- Daily Zen
Baillie Gifford’s strong investment performance has seen a 15-fold surge in its assets under management over the past two decades.
Edinburgh-based investment firm Ballie Gifford has acquired quite a reputation for being the world’s top stockpicker. They were one of the earliest investors in Amazon, Tesla and Tencent. The £326 billion investment management team at Gifford has made some big, bold, early bets on lucrative Silicon Valley companies.
James Anderson, the 61-year-old maverick investor, has played no small part in the firm’s good fortunes. He has become one of the most successful stockpickers of his generation. Amazon is up 6,562 per cent since Anderson started buying its stock in 2004 and Tesla is up 8,889 per cent since it first invested in 2013.
Baillie Gifford’s strong investment performance has seen a 15-fold surge in its assets under management over the past two decades. It has gone up from £22bn at the end of 2000 to £326bn at the end of 2020.
The firm has a 113-year-old history, is wholly owned by its 47 partners and has a unique ownership structure. It is not an easy feat to get an entry into the portals of this investment company as would-be partners need to win the votes of two-thirds of existing ones in order to join the partnership. “We don’t have any outsider owners wanting dividends or setting targets for funds under management growth or revenue growth,” said Charles Plowden, a retired senior partner.
Anderson, who manages the star vehicle, the £18bn Scottish Mortgage Investment Trust at Baillie Gifford, will retire next year after a career spanning four decades. The Trust has recorded 1,500 percent returns for shareholders, compared with 277 percent for the FTSE All-World benchmark.
Some investors think that it is just the right time for Anderson to bow out as in the present atmosphere, it will be difficult to sustain the earlier momentum in growth stocks.
Also, they are wary of the firm’s belief in China, where they are investing undeterred by the political instability and reservations about the investment climate there.
Anderson believes that the UK capital markets are witnessing a “deep sickness” with tech entrepreneurship being ignored and London’s blue-chip FTSE 100 almost resembling an index from the 19th century.
Anderson’s investment strategy was driven by his vision in the exponential improvements in technology that will drive innovation; and his belief that the vast majority of stock market returns come from a tiny percentage of businesses. The same philosophy drove his confidence in backing Elon Musk’s electric Tesla. “James saw the likely extent of the technological change in the early years of the 21st century and backed it wholeheartedly,” says Douglas McDougall, a former senior partner of the firm who hired Anderson in 1983.
The line of succession has already been formed incumbent on Anderson’s retirement next year. Tom Slater, 43, who has jointly managed the Trust with Anderson since 2015, will take control next year along with deputy manager Lawrence Burns, who is 32.
So what will be the philosophy post Anderson’s retirement and post Covid?
“Actual investors think in decades. Not quarters,” was the sign over the door to Baillie Gifford’s Edinburgh headquarters before the pandemic. Will the same adage guide it moving forward?
It seems so. The firm is in no hurry to change its long-term investment game plan.
Baillie Gifford has always had a quiet, contemplative atmosphere. You will find people more likely reading their way through a political tome rather than shouting numbers down a telephone or anxiously scouring terminals.
Anderson jolted the firm from its old-world way of doing business. He abolished the firm’s position of chief investment officer and moved away from having a top-down investment policy committee.
He believed in long-term, global investments that were quite independent of the stock market indices. Investments were made with a time perspective of 5 to 10 years. Short-term gains were not their game. Research and market knowledge were key terms.
“We became more ambitious in the sources of information we look to use,” says partner Kate Fox, pointing to industry experts and academics who are at the vanguard of technological change. Research showed that only 4 percent of stocks accounted for all the wealth generation for decades past. The upshot was to find these performing assets and allow compounding to two the magic.
“The biggest mistake you can make is not failing to sell something you should have sold, it’s selling something that you should have held on to,” says Slater.
When it comes to investing in China, Slater says: “I’ve learned that you have to suspend disbelief when you’re talking to some of the founders there.” Their bet on Chinese food delivery app Meituan has paid off multifold.
Slater says that the market analysts’ fears of a Chinese showdown and instability is not a worry.
“We have no direct evidence that the west’s way of development is the only one or the superior one,” says Anderson. “The political decline of America is so great and so enormous and so threatening. Am I sure that America will be a democracy in 10 years’ time? I’m not sure at all.”