Baillie Gifford suffered its worst fall in assets under management during 2022. losing more than £100bn as the rise of growth stocks that had propelled its performance over the past decade was curbed by higher interest rates.
The Edinburgh-based partnership’s assets under management dropped by a third, from £336bn at the end of 2021 to £223bn at the end of 2022, the latest figures published by the firm show. The fall was largely driven by valuation decreases in its portfolio of investments: net client outflows accounted for around £20bn, the company said.
Baillie Gifford seeks to identify the handful of “outlier” companies that will make the biggest profits from technological innovation over five to 10 years and was an early backer of Amazon, Tesla and Alibaba.
Over the past year prominent growth investors such as Baillie Gifford, Chase Coleman’s Tiger Global and Cathie Wood’s Ark Invest have been wrong footed by a shift in markets, as the US Federal Reserve and other central banks called time on a decade-long period of cheap money with interest rate rises to combat inflation.
This prompted a sell-off in tech stocks, notably fast-growing and lossmaking companies, which are considered particularly susceptible to rises in interest rates that diminish their potential returns.
Tom Slater, co-manager of Baillie Gifford’s flagship £12.9bn Scottish Mortgage Investment Trust, told an investor forum in London last month that it had been a “humbling year” after the group lost more than $14bn on stakes in Tesla and ecommerce group Shopify.
Shares in the Scottish Mortgage trust, which is FTSE listed, fell 46 per cent in 2022, underperforming its benchmark FTSE All World Index, which lost 7.3 per cent.
Baillie Gifford is independent and wholly owned by its 51 partners. “We run the business with a long-term timeframe and we’re privately owned so we don’t have to worry about short-term fluctuations in assets,” partner Nick Thomas told the Financial Times. “It’s in tough periods like this when our partnership structure is a particular advantage because we can carry on investing in the business.”
Slater said at the London forum that it had been “a mistake” to assume that changes in consumer habits during the Covid pandemic would last, “and we were slow to recognise the significance of the shattering in Sino-US relations.” But he said the decline in valuations across the portfolio had nothing to do with the long-term prospects of these businesses.
The group is telling clients there is a dislocation between the operational progress of many growth companies and their respective share prices. It believes secular trends including the green revolution, gene sequencing and the further digitisation of the economy will continue to drive investment opportunities.
As cheap money flooded economies and tech company valuations soared, strong investment performance drove Baillie Gifford’s assets under management from £22bn at the end of 2000 to a year-end peak of £336bn at the end of 2021.
Despite the recent declines, its long-term record is strong. Scottish Mortgage’s shares have gained 65 per cent over the five years to December 31 and 420 per cent over the past 10 years. Its benchmark gained 48 per cent and 206 per cent in those periods, respectively.