On May 20th, Brown Advisory held its biennial client conference, entitled Navigating Our World, or NOW. As before, NOW 2010 brought together a collection of outside speakers to explore some of the secular trends that are shaping our world and influencing our investment thinking. Over the course of the day, we immersed ourselves and our clients in topics around three themes: emerging markets, sustainable solutions and the technology horizon. The full agenda can be downloaded here:
Brazil has long been known as a country of vast potential. The old saying on Brazil is that it’s the country of the future and always will be. But when Brown Advisory sent a team there in March as part of research trip, we came away incredibly impressed, and all indications are that Brazil is beginning to deliver on its promise.
As one of the famed emerging market BRICs (Brazil, Russia, India, and China), Brazil is a country that investors are increasingly paying attention to. Florian Bartunek, whose Sao Paulo-based investment firm focuses on Brazilian equities, joined us at NOW 2010 to talk about the opportunities and challenges of investing in Brazil. And, except for the recent stock market pullback in Brazil – about 20% – things are looking very positive for Brazil’s future.
Bartunek noted that if the Brazilian market of the last decade was dominated by export-driven commodities market (commodities-related stocks currently make up about 50% of the Bovespa, the Brazilian stock market), he predicts the coming decade will be one of “domestic plays”–that is, those companies that serve Brazil’s emerging middle class. And the opportunity here is enormous. In housing, for instance, years of hyperinflation prevented the development of a mortgage market. Today in Brazil, mortgages are only about 2% of GDP (compared to around 80% in the US and about 10% in other emerging economies like Mexico and China).
Unlike much of the developed world, Brazil has favorable demographics and a solid fiscal situation. Short-term concerns, like the presidential election this fall, are almost universally thought to be incapable of derailing Brazil’s positive long-term trajectory. Furthermore, the prices on Brazilian stocks are relatively cheap, especially with the market’s recent pullback.
Although Brazil may still be the country of the future, it now looks like Brazil is beginning to deliver.
Many of us take water for granted. We simply turn on the tap and it flows. But that’s certainly not the case in the world over. Arid landscapes, low rainfall and fast depleting underground water tables make water scarcity one of the most pressing issues facing a majority of the world’s population today. Closing the supply-demand gap for the world’s resources will not be a question of if, but rather a question of when.
In conjunction with the Charting Our Water Future discussion at NOW 2010, Brown Advisory marketing strategist, Kif Hancock, published our own report on the issue of global water scarcity. Please click below to download the latest Brown Advisory Briefing.
On May 20th, Brown Advisory held its biennial client conference, entitled Navigating Our World, or NOW. As before, NOW 2010 brought together a collection of outside speakers to explore some of the secular trends that are shaping our world and influencing our investment thinking. Over the course of the day, we immersed ourselves and our clients in topics around three themes: emerging markets, sustainable solutions and the technology horizon. The full agenda can be downloaded here:
Few of us realize how much water we require in our daily lives. Each day, indoor per capita water use in the typical U.S.? single family home amounts to approximately 69.3 gallons. Of that, showers and toilets alone account for more than 43%. By comparison, the average two-egg omelet we consume prior to leaving for work requires approximately 130 gallons to produce. Complementing two eggs with a single cup of coffee takes another 37 gallons.
The story of water, however, does not end there. In industry, manufacturing a single ton of steel entails the use of more than 62,000 gallons. Silicon chip fabrication consumes nearly 2000 gallons of ultra-pure water for a single, eight inch wafer. The entire energy production process, from the extraction of critical natural resources like coal, oil and natural gas to the conversion of those resources into electric generating capacity, relies on facilities having perpetual access to fresh water. Meaning, the story of water is the story of human consumption
Our speakers from McKinsey offered a different perspective on the single resource that arguably, but unknowingly, shapes our daily lives more than any other. According to a 2009 McKinsey study entitled Charting Our Water Future, by 2030, under an average economic growth scenario, the demand for water will be 40% higher than the current reliable, sustainable supply, assuming no efficiency gains. The scarcity challenge does not stem from a lack of available supply – in fact, most countries, especially those in the northern hemisphere, have more than enough water to satisfy their current and future needs. The problem, rather, is one of uneven distribution.
