Baillie Gifford is an investment management firm that is privately and wholly owned by its partners. This is the crucial underpinning of its approach: it has no short-term commercial imperatives and no outside shareholders to distract it. The firm can simply do what’s right for its clients, and that’s what has sustained its business for over a century.
Baillie Gifford was founded in Edinburgh in 1908 and still has its headquarters in the city. It also has offices in Dublin, Frankfurt, Hong Kong, Kraków, London, New York, Shanghai, Toronto, Zurich and Amsterdam.
Baillie Gifford has acted as investment manager of Scottish Mortgage since it was formed in 1909.
Nowadays, Baillie Gifford acts as its Alternative Investment Fund Manager and Company Secretary.
The Managers of Scottish Mortgage’s portfolio are Tom Slater and Lawrence Burns who are both Partners of Baillie Gifford.
Baillie Gifford is an independent partnership, wholly owned by its 51 partners, who all work within the firm. Because it is a private partnership, each partner is jointly liable for the obligations of the firm and this liability is unlimited.
Tom Slater is Manager of Scottish Mortgage. He joined Baillie Gifford in 2000 and became a Partner of the firm in 2012. Tom joined the Scottish Mortgage Team in 2009, spent five years as Deputy Manager, before assuming the role of Manager in 2015. Beyond that, he is also the Head of the US Equities Team and during his time at Baillie Gifford has also worked in the Developed Asia and UK Equity teams. Tom’s investment interest is focused on high-growth companies both in listed equity markets and as an investor in private companies. He graduated BSc in Computer Science with Mathematics from the University of Edinburgh in 2000.
Lawrence Burns was appointed Deputy Manager of Scottish Mortgage in 2021. He joined Baillie Gifford in 2009 and became a Partner of the firm in 2020. During his time at the firm, his investment interest has become focused on transformative growth companies. He has been a member of the International Growth Portfolio Construction Group since October 2012 and in 2020 became a manager of Vanguard’s International Growth Fund. Lawrence is also co-manager of the International Concentrated Growth and Global Outliers strategies. Prior to this, he also worked in both the Emerging Markets and UK Equity teams. Lawrence graduated BA in Geography from the University of Cambridge in 2009.
In practice, not a great deal. The Trust is managed on a collaborative basis where both Tom and Lawrence back each other’s enthusiasms in trying to find and hold the world’s most transformational growth companies. Therefore, the role of Manager should be viewed as one that holds ultimate responsibility, rather than a right to veto.
In addition to managing Scottish Mortgage, Tom Slater is Head of the US Equities Team. Lawrence Burns is also a member of the International Growth portfolio construction group and a co-manager of the International Concentrated Growth and Global Outliers strategies. They are both Partners of Baillie Gifford.
There is not an official requirement for the Managers to hold shares in Scottish Mortgage. However, both Tom and Lawrence have significant personal investments in Scottish Mortgage, though these are modest in the context of the overall size of the trust’s assets. This helps to ensure that their interests are well aligned with those of shareholders. Baillie Gifford staff and Partners also hold significant stakes in Scottish Mortgage.
Our basic philosophy is simple. We are long term growth investors as we believe that over time share prices move to reflect companies’ earnings and therefore those businesses which can grow faster than the market have the potential to produce attractive returns. We think in terms of owning companies rather than renting shares and are first and foremost stock pickers, selecting investments based on the individual companies’ fundamental characteristics.
We do not regard ourselves as experts in forecasting the oscillations of economies or the mood swings of markets. Indeed, we think that it is hard to excel in such areas as this where so many market participants focus and where so little of the value of companies lies. Instead, we focus on the fact that a small number of companies create the majority of stock market returns regardless of the prevailing economic conditions. We aim to identify companies with that potential and, where we find them, to support them for as long as possible.
Our aim is to invest in companies that enjoy sustainable competitive advantages in their industries, and which are capable of growing earnings and cash flows at a faster rate than the market average. This is based on our belief that share prices ultimately follow earnings and that a concentrated portfolio of companies capable of above average growth will, over time, deliver above average investment returns.
We use a variety of frameworks to analyse companies, with ongoing examination and debate to hone these frameworks. Ultimately, we examine the opportunities available to a company over the long term, its ability to execute on that opportunity, management’s stewardship, the valuation relative to its future opportunities, and where our views differ from the market.
We use the following set of questions when analysing companies:
1. Is there sufficient potential to allow a sizeable increase in sales for the next five years?
2. What happens then?
3. What is your long-term competitive advantage?
4. Why do your customers like you? Do you contribute to society?
5. How does the company’s culture align with its long-term ambitions and is this a source of competitive advantage?
6. Are your returns worthwhile?
7. Will they rise or fall?
8. How do you allocate capital?
9. Is it attractively valued?
10. Is there potential to make a multiple of our investment over the long term?
11. Why doesn’t the market understand this?
Additionally three other supplementary questions are considered. These are: ‘What would we most like to change about this company?’, ‘What would make us sell?’ and finally, ‘Is further research required?’.
