True to Our Values

A Message from Paul E. Purcell

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Paul E. Purcell
Chairman, President &
Chief Executive Officer

Steve Booth
Chief Operating Officer

A MESSAGE FROM Paul E. Purcell

For even the most optimistic clients, 2012 presented a seemingly endless stream of concerning news. Uncertainty over European sovereign debt, questions about the sustainability of the U.S. economic recovery, political gridlock over taxation and the "fiscal cliff" - all these and more took a toll on confidence. Unusual as it seems, the risk and uncertainty these events imply actually underscore Baird's strengths as a financial services firm. We are passionate about providing clients with objective advice they can trust to be in their best interests, through good times and bad. We invest continually to deepen our capabilities. Yet what distinguishes us as an advisor year after year is how we serve our clients - with commitment, expertise, teamwork and integrity. It set us apart again in 2012.

Our strong performance continues

There is a meaningful correlation between how we do business and the business we do, and that relationship seemed especially strong during 2012. Baird set a new high-water mark for revenues, which reached a

record $961 million. Operating income, at $100 million, was the second-best result in our history.1 In an industry for the most part beleaguered by contraction and uncertainty, we expanded margins, thanks to strong revenue growth and a firmwide focus on expenses and efficiency. As a result, Baird's 2012 return on equity rose to 12.9%, which was an exceptional performance given the environment in which it was achieved and the fact that Baird's leverage is significantly lower than the industry average. Importantly, all five of our businesses performed well, and we gained market share in very competitive markets. We take that as compelling evidence that our advice and service resonate with our clients.

The foundation of our success is, simply, trust. Clients trust Baird to deliver expert advice and teamwork that serve their interests first. Baird associates trust that the values of excellence, respect, honesty and opportunity we advocate as a firm will be their actual experience at work. I am perennially humbled by the power of mutual trust to deliver solutions that provide great outcomes for clients and a sense of true partnership for associates.

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

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True to our clients: We know what our clients value most - expertise, advice and execution that is always in their best interests. Their success is our success.

$99 billion

Client assets at Baird totaled $99.6 billion at the end of 2012.

Across each of our five businesses, through all types of markets, Baird has deepened the expertise needed to advise clients and to protect and grow the assets in our care. Today, we are better positioned than ever to provide the objective advice and quality service our clients need.

Baird 2012 firmwide client assets chart

A MESSAGE FROM Paul E. Purcell

It has been a defining quality of our work for many years. As a few highlights show, it again contributed to outcomes of a very high caliber:

  • Baird was honored in early 2013 for the 10th consecutive year as one of FORTUNE's 100 Best Companies to Work For®. Our commitment to being a great place to work has a positive impact on how we perform for our clients, and we were particularly pleased to rank No. 14, our fifth straight year among the Top 25.
  • For the ninth consecutive year in the Greenwich Associates' survey of U.S. small-cap and mid-cap fund managers, Baird ranked No. 1 for "most trusted" research.
  • For the eighth consecutive year, our Investment Banking team won a Deal of the Year award from The M&A Advisor, with the most recent award recognizing a complex cross-border transaction.
  • Our Fixed Income Capital Markets team was the advisor to The Bond Buyer Deal of the Year that involved the two largest financings in Michigan public finance history. It was our fifth such recognition in eight years.
  • A strong inflow of new assets and solid performance by Private Wealth Management and Asset Management helped increase client assets across Baird to just under $100 billion.
  • For the fifth consecutive year, our U.S. Private Equity fund was named a top "Consistent Performer" among international buyout managers by Private Equity Intelligence Ltd.

Reinvesting in our business

Baird's success, whether in our financial statements or on the awards podium, is gratifying, but it is not primarily about us. One of the best ways we know to stay true to our clients' evolving needs is to continually reinvest in the business. Baird has a lot of advantages in this regard. We have five strong, profitable businesses that each generate considerable cash flow. Moreover, there is balance and diversity among the five. The impact of a cyclical downturn in one business is typically offset by strength in one or more of the others.

Baird's most important advantage, however, comes from being privately held and employee-owned. With our own money on the line every day, we are extraordinarily focused on how we manage the business and how well we perform for clients. We also have the flexibility to make strategic investments that best serve our clients over the long term. As other firms downsize or exit the businesses in which we compete, we are hiring skilled people who want to work for a firm with a strong culture that values clients and client service.

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True to our culture: The alignment of our business practices with our values - honesty, teamwork, respect and excellence - is the foundation of strong relationships with clients and fellow associates.

100 Best x10

Since 1997, the annualized stock market returns of publicly traded companies on the "100 Best" list have outperformed the broader market by more than 2x.

100 Best companies stock performance chart

SOURCE / Russell Investment Group
©2013 Great Place to Work® Institute, Inc.

For 10 consecutive years, Baird has been recognized as one of the FORTUNE 100 Best Companies to Work For®.

