A Once-Proud Small-Growth Fund’s Big Problems

In mid-2021, Brown Capital Management Small Company was flying high. Performance was great. Its management team was stable and clicking. Its atypical approach was working well. Sure, the fund was large (by total assets), and it concentrated around high-growth technology and healthcare companies, but Brown Capital had handled those issues well in the past. The future looked bright, and the fund earned a Gold Morningstar Medalist Rating.

My, how things have changed. Performance has turned abysmal. Investors have fled. Even some of the Brown Capital team have moved on, leaving the rest to rethink things and make some adjustments. The fund’s Morningstar Medalist Rating is now Neutral.

What happened? The answer offers a cautionary tale of what can happen to a fund when it hits a perfect storm. And the story isn’t finished.

The Rise

Brown Capital Management Small Company launched in July 1992. Its unique approach became its hallmark. Instead of sizing companies by market capitalization, its managers looked at operating revenues. For many years, it defined small companies as those with revenues of $250 million or less. (Brown Capital updated that to $500 million in April 2021 to account for inflation and companies going public at more mature stages.) Since-inception manager Keith Lee and his team had a simple goal: They wanted companies whose products or services saved time, lives, money, or headaches. Healthy growth prospects didn’t hurt, either. Lee and his colleagues proved adept at finding good opportunities, investing patiently, and reaping the rewards over time.

Even so, it wasn’t a steady rise to greatness. Small, high-growth companies are often highly susceptible to economic conditions, interest rates, and competitive pressures. So, their share prices can be volatile. The fund went into a funk in the mid-2000s, for example, but that didn’t faze Lee. He urged his colleagues to keep investing as they had always done and wait for a turnaround. It worked. The rebound began in earnest in 2006 and continued with few interruptions until mid-2021. As investors flocked to it, the fund prudently closed to new clients in 2013. From January 2006 through June 2021, its investor share class posted a 14.9% annualized gain, besting 97.0% of the small-growth Morningstar Category and outpacing the Russell 2000 Growth Index by a wide margin. Fund assets peaked at nearly $7.5 billion in January 2021.

The Fall

As the covid pandemic waned, however, so did Brown Capital Management Small Company. One of its key strengths—its focus on high-growth companies—became a weakness in 2022 when growth stocks sold off. Rising inflation spurred interest rate hikes, and higher rates can ravage shares of growing companies—especially when it’s just the prospect of growth, rather than earnings and dividends from established businesses, which draws investors to those stocks. The fund didn’t escape this pain.

Eighteen months of poor performance doesn’t mean something is fundamentally wrong, though. At the time, the fund’s struggles looked like the price of its investing style. In fact, the fund’s improved showing in 2023—when growth stocks generally rallied—suggested things were back on track.

But new troubles arose early in 2024. A major client withdrew from the strategy, hitting the fund with massive outflows. Because the fund traffics in smaller-cap stocks and is often a major shareholder in its companies, Brown Capital’s selling to raise cash weighed on many of its holdings—hurting the fund’s performance in turn. Throughout 2024, the fund endured sizable monthly outflows. Its managers had to trim or exit long-held positions and realize capital gains, which the fund then had to distribute at year-end. Taxable investors closed the year with a disappointing holiday gift: a distribution worth about one-third of its net asset value.

It was during that pivotal year that the fund’s challenges began to hit the Brown Capital team itself. In August, manager Andrew Fones resigned. By itself, the departure wasn’t too worrisome because six other managers—including Lee and his successor as the firm’s CIO, Damien Davis—remained on the Small Company team, and the fund was its only charge.

Yet, the problems continued into 2025. A rally in lower-quality growth stocks following April’s tariff troubles largely passed by the fund. Underwhelming performance and continued outflows prompted another massive year-end distribution. An ugly start to 2026 offered no relief. The portfolio’s hefty, long-standing stake in application software companies took a beating as investors fretted about the threat of artificial intelligence on those firms’ businesses. In another blow to the team, manager Daman Blakeney left at the end of February 2026. The fund’s total assets fell below $700 million that month—more than 90% below its mid-2021 peak.

An Uncertain Future

Brown Capital Management Small Company has had a humbling fall from grace. Its problems have seemed to snowball. Yet, Brown Capital has started to respond. The still-experienced five-person management team is taking promising steps. The firm hired a “chief innovation and digital strategy officer” in August 2025 whose tasks include increasing oversight of Brown Capital’s portfolios and monitoring their risks. A multiyear project to introduce AI tools into the research process could help the team generate more ideas and position its portfolio better.

But these efforts are in their early stages. The fund’s reduced size—let alone continued outflows—could make it harder to implement changes quickly and effectively. What’s more, such moves—which are some of the most significant in the fund’s long history—could spur more departures or push the portfolio into unfamiliar sectors or higher turnover.

So, Brown Capital Management Small Company is at a crucial juncture. A perfect storm of events—only some of which were under Brown Capital’s control—has pummeled a once-proud offering. The firm is taking steps to address key weaknesses, but a lot of damage has already occurred. It will take time to rebuild confidence in the fund—and time is increasingly precious for an offering that has fallen so far, so fast.