The broad framework of questions is used when considering new investments and also when considering existing investments. In the case of the latter a ‘Devil’s Advocate’ process is used to test the strength and continued validity of the investment case. Subject to a stock fulfilling these criteria, it is considered for Scottish Mortgage’s portfolio.
We are long term investors with investment time horizons of five years and beyond. Performance measurement is subjective will be heavily dictated by a shareholder’s own wider objectives. Given our time horizon, we believe it is fair to measure Scottish Mortgage returns over rolling periods of at least five years.
No, the portfolio is constructed on a ‘bottom-up’, stock-by-stock basis, without reference to any index.
The number of equity holdings in the portfolio will typically range between 50 and 100. The maximum amount which may be invested in private companies shall not exceed 30% of the total assets of the company at the time of purchase. There are no fixed limits set as to geographical, industry and sector exposure. The maximum investment in anyone holding is limited to 8% of total assets at the time of purchase.
With prior approval of the Board, we may use derivatives for the purpose of efficient portfolio management (for the purpose of reducing investment risk, including protection against currency risk) and for investment purposes. In practice, we do not commonly use derivatives.
There is no formal cash limit. We do not manage the cash/equities split because getting market timing right is a skill we do not claim to possess. Additionally, we assume shareholders have already taken the decision to invest in equities, and that over the long-term, being fully invested will deliver better returns.
We do not believe that we are good at timing quick turns in the market. In fact, we aim to ignore the maelstrom of noise in markets. We trade only when it is appropriate based our long-term conviction in a company's potential. Examples of situations that might lead to the sale of a stock include:
We use our own proprietary fundamental research. All investment staff at Baillie Gifford are first and foremost analysts, regardless of seniority, and spend most of their time carrying out research. We do use external research when we believe it will be useful to complement the internal research carried out.
We believe that using these sources can contribute to the quality and rigor of our investment research.
Chair – FC McBain
Fiona McBain is the former chief executive of Scottish Friendly Assurance, a mutually owned financial services group with over 1,000,000 policyholders. Fiona was appointed a Director in 2009 and became Chair in 2017. She is also Chair of the Nomination Committee. Before joining Scottish Friendly in 1998, Fiona, a chartered accountant, was employed by Prudential plc and Arthur Young (now EY), where she spent some time working across a number of industry sectors, both in the UK and in the United States. She is also a non-executive director of Currys plc (and Chair of the Audit Committee), Direct Line Insurance Group plc (and Chair of the Investment Committee) and Monzo Bank Limited (and Chair of the Audit Committee).
Senior Independent Director – LJ Dowley
Justin Dowley is a former international investment banker and was appointed a Director in 2015 and is Senior Independent Director. He qualified as a chartered accountant at Price Waterhouse in 1980. Subsequently, he was a director of Morgan, Grenfell & Co. Limited, Head of Investment Banking at Merrill Lynch Europe and a founder partner of Tricorn Partners LLP. Formerly the chairman of Intermediate Capital Group plc, he is currently a deputy chairman of The Takeover Panel, the Chairman of Melrose Industries plc and a non-executive director of a number of private companies.
Director – Professor P Subacchi
Paola Subacchi is an economist, writer and commentator on the functioning and governance of the international and monetary system. Paola was appointed to the Board in 2014. She is Professor of International Economics and Chair of the Advisory Board, Global Policy Institute, Queen Mary University of London, a visiting professor at the University of Bologna, and the founder of Essential Economics Ltd. She writes regularly on Project Syndicate. She is the author of The Cost of Free Money (Yale University Press, 2020). She is also a non-executive director of BlackRock Greater Europe Investment Trust plc.
Director – Professor PH Maxwell
Patrick Maxwell is the regius professor of physic and head of the School of Clinical Medicine at Cambridge University. He was appointed a Director in 2016. Patrick has extensive knowledge and experience of the biotechnology sector and has made important research discoveries concerning how cells sense oxygen. He was elected a Fellow of the Academy of Medical Sciences in 2005. He is currently a member of the boards of Cambridge University Health Partners, Cambridge University Hospitals NHS Foundation Trust, Cambridge Enterprise and the International Biotechnology Trust.
Director – MT FitzPatrick
Mark FitzPatrick was appointed Group Chief Executive Officer of Prudential plc in April 2022 on an interim basis. Prior to this, he was the Group Financial Officer & Chief Operating Officer of Prudential plc. Mark leads the Prudential’s Group Executive Committee, is a member of its Board, and has overall responsibility for the executive management and leadership of the business. He was appointed to the Board on 5 October 2021 and became Chair of the Audit Committee on 1 April 2022. Prior to joining Prudential in 2017, Mark was a Managing Partner at Deloitte and a member of the Executive Committee. He was Vice Chairman of Deloitte between 2011 and 2015. Mark previously led Deloitte’s insurance & investment management audit practice and its insurance industry practice. He worked at Deloitte for 26 years, advising global insurance and investment management clients.
Because Scottish Mortgage is a publicly limited company, it has an independent Board of Directors, just like any other plc. The directors’ duty is to look after your interests as a shareholder by ensuring Scottish Mortgage is as successful as possible.
