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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
Year joined Baird/industry: 2013/1994
Previous Experience: equity research, portfolio management
Scott Osborne, CFA Senior Portfolio Analyst
BBA, Fort Hays State University
Year joined Baird/industry: 1998/1998
Previous Experience: bank examiner
Aaron Benson, CFA Senior Portfolio Analyst
BBA, University of Wisconsin - Milwaukee
MS, University of Wisconsin - Milwaukee
Year joined Baird/industry: 2007/2005
Previous Experience: performance measurement
Joe Lorbert, CFP Portfolio Analyst
BBA, Marquette University
Year joined Baird/industry: 2016/2011
Previous Experience: Private Wealth, due diligence
Maggie Savage, CFA Portfolio Analyst
BBA, Marquette University
Year joined Baird/industry: 2009/2009
Previous Experience: Equity Analyst
David Manke Portfolio Associate
BBA, UW-Madison
Year joined Baird/industry: 2011/2011
Previous Experience: Private Wealth, Operations
Portfolio Consultation
Geofrey Banda, CIMA Portfolio Consultant
BBS, University of Dayton
MBA, University of Cincinnati
Year joined Baird/industry: 2003/2001
Previous Experience: investment consulting
Debbie Binder
Asset Manager Research Coordinator
Carolyn Hagie
Analytics Specialist
Support
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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
Robert W. Baird & Co.
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)
Robert W. Baird & Co.
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
Robert W. Baird & Co.
• 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
Robert W. Baird & Co.
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
Robert W. Baird & Co.
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
Robert W. Baird & Co.
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
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