Meet one of our new investment management partners: Breckinridge Capital Advisors

As we continue to share stories from our journey towards directing finance to help repair the health of the Earth for all, we recently spoke to Tim Coffin, Director of Relationship Management at Breckinridge Capital Advisors, one of The Russell Family Foundation’s (TRFF) new partners. 

Breckinridge is an independent fixed-income manager with over $51 billion in assets under management as of December 2024, with many of these assets managed for investors who choose to align their portfolios with their institutional mission. They are one of three organizations offering low-carbon and net zero solutions that are part of a recent $19.25 million investment announcement by TRFF under our Catalytic Climate Finance (CCF) program. CCF is exploring all the ways in which philanthropy can empower equitable climate solutions. 

Tim took us through Breckinridge’s approach to facilitating a sustainable flow of capital from long-term investors to responsible bond issuers. Sustainability is an integral part of their investment approach, backed up by their belief that companies that create value for all are more competitive and resilient over the long term. The organization’s initial focus, when it was founded in 1993, was in municipal bonds, which finance public infrastructure, and later expanded to multi-sector bond portfolios, which cover assets from several fixed-income sectors. 

Towards Sustainable Investing

The interest rate earned on municipal bonds is most often tax free to investors, which results in comparatively lower nominal yields.  As such, nonprofit investors do not tend to invest in them. A small percentage of the $4 trillion municipal bond market does come with taxable coupon interest, which would be more suitable for tax sheltered investors, such as foundations. 

Taxable municipal bonds give mission-driven investors, like foundations and endowments, the opportunity to invest in public projects such as public schools, water and other utilities, and public transportation. Bonds issued for these essential public projects have a strong history of being relatively safe investments. As Tim notes, this market is on the front lines of climate, not only from a risk standpoint in terms of factors such as heat stress, sea level rise, and wildfires, but also in terms of the opportunity for climate adaptation.  The finance for      much of the public infrastructure      needed for      local economies to adapt to      a changing climate will come from capital raised in     the municipal bond market, backed by revenues such as local taxpayers, user fees and federal grant money.  

Multi-sector bond portfolios, on the other hand, are constructed with bonds from sectors including U.S. Treasuries, corporate bonds and securitized bonds such as mortgages.  Unlike tax free municipal bonds, most of these bonds pay interest that is taxable, making them more appropriate for foundations.  Breckinridge as of 12/31/2024 manages over 700 bond portfolios for foundations, all in separate accounts where investors own their bonds directly. Mission-driven investors, including endowments and faith-based clients, are a key segment of the firm’s institutional client base. With the organization’s reputation for rigorous credit research and preservation of capital, Breckinridge’s bond portfolios can potentially provide opportunities to counterbalance riskier assets.

Tim explains that Breckinridge began formally      integrating sustainable investing into its fundamental investment process in the early 2010’s, as an approach that could give a more      holistic view of credit risk, taking into consideration financially material sustainability factors that might not normally show up on financial statements.  At the same time, many companies were increasingly disclosing environmental issues, social issues, and labor practices to their stakeholders.

Integrating Sustainability Risks 

In response to this, Breckinridge enhanced their credit research by building formal, comprehensive, sector-specific sustainability frameworks. Their approach captures quantitative data, weighing it appropriately to each sector, and in some cases, overlaying that with engagement with companies through the lens of a credit analyst. Their team believes this approach provides a more holistic, forward-looking assessment of credit risk, which they believe can improve risk-adjusted returns for clients by trying to avoid liabilities or risks that might be otherwise missed. 

The organization takes a sector-by-sector view of what is most financially material, because specific factors may matter more to one sector than another. For example, governance may be more material in the banking sector where emissions intensity may be more material for capital goods.  Their sector-specific decision-useful sustainability approach aligns with the reporting standards of the Sustainability Accounting Standards Board (SASB), now ISSB. 

Additionally, for mission driven clients, Breckinridge offers the option to customize their bond portfolios to align with their mission, including climate goals. 

