“Because Baird is independent and employee-owned, we determine our own strategic priorities. We can take a conservative, long-term view of what is in the best interests of our clients and our businesses.”

A Message
from Paul Purcell

By many objective measures, 2010 was a dramatic improvement over the two preceding years of global economic decline. Investors’ confidence, however, remained challenged. Volatile equity markets, historically low interest rates and uncertainty about the sustainability of the economic recovery continued to raise concerns for many clients. More than ever, they sought advice and perspective from Baird.

We deeply appreciate the trust our clients place in us. Baird associates work hard to earn that trust every day, through a deep understanding not only of financial markets and investment banking transactions, but also of what matters most to each client. That is why, across all of our businesses, our goal is to provide expert advice and a long-term view of financial markets and clients’ objectives.

Preserving that bond of trust is also why Baird’s first priority during the challenges of the last several years was to protect and serve the interests of our clients. We believed this required two forms of investment on our part. The first was to keep our teams together, not only to ensure continuity of service to clients, but also to maintain the partnership culture for which Baird is recognized. The second investment was to take advantage of the opportunity to hire many talented professionals who were looking for Baird’s combination of a collaborative, client-focused work environment and strong financial condition. Over the past three years, Baird has increased employment 15%, including many new associates who are senior-level industry veterans. Meanwhile, many competitors have restructured or downsized, and U.S. securities industry employment has dropped 6%.

While expertise and relationships are important in hiring, they cannot trump values. The values we share both distinguish Baird in the marketplace and help make Baird a great place to work. That is why we are deeply honored to be recognized – for the eighth consecutive year – as one of the FORTUNE 100 Best Companies to Work For^®. We placed No. 14 on the 2011 list, released in January, our third consecutive year among the top 15.

Core strengths. Our ability to make a substantial commitment to hiring during some of the most difficult markets in 70 years speaks to our core strengths. These investments are made with our own money at stake. Because Baird is independent and employee-owned, we determine our own strategic priorities. We can take a conservative, long-term view of what is in the best interests of our clients and our businesses. What’s more, we are aligned behind that view as an organization. Nearly half of all Baird associates own shares in the firm, and those shares have grown in book value at a compound annual rate of 11% over the past decade. This growth is strong confirmation that working in our clients’ best interests is always in our own best interest.

We can also afford to stay focused on what matters most because we have a strategic balance of complementary middle-market businesses – Private Wealth Management, Equity Capital Markets, Private Equity, Fixed Income Capital Markets and Asset Management. Terrific results from Fixed Income Capital Markets and Asset Management in 2009, for example, helped offset declines in other businesses. That balance of revenues gave us the leeway to hire top talent while maintaining Baird’s excellent financial condition.

In 2010, the commitment we made to both maintain and deepen the team enabled Baird’s businesses and financial performance to rebound more quickly than many in the industry. All five businesses performed very well last year, and some, like Investment Banking and Private Equity, improved dramatically. Net revenues for 2010 grew 18% over 2009 results to a record $847 million. Operating income increased 35% to $84 million*. We ended the year as we began it: in excellent financial condition, with modest debt and a very strong capital base.

Other important investments. During 2010, we also completed a record year of investment in Baird’s information technology capabilities. We not only expanded the team and expertise, we added momentum to the rollout of new systems and client capabilities across our businesses. This is an ongoing program of substantial, incremental investment in IT and a key component of Baird’s strategy to become the leading middle-market financial services firm in the world.

Our diversity efforts continue to get a great deal of attention at all levels of the firm, and deservedly so: they remain a key priority. Our four associate resource groups – women’s issues, African-American perspective, community involvement and the environment – are doing a terrific job of furthering their mandates, as well as giving additional voice and leadership opportunities to more associates throughout the organization. We’re strengthening our talent acquisition strategies and continuing to develop our robust internship and scholarship programs to create more opportunities for women and people of color. As I have said in the past, the gains do not come quickly enough, but we are making progress toward achieving a workforce that, over time, will be more representative of the clients and communities we serve.

“Baird associates have proven that their commitment to ensuring the best possible outcomes for clients can help transcend some of the most challenging economic conditions in the history of our business.”

Among the 2010 highlights to be found throughout this report:

• For the seventh consecutive year, Baird ranked No. 1 for “most trusted” research in Greenwich Associates’ annual survey of U.S. small-cap and mid-cap fund managers.
• Baird Financial Advisors managed or oversaw $63 billion in client assets at the end of 2010. As a firm, we managed or oversaw more than $82 billion in client assets.
• Investment Banking completed a record number of financings
  and M&A advisory transactions, which had a combined value of $26 billion.
• Baird Capital Partners was again named a top “Consistent Performer” in Private Equity Intelligence’s 2010 survey, moving up to No. 7 in the global ranking of buyout managers.
• For the second straight year, Baird ranked No. 1 in the United States for the number of municipal bond issues it lead-managed during the year, according to Thomson Reuters.
• Strong inflows to our bond mutual funds during the past two years drove Baird Funds’ assets under management to $4.7 billion at the end of 2010, a 142% gain since the end of 2008.

I am privileged, and proud, to lead a remarkable team of associates at Baird. Our associates have proven beyond any doubt that their commitment to ensuring the best possible outcomes for clients – and for each other – can help transcend some of the most challenging economic conditions in the history of our business. They have also shown that, while markets may redefine how great outcomes are measured at times, they will remain focused on delivering outcomes that are done well – with expert advice, honest communication and genuine caring. That will always be the Baird Difference.

*Financial results do not reflect the consolidation of certain private equity partnerships.