"We are all there for each other. Senior management is open and accessible. Prima donnas and egotists are neither welcome nor tolerated."
- Baird associate, on the FORTUNE 100 Best Companies to Work For® survey

2012 Baird stock performance chart compared to U.S. Securities Industry

Change in employment since beginning of 2008
SOURCE / SIFMA Securities Industry Employment Report, Q4 2012

A MESSAGE FROM Paul E. Purcell

Baird's Chief Human Capital Officer, Leslie Dixon

Baird's Chief Human Capital Officer, Leslie Dixon, shares how staying true to our values, clients and culture makes Baird a great place to work. (2:43)

In fact, our employment has increased 22% since the beginning of 2008; 44% of that growth has been at the Director level or higher. That's enabling Baird to grow with our focus squarely on those we serve and to steadily advance our long-term objective of becoming the leading middle-market financial services firm in the world. We've made substantial investments in recent years to achieve this objective, and 2012 was no exception:

  • Private Wealth Management opened new offices in Florida and Maine and continued to hire veteran Financial Advisors across the country. Our nearly 700 advisors have an average of 19 years of industry experience.
  • Asset Management added a small- and mid-cap value team. Their first year of performance and asset growth exceeded our expectations.
  • Investment Banking expanded its global platform, adding senior bankers, deepening its capabilities across most industry sectors and establishing access to resources in India and Japan.
  • Public Finance launched a major initiative to serve the Texas market with new offices and bankers in Austin, Dallas and San Antonio.
  • We continue to make very substantial investments in information technology to further enhance client reporting, utilize the latest order management systems and respond to increasing industry regulation. IT spending in 2013 will be 75% higher than it was just five years ago.

Our most important investment

Because we are a human capital business - one whose success is determined by the skills and attitudes of those who stand behind our clients' experience - our most important investment is in our people. We will continue to hire skilled professionals who are looking for relevant work that restores their sense of trust and pride in the financial services business. Our future growth, however, depends on developing the leaders who will guide Baird tomorrow. For several years we have been actively engaged in succession planning and implementation across our businesses and corporate resource groups. We are also investing heavily to develop the talents of associates through coaching, mentoring and leadership development to ensure they have the skills they need to keep growing and to keep Baird moving forward. Initiatives like these are part of a promise we make to all Baird associates: We will help make you better than you ever thought possible because what you do matters.

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True to our strategy: The self-determination that comes from employee ownership gives us the freedom to strengthen our business and our relationships, even during challenging markets.

201% Growth

Baird's stock value has grown consistently, in marked contrast to average industry results.

132 Consecutive Quarters: Baird has had an operating profit every quarter for the past 33 years.

Staying true to what our clients value most - integrity, service and advice they can trust - has resulted in an exceptionally consistent record of performance at Baird. We owe our success to those we serve, which is why we continually reinvest in the business to ensure we serve them even more effectively as their needs evolve.

2012 growth in Baird's stock value chart

Baird stock performance is based on the change in book value per share for Baird Financial Group common stock and includes cumulative cash dividends of $7.50 per share paid December 22, 2011, and $1.60 per share paid December 12, 2012. Baird is privately held and no public market exists for its shares. Baird can repurchase shares of Baird stock at book value when associates leave the firm. Past performance does not guarantee future results.

Standard & Poor's 500 Stock Index and Standard & Poor's 500 Financials Sector Index are unmanaged common stock indices used to measure and report value changes in the stocks comprising these indices. Indices performance information is obtained from Capital IQ and excludes dividends paid during the periods shown. Baird stock is not included in these indices.

A MESSAGE FROM Paul E. Purcell

Similarly, the deep need to nurture society's human capital stands behind Baird's commitment to education. Many of our public schools are not giving children what they need to develop their potential. We believe that by being active supporters of proven nonprofits like Teach for America, Schools That Can and the Cristo Rey Network, we can help to develop more high-performing schools, one classroom at a time. It is our responsibility to help give children a better chance to become educated, valued members of their communities and our businesses.

Baird's new Chief Operating Officer

I am very pleased to announce that at the beginning of 2013 we selected Steve Booth, our Director of Investment Banking and co-leader of our Equity Capital Markets business, as Baird's new Chief Operating Officer. We approached this decision thoroughly and thoughtfully over several years, and rightly so: It is the most important decision I will make as CEO. While Steve will continue with his Investment Banking responsibilities through the end of 2013, he and I will also work together to drive progress on Baird's top priorities. Our plans call for Steve to become President on January 1, 2014. I intend to continue as Chief Executive Officer through the end of 2015 and stay on as Chairman for a few years after that.

I could not be more confident that what we have built at Baird today is an exceptionally strong foundation for what we will create tomorrow. Thanks to our associates' passion and commitment, we have a powerful and durable franchise that can compete at the highest level. We have invested in new talent, broader skills and better service, and our clients have rewarded us with record revenues and growing market share in our businesses. And while success is always gratifying, more gratifying still is achieving it by staying true to the values and priorities that have always defined Baird. They are the enduring foundation of great outcomes, for our clients and for ourselves.

Paul E. Purcell

Paul E. Purcell
Chairman, President & Chief Executive Officer