Uneven water distribution means that the majority of countries within the southern hemisphere face water scarcity in one of two forms. [Describe the two forms.] In short, the economics of water will have to change. These concerns have all contributed to a massive economic shift towards rapidly-growing, multi-billion dollar industries focused on finding solutions to promote efficiency gains that help reduce demand, as well as cost-effective technologies capable of increasing supply.
To alleviate this shortfall, McKinsey estimates that by 2016, the annual expenditure in the general water sector is expected to reach $770 billion, compared to $445 billion worldwide in 2005. This number includes capital and operating expenditures that address the problem though a variety of upstream and downstream solutions. Their study points out that the $770 billion estimate compares quite favorably to today’s global expenditures in the natural gas sector ($770 billion annually) and in the electricity sector ($1.5 trillion annually). Going out to 2021, others estimate the global market in water management — from treating sewage to desalination — reach $1.38 trillion.
But economics aside, at the very least, we hope the information presented in this presentation provides clients with a different perspective on the single resource that arguably, but unknowingly, shapes our daily lives more than any other. According to the Red Cross, more than one billion people do not have access to clean water. Roughly one out of every three people on earth lack access to adequate sanitation facilities. The consequences of these circumstances are dire. Water-related diseases claim the lives of four million people each year. But within every challenge there exists and opportunity. In the end,, closing the supply-demand gap for the world’s water resources will not be a question of if, but rather a question of how.
On May 20th, Brown Advisory held its biennial client conference, entitled Navigating Our World, or NOW. As before, NOW 2010 brought together a collection of outside speakers to explore some of the secular trends that are shaping our world and influencing our investment thinking. Over the course of the day, we immersed ourselves and our clients in topics around three themes: emerging markets, sustainable solutions and the technology horizon. The full agenda can be downloaded here:
Justin Hanes, Professor of Ophthalmology and the Director of the Center for Nanomedicine at the Wilmer Eye Institute at Johns Hopkins University, gave us a glimpse of what is happening in the world of nanotechnology. Contrary to the prevailing perception, Professor Hanes argued that nanotechnology is already a reality. He talked about how he and his colleagues are applying nanotechnology in cancer medicine.
The traditional method of treating cancer is akin to poisoning the entire garden to kill one weed. Chemotherapy drugs kill cancer but also wreak tremendous damage on the entire human body. To change that picture, we need better targeted drug delivery that kills only the cancer cells and spares the healthy tissues. Professor Hanes highlighted a few projects that are currently being undertaken in his labs: designing biodegradable plastic nanoparticles to encapsulate chemotherapy drugs for targeted and timed delivery of drugs in treating various cancers; developing new and safer ultrasound imaging technology using ultrasound-activated microbubbles; brain penetrating nanoparticles for treating diseases in the brain; and mucus-penetrating nanoparticles for localized and sustained drug delivery through respiratory, gastrointestinal and cervical vaginal routes.
Laboratory results shown by Professor Hanes are very encouraging. However, these nanotechnology-based drugs are currently still in the research stage. The next step is to move these drugs into clinical testing. It may take another seven to ten years before these drugs can be proven effective on humans.
On May 20th, Brown Advisory held its biennial client conference, entitled Navigating Our World, or NOW. As before, NOW 2010 brought together a collection of outside speakers to explore some of the secular trends that are shaping our world and influencing our investment thinking. Over the course of the day, we immersed ourselves and our clients in topics around three themes: emerging markets, sustainable solutions and the technology horizon. The full agenda can be downloaded here:
If you are an Iraqi citizen who is trying to work for the U.S. military in Iraq, we require you to submit to various biometric tests. If your fingerprints match those left inside the remnants of an IED – guess what – we have a surprise for you on your first day of work.
Biometrics is being used in the field in real time by U.S. soldiers in the war on terror. Biometric testing equipment is deployed to units in the field who are using it to compare civilians against a growing database of biometric information maintained by the government. Five or ten positive matches a day may not seem like a lot – but it is when you think that each one of those individuals was working to harm U.S. service personnel, and that a match could equal a life saved.
