In this year-end episode of CIO Perspectives, Sid Ahl and Erika Pagel, Co-CIOs for Private Clients, Endowments and Foundations at Brown Advisory, are joined by two senior investment leaders at the firm: Sarge McGowan, CIO of U.S. Endowments and Foundations, and Christopher “Kif” Hancock, Brown Advisory’s CIO International. Together they reflect on the key surprises of 2025 and share how they are thinking about the opportunities and risks that could shape 2026.
The conversation begins with what markets have absorbed this year—from tariffs and shifting trade policy narratives to persistent inflation dynamics—yet still delivered strong returns. The group discusses the Federal Reserve’s pivot toward a slower pace of rate cuts, the uneven “K‑shaped” feel of the economy, and what elevated valuations and index concentration imply for future returns and diversification.
Artificial intelligence is a central theme throughout. Sid outlines how AI has moved from experimentation to implementation, with real-world productivity gains and continued investment in computing infrastructure. Kif adds a Europe-based perspective on the AI debate—emphasizing the need for humility in fast-moving narratives—while also highlighting how AI adoption could become a source of incremental productivity for regions facing structural growth challenges.
From there, the discussion turns to portfolio construction and implementation: global diversification (including Europe and Japan), the role of currency exposure, and why manager and strategy selection remain crucial in both public and private markets. The episode closes with a “round‑the‑horn” look at 2026 surprises—from a potential reopening of private equity exits to continued market concentration, the broadening of AI benefits beyond tech, and emerging themes like robotics.
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Terms and Definitions:
AI (Artificial Intelligence) refers to computer systems that can perform tasks typically requiring human intelligence, such as pattern recognition, language understanding and decision support.
Alpha measures the excess return of an investment relative to a benchmark index.
Beta measures a stock’s volatility compared to the overall market; a beta above 1 indicates higher volatility.
Capex (Capital Expenditure) refers to funds used by a company to acquire, upgrade, or maintain physical assets such as property or technology.
CPI (Consumer Price Index) is a measure of inflation that tracks changes in the prices paid by consumers for a basket of goods and services.
Downside capture (or downside capture ratio) is a performance measure that shows how much a fund/portfolio tends to decline relative to a benchmark during periods when the benchmark is down.
Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) is a financial metric used to evaluate a company’s operating performance by measuring profitability from core business activities
EPS (Earnings Per Share) is a company’s net income divided by its weighted-average shares outstanding, often used as a proxy for profitability.
Free Cash Flow (FCF) is the cash a company generates after accounting for cash outflows to support operations and maintain capital assets.
Net Debt to EBITDA is a leverage metric calculated as net debt divided by EBITDA, often used to assess balance sheet risk.
ROIC (Return on Invested Capital) measures how efficiently a company generates returns from the capital invested in its business.
Passive Investing is an approach that seeks to match (rather than outperform) an index’s return, typically through index funds or ETFs.
Alpha Extension Strategy is a portfolio approach that seeks market (index) exposure while using long/short or leverage techniques to pursue incremental alpha.
Tracking Error measures the divergence between a portfolio’s returns and its benchmark’s returns.
K‑shaped Economy describes an uneven recovery or growth pattern in which different segments of the economy experience materially different outcomes.
Hyperscalers are large cloud service providers offering scalable computing resources, such as AWS, Microsoft Azure and Google Cloud.
Magnificent Seven refers to seven mega-cap technology companies—Apple, Microsoft, Alphabet, Amazon, Meta, Nvidia and Tesla—that have driven significant market returns.
IPO (Initial Public Offering) is the process by which a private company offers shares to the public for the first time.
Vintage Year refers to the year a private investment fund begins deploying capital, and is often used when discussing diversification across entry points in private markets.