The Materiality of Climate Transition Risks 

As Tim explains, Breckinridge believes that the global economy will evolve towards a lower carbon economy, and this transition will be financially material, particularly for those sectors that have higher exposure to GHG emissions, such as energy and utilities.

To more formally integrate the assessment of this risk into their overall research process, Breckinridge built formal climate transition risk frameworks for corporate bonds, based on a framework outlined by The Institutional Investors Group on Climate Change (IIGCC).  The framework considers a company’s current GHG exposure, track record of emissions reductions, future reduction targets and the governance in place to achieve those targets. Using both quantitative and qualitative inputs, research analysts assess how well aligned companies are to the net zero goals of the Paris Agreement, evaluating corporate bond issuers into categories of; not aligned, committed to align, aligning and aligned.  Analysts covering the higher emitting sectors will weigh these assessments as more material than analysts covering sectors less exposed to climate transition risk.  As with most sustainability research, analysts are looking for outliers both on the positive and negative side.  

Tim explains, this is simply long-term investing, keeping a prudent eye on potential dormant liabilities. Their investment premise is that companies on the pathway to net zero emissions may be better positioning themselves to thrive over the long term versus those that are not. 

In addition to this bottom-up approach, Breckinridge has the capacity to measure and report on scope 1 and scope 2 financed emissions of corporate bond holdings in a bond portfolio and partner with clients to customize bond portfolios to align with certain financed emissions targets – such a net zero.  

The Role of Foundations

Many foundations are grappling with whether or not to invest in high-emitting companies, even if they have committed to transitioning to net zero.  Tim also notes that there is a common misconception that responsible investing means sacrificing returns and emphasizes that sustainable investing can enhance portfolio resilience.  Breckinridge believes a net zero customization across all economic sectors, including energy companies, can yield benefits in the long run for investors, the markets and the planet.

In his experience, he has found that some foundations opt for a carve-out impact portfolio, for example, setting aside a specific amount from their full portfolio for climate-resilient investments. Breckinridge, however, believes in a more integrated approach through the lens of climate transition risk, which means applying sustainability considerations across an entire portfolio. Integration is key to this: embedding sustainability into the investment process. Materiality is foundational: viewing sustainability factors as essential for long-term financial stability, not just ethical considerations. In this way, sustainability becomes a natural step for boardrooms, because it is, Tim argues, a governance issue. Investment committees should think long-term and incorporate sustainability into their fiduciary duty.

Thank you to Tim and Breckinridge for sharing this story with us. This forward-thinking led TRFF to Breckinridge, with the help of our investment advisers, AlTi Tiedemann Global. We are excited for our continued partnership as we work toward empowering equitable climate solutions across TRFF’s investment portfolio. 

 

^{DISCLAIMER: The above case study was prepared by and for TRFF use.} 

^{Elements of the above case study provide general and/or educational information about Breckinridge and should not be construed as legal, tax or investment advice, or a testimonial or endorsement. It does not include all of the information necessary to make a decision to invest with Breckinridge. The content is current as of the time of writing or as designated within the material.}

^{All investments involve risk, including loss of principal. Diversification cannot assure a profit or protect against loss. Fixed income investments have varying degrees of credit risk, interest rate risk, default risk, and prepayment and extension risk. In general, bond prices rise when interest rates fall and vice versa.}

^{Breckinridge believes that the assessment of sustainability risks, including those associated with climate change, can improve overall risk analysis. When considering sustainability factors, Breckinridge’s investment team will include those factors that they believe are material. The investment team may conclude that other attributes outweigh these considerations when making investment decisions.} 

^{There is no guarantee that integrating sustainability analysis will improve risk-adjusted returns, lower portfolio volatility, or outperform the broader market or other strategies that do not utilize such analysis when selecting investments. Breckinridge’s sustainability analysis is based on third party data and Breckinridge analysts’ internal analysis. Breckinridge can change its sustainability analysis methodology at any time.}

^{The content may contain information taken from unaffiliated third-party sources. Breckinridge believes the data provided by unaffiliated third parties to be reliable but individuals should conduct their own independent verification prior to use.}