Dr. Myra Gray explained all of this in a fascinating lecture about the use of biometrics in the U.S. military and government. She leads the Department of Defense’s Biometrics Identity Management Agency – an agency of over 200 people that are working on implementation of biometrics in combat. Her team regularly meets with senior leadership, including General David Petraeus and General Stanley McCrystal. This is important to the military, as it helps them figure out who is friendly and who is not.
For those of us with only a vague understanding of biometrics, Dr. Gray described how methods such as retina scans, hand geometry, fingerprints, facial recognition, and even people’s gaits, are used in the identification process. While some seem futuristic, they being implemented right now.
While the technology has been developed by the private sector, Dr. Gray works on implementation issues. Equipment needs to be developed that can survive in harsh battlefield conditions.
BIMA also maintains the massive and growing database of biometric information. When a soldier does a biometric check in the fields of Afghanistan, it takes roughly three minutes to verify a match.
The impact of biometrics will have practical implications in the civilian world as well. For most, airport security immediately comes to mind. As you would imagine, police departments are actively using this technology and monitoring its progress.
Our thanks go out to Dr. Gray for taking time to deliver this fascinating presentation on an important topic.
On May 20th, Brown Advisory held its biennial client conference, entitled Navigating Our World, or NOW. As before, NOW 2010 brought together a collection of outside speakers to explore some of the secular trends that are shaping our world and influencing our investment thinking. Over the course of the day, we immersed ourselves and our clients in topics around three themes: emerging markets, sustainable solutions and the technology horizon. The full agenda can be downloaded here:
There are two overarching impacts of recent health care reform: the upward pressure from the influx of roughly 30 million new participants in the health care system, and the tremendous downward pressure to manage costs, driving interest in those companies that address these factors. Our NOW 2010 panel, featuring leading health care venture capitalists Howard Cox and Ed Cahill, discussed the technologies, innovations and investment opportunities that will stem from health care reform.
Accessibility will be a big topic of interest – access to docs, access to hospitals, access to drugs, access to care. While demand changes dramatically with the addition of 30 million patients, supply (health care professionals, hospitals, facilities, etc.) will remain steady over the next 5-10 years.
Medicare/Medicaid will see greater consolidation, providing additional leverage in pricing negotiation, and ultimately, pricing pressure for both health care vendors and providers.
Health care professionals will seek ways to adapt – some may seek to partner with hospitals, others may adopt new service models off the “health care grid” as with concierge medicine.
There will also be more outsourcing across the board, as doctors and hospitals will increasingly need to focus on their core services and strengths to remain competitive.
Current headwinds today put health care investing at a disadvantage as compared with other sectors such as technology. Still, there will be winners, found largely in “specialty” companies that innovate, drive cost reduction and apply a global approach.
Health care IT has received much attention from both smaller, innovative niche companies and larger traditional tech enterprise companies. Ultimately, the winners will be the small and nimble companies that can pull health care IT away from the old legacy software models and into the current IT environment of SaaS and cloud computing.
We have seen increasing regulatory risk in the form of a tougher FDA, don’t look for these challenges to subside in the near future. And what may drive increasing risk for newer innovation may provide competitive protection for incumbents.
On May 20th, Brown Advisory held its biennial client conference, entitled Navigating Our World, or NOW. As before, NOW 2010 brought together a collection of outside speakers to explore some of the secular trends that are shaping our world and influencing our investment thinking. Over the course of the day, we immersed ourselves and our clients in topics around three themes: emerging markets, sustainable solutions and the technology horizon. The full agenda can be downloaded here:
Security was not a top priority when the Internet was designed decades ago as a small research network. Today nearly 2 billion people access the web, benefiting from enhanced productivity, automation and communication of an interconnected world. With computing networks continuing to scale and deliver new information services, Dr. Rubin was quick to point out that security vulnerabilities remain prevalent in our software and systems.
For a little perspective, it is important to note that software applications are inherently complex, yet highly essential. It’s the intricacy of a software program that, on the one hand, enables us to be more resourceful in our everyday lives. However, on the other hand, every line of software code is a potential bug, and every bug is a potential security flaw. Take Microsoft’s Windows for example – with tens of million lines of code, it is virtually impossible not to have errors in the programming language. The more lines of code, the more complicated the software, and thus the greater the number of vulnerable end points. Malware and cyber-attacks are aimed at ferreting these weak links to corrupt our machines. The best way to corrupt data is not to delete it, but constantly modify it, rendering even backups of data useless over time.
