Sortino Ratio Excess return relative to downside volatility

Standard Deviation Overall portfolio volatility

Consistency-Related Measures

Capture Ratio How well an investment does in an up market relative to a down market

Batting Average The percentage of wins vs. losses against a market benchmark

ALERT (Algorithmic Evaluation Research Tool)


Measures Breadth of Results

Seeks Consistency of Results

RA

NK

TIME

We first categorize over 20,000 investment options

into specific asset classes before evaluating on a

variety of metrics.

Past performance, in and of itself, is a poor indicator

of future results. As such, we do not screen purely

based on performance. These metrics are designed

to capture the characteristics that our clients expect

from their investments.

Investment performance is cyclical and we are not

looking to recommend options that look great from a

historical perspective only to underperform going

forward.

We prefer to look at a larger body of evidence,

evaluating each metric over 29 different 3-year

periods. Consistency, in our view, is the key to long-

term success.

Investment

appears superior

Investment

appears inferior

ALERT captures

the long-term

average

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Portfolio Evaluation


• History and ownership structure

• Reputation, culture and compliance

• Growth objectives and trajectory Organization

• Who are the key decision-makers?

• Experience and depth of team

• Incentive structure and alignment with clients

• Cohesiveness and stability

People

• Competitive edge

• Decision-making process

• Repeatability of process

Philosophy & Process

• Portfolio construction and suitability for clients

• Behavioral biases

• Effectiveness of sell discipline

Portfolio Management

• Where is value being derived from?

• Historical record of holdings and transactions

• Best/worst environments

• Comparisons versus peers

Performance

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On-Site Examination


How much time is spent

on various functions?

How (and by whom) are

ideas generated?

We require an on-site meeting before making any recommendation. These personal

interactions are a key component of our process and allows to gain insights that are

not possible over the phone.

How dominant or

collaborative is the

decision-making

process?

What trends are the

team paying attention

to? Which influence

performance?

How well does the team

really know their

investments?

How will the firm’s

growth objectives

impact the portfolio

management team?

What type of

environment does the

team operate in? Is it

conducive to their

culture?

Can we verify that

procedures are in place

for compliance and risk

management?

How integrated are the

firm’s resources? How

does this benefit the

team?

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Investment Thesis


The investment thesis is the culmination of an analyst’s

work and addresses the simple question: “why is this a

good investment for clients?” A typical thesis is six pages

in length and includes qualitative and quantitative

assessments of the investment manager. It is also

disseminated to the Investment Committee before

deciding whether or not to recommend it.

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On-Going Due Diligence


Baird’s research process is designed to be continuous with as much effort being

put into manager selection as on-going manager evaluation.

On-Going Due Diligence

Regular conference calls

Periodic on-site visits

Attribution analysis

Compliance questionnaires

Performance review triggers

Under Review

Conditions are evaluated; analysis

intensifies

On Watch

A material breakdown in at least one

factor of our investment thesis; advisors

and clients are formally notified

Termination

No longer a high conviction option or

permanent impairment of our investment

thesis

Material Concerns

Immaterial Concerns

Concern

Persists or

Worsens

Concerns are Resolved

11 11 ©2015 Robert W. Baird & Co. Incorporated. Member SIPC. rwbaird.com. 800-RW-BAIRD.

Diversification does not ensure against loss. The investment strategies of the program and of the underlying funds may not prove to be

successful and an investor may lose money. Unless indicated otherwise, the underlying mutual funds discussed in this material are the

institutional class shares. While the ALIGN Strategic Portfolios are designed to provide an investor with diversification and asset allocation,

which should effectively reduce volatility, all investments are subject to risk. Some of the more pronounced risks of the underlying investments

of the portfolios may include the use of derivatives, exposure to foreign markets, high-yield bonds and small and mid cap companies.

Derivatives allow investors the potential to earn large returns from small movements in the underlying asset’s price. However, investors could

lose large amounts if the price of the underlying asset moves against them significantly. The term “derivative” indicates that the investment

has no independent value – its value is entirely derived from the value of the underlying asset. Investments in foreign and emerging markets

securities involve additional risks such as currency rate fluctuations, the potential for political and economic instability, and different and

sometimes less strict financial reporting standards and regulation. As the name implies, high yield bonds typically offer yields higher than

investment grade securities, but they also include greater risks including increased credit risk and the increased risk of default or bankruptcy.

An investment in small- and mid-capitalization companies often includes greater volatility and these companies face greater risks than those of

larger, more established companies.

ALIGN is a fee-based mutual fund advisory program. Because of this, an investor in the ALIGN program is subject to both a program fee

and to the management fees of the respective mutual funds within the program.

Please consider the investment objectives, risks, charges and expenses of the portfolio and any of the underlying funds carefully

before investing. This and other information is found in Baird’s Master Consulting Client Agreement, Form ADV and funds’

prospectuses or summary prospectuses. To obtain a Client Agreement, Form ADV and prospectus or summary prospectus, contact

your Baird Financial Advisor. Please read these materials carefully before investing.

Documents

Asset Manager Research Overview of Baird’s Due Diligence … · Overview Our philosophy is built on the same principles that have made Baird a nationally-recognized ... She has