Although we can take some preventive measures to protect PCs, chances are that every machine is likely already infected by some unwanted element. Security software can help protect PCs against known malicious code, but it will not protect against zero-day attacks — threats of lurking malware that have yet been identified. Some computers, while appearing to operate normally, can be taken over by a Botnet without your knowledge. Botnets, or robot networks, are a set of computers that once infected can be controlled by a single person. Cyber-gangs can launch attacks using dark space, or unallocated IP addresses, to look for hosts to compromise. One of the largest botnets in history, Mariposa, infected more than 11 million PCs in over 190 countries. The malware was found in personal, government and corporate IP addresses, including more than one-half of Fortune 1000 companies and 40 major banks. It spread like a butterfly (Mariposa in Spanish) using instant messages, USB drives, peer-to-peer networks and Internet Explorer 6 flaws. Millions of zombie PCs infected by Mariposa connected as one network, stealing usernames, passwords, banking credentials and credit card information on an unprecedented scale, and communicated the sensitive data back to malicious attackers.
In addition to botnets, perhaps the fastest growing type of malicious activity on the web is known as Cross Site Request Forgery. CSRF exploits your online connection with a trusted site, perhaps your Facebook page or bank website, by issuing unauthorized commands masquerading as the legitimate user. Yet the greatest security threat according to Dr. Rubin may lie in the underlying Internet infrastructure itself. Border Gateway Protocol (BGP), the standard exterior gateway-routing protocol used in the global Internet, is the format used to exchange information across the Internet. Data traffic may be intercepted, modified or rerouted before reaching its intended destination. Such internet “hijacking” does not arise from software bugs or errors, but from manipulating the very interconnectivity and complexity that’s needed to keep today’s networks up and running.
Could “messing up” routing numbers cause the Internet to crash? Nobody’s sure. Could cyber-criminals bring down a utility grid? Perhaps. Nevertheless, many of our critical infrastructure systems such as power grids, water plants and information networks, including electronic medical records (Dr. Rubin’s current area of research), rely on underlying IP-based networks that are potentially vulnerable. Dr. Rubin is credited with having exposed security flaws in electronic voting machines, and he wonders less about whether systems can be tampered with or brought down, but more about whether we would be able to restore systems back up to their original state.
How can we best protect ourselves? Unfortunately there isn’t a silver bullet solution. Hackers and malware generators are clever, aggressive and enjoy a first-mover advantage. There are some precautions we can take. For example, Dr. Rubin, only uses Apple Macs in his home. However, for the record, vulnerabilities have been found in all major operating systems including Windows, Mac OS and Linux. That being said, Microsoft is the most exposed operating system to targeted attacks given its large installed base. For hackers, that’s where the money and the most havoc lies.
In addition to working on a Mac, Dr. Rubin also works behind a firewall, monitors his logs and encrypts all his files. At the programming level, Dr. Rubin advocates cryptography, better code audit trails and software development process improvements to deliver higher quality, less vulnerable products. For average users, this option is probably a little above their pay grade. Interestingly enough, perhaps the best place to secure our information may be placing it out in the cloud. Cloud computing uses the scalability of the Internet and central remote servers to deliver IT capability to any device with Internet access. Remotely sourced computing capacity begins with infrastructure as a service. IaaS allows individuals and enterprises to more or less rent raw computing and storage services on demand through massive server farms housed in one centralized location. Dr. Rubin dismisses the conventional notion that data is more secure within the physical walls of our office or home. With larger engineering teams and more resources on hand than company IT departments, companies like Google and other major cloud computing providers are likely better equipped to tackle ongoing security threats.
On May 20th, Brown Advisory held its biennial client conference, entitled Navigating Our World, or NOW. As before, NOW 2010 brought together a collection of outside speakers to explore some of the secular trends that are shaping our world and influencing our investment thinking. Over the course of the day, we immersed ourselves and our clients in topics around three themes: emerging markets, sustainable solutions and the technology horizon. The full agenda can be downloaded here:
The Nature Conservancy’s M. Sanjayan was a stimulating and high-energy luncheon speaker who treated the audience to a fascinating talk about some of the journeys he has taken with TNC, apparently along with some very skilled photographers, illustrating the nexus between the environment and local societies, between conservation and poverty alleviation.
A frequent criticism of the conservation movement is that well-meaning Westerners dream up grand plans that look good on paper in the halls of think tanks in Washington or London, but fall flat in villages outside of Kinshasa or Jakarta. Using trips to Namibia, Indonesia and the Solomon Islands to illustrate his point, Sanjayan described how his work helps bridge the gap between local societies and conservation efforts to hopefully create better outcomes. His Solomon Island example illustrated how TNC worked with local communities to set up a “fish bank”— a Marine Conservation Area between two islands where no fishing was allowed. Because this area was protected, fish and other marine species were able to flourish both in and around the protected area, returning a once-depleted source of income to the villages. He showed a picture of a young girl in a boat harvesting enough giant, strange looking sea cucumbers to pay her school fees for the next year. And he described the return of the trochus snail in the area, whose shells are prized for use in mother-of-pearl buttons and provide a livelihood for the villagers.
What we took away from the talk was the point that any conservation project, or really any other kind of environmental or development work sponsored by a nongovernmental or aid organization, needs to consider the after effects of the project. What happens when the conservationists leave? How will the local community sustain the project? Were benefits one-time or lasting? Is there local capital — physical, human and monetary — to carry on the project? Short-term benefits supported by donor dollars are nice while they are around, but meaningful change needs to be self sustaining and internally driven. In the Solomon Islands examples, the villagers were left with new sources of income and an incentive to sustain the fish bank and fish populations.
And in this lesson, we were reminded of many of the environmental technologies we look into as potential investment ideas. We see lots of presentations from companies with huge, potentially world changing ideas but no clear pathway for the product to be able to succeed without outside capital or government subsidies. But like a conservation project that relies on outside funding, the coolest new alternative energy technology or company that can’t support itself won’t have as much of an impact as a slightly less cool one that is affordable.
Liz Levy
Winslow Green Large Cap Portfolio Manager
The securities identified and described do not represent all of the securities purchased, sold or recommended for client accounts. The reader should not assume that an investment in the securities identified was or will be profitable.
On May 20th, Brown Advisory held its biennial client conference, entitled Navigating Our World, or NOW. As before, NOW 2010 brought together a collection of outside speakers to explore some of the secular trends that are shaping our world and influencing our investment thinking. Over the course of the day, we immersed ourselves and our clients in topics around three themes: emerging markets, sustainable solutions and the technology horizon. The full agenda can be downloaded here:
When people think of Africa, investing there is probably not the first thing that comes to mind. But Ritesh Anand, who spoke at NOW 2010 about investing in Africa, tried to debunk some of the myths and misperceptions about the continent.
Africa is big. Really big. In fact, you could fit the US, China, India, and Europe inside of Africa, and still have room for Argentina. It’s rich in natural resources – among other things, it has 90% of the world’s diamonds, and 50% of its gold. Its economic growth has been strong. Over the last 15 years, Africa has one of the highest GDP growth rates in the world. And its equity returns have outperformed the emerging markets, and Asia in particular, over the last 10 years.
Anand refuted the common criticisms on Africa – that it’s a constant underachiever, too small and poor to matter to the rest of the world – without minimizing the challenges it faces. He noted that it’s a continent full of diverse economies and countries; and despite conventional wisdom, not one monolithic bloc.
So, is Africa today similar to Asia in 1980, poised to embark on a path of long-term sustainable growth? Anand wasn’t ready to go that far, but he did say that many influential factors, from demographics to politics, are now heading in the right direction, and that Africa represents vast opportunity investors shouldn’t ignore.
On May 20th, Brown Advisory held its biennial client conference, entitled Navigating Our World, or NOW. As before, NOW 2010 brought together a collection of outside speakers to explore some of the secular trends that are shaping our world and influencing our investment thinking. Over the course of the day, we immersed ourselves and our clients in topics around three themes: emerging markets, sustainable solutions and the technology horizon. The full agenda can be downloaded here: 