The Directors meet several times a year and have various areas of responsibility, such as setting charges, deciding on the dividend, and overseeing the performance of the investment managers at Baillie Gifford. Additionally, they answer to the shareholders, which means you have some say in how Scottish Mortgage is run.
Yes, each ordinary shareholder is entitled to one vote for every share held on resolutions put forward at the Company’s Annual General Meeting. Information on the deadlines for proxy appointments can be found in the Annual Report.
You can also return proxies electronically at eproxyappointment.com. If you have registered for electronic communications you will be issued a PIN to use when returning proxies to the secure Registrar website. You do not need to register for electronic communications to use electronic proxy voting. Paper proxy forms will contain a PIN to allow you to return proxies electronically.
In simple terms, an investment trust is a type of fund, and just like any other fund it holds a portfolio of underlying investments.
The key difference from many other funds is that and investment trust is an independent company. Scottish Mortgage is listed on the London stock exchange, where it a constituent of the FTSE100.
As a result, it possesses many of the same features as other publicly listed companies:
Investment trusts are known as closed-ended vehicles, as opposed to unit trusts or other types of fund which are open-ended.
‘Closed-ended’ might give the impression that you are gated, or somehow tied in. Don’t worry, you’re not. What’s meant by a fund being closed-ended is that it has a fixed number of shares in issue at any one time.
In practice, if you wish to invest in Scottish Mortgage you can do so by buying its shares from another investor on the stock market. Similarly, when you want to sell your shares, you sell them to another investor. You don’t have to physically find a buyer or seller – it’s far simpler than that - your savings platform or a corporate broker will match the demand or supply.
In contrast, open-ended funds expand or contract depending on demand as investors move their money in and out of the fund. This means open-ended funds must be ready to give investors their money back at any time. That means that they normally invest only in assets which can be sold very quickly.
Because Scottish Mortgage is closed-ended. It is effectively permanent capital, so the underlying portfolio remains intact. And is not impacted by the demand of its shares. This allows the managers to invest in assets which can be harder to buy and sell or are more long-term in nature.
In the case of Scottish Mortgage, the managers make investments in private companies, which are less liquid (able to be bought and sold). Please note, private investments can be more difficult to sell.
Just like other publicly listed companies, Scottish Mortgage can and does borrow money to make additional investments. This is an advantage over other open-ended funds, which are not permitted to do it. Before that sets alarm bells ringing, it is worth knowing that it does so modestly, and this is reviewed by the managers and board of directors regularly.
So, what’s it all about. Well, it is often referred to as gearing because, just like gears on a bicycle, it multiplies effort. The central idea of gearing is that the additional investments made will make enough money to pay off the loan including interest and deliver a profit on top of that. So, if it works, and performance is positive, the more the trust borrows, the more the share price will appreciate. However, the opposite is also true, so if performance trends downwards, the additional borrowing will mean the trust loses more.
We and the Board are committed to the strategic use of borrowings in the belief that gearing the portfolio into long run equity market returns will enhance returns to shareholders over the long term. We view this capacity to use debt as one of the principal advantages of the investment trust structure. In line with the long-term approach taken, no attempt is made to time short term market movements through tactical shifts in the level of gearing.
There are two ways that the value of a Scottish Mortgage share is often expressed:
First, the share price – the price you actually buy and sell at. Remember it is the movement of this share price that will dictate the return you receive.
Second, the net asset value per share, or in simple terms, the value of the assets less any liabilities such as debt), divided by the number of shares.
However, because shares are bought and sold on the stock market, the share price is affected by supply and demand. That means the Scottish Mortgage share price will often be higher or lower than the Net Asset Value or NAV That difference is known as a discount or premium.
Buying shares at a discount means you pay less than the NAV.
Buying at a premium means you pay more than the NAV.
Nobody wants to pay too much for an asset. So your natural instincts might tell you that you want to buy at a discount, or indeed only sell at a premium. Scottish Mortgage has a liquidity policy in place to ensure, that in normal market conditions, the share price and NAV per share, trade in a narrow range. That means, over the long-term, these discounts and premiums should have little impact on the return that you achieve.
Please note, the Company may issue new shares when the price is at a premium which may reduce the share price. Shares bought at a premium may have a greater risk of loss than those bought at a discount.
It might seem a little odd to know that Scottish Mortgage not only buys shares in other companies, it buys back Scottish Mortgage shares. This does not hint at a lack of opportunities elsewhere. The reason for buying back shares is to support the share price. As I explained in the discounts and premiums video, the shares price can trade at a discount below the Net Asset Value or in simple terms, real value of their investments. Buybacks are meant to prevent the discount getting too big. That’s because while a discount can be good for new investors who can get a bargain. If the share price falls below the asset value, it’s bad for existing shareholders as they’re not getting the full benefit of the growth in the trust’s investments.
A large discount indicates there is an oversupply of shares in the market. So Scottish Mortgage buys them back to reduce the number of shares in circulation to help match supply and demand. In doing so, it narrows the discount or gap between the share price and its net asset value. After they’re bought, the shares are either cancelled or held in treasury where they can be re-issued when investor demand improves. Ultimately the best way for Scottish Mortgage to avoid big discounts is to produce good investment performance which tends to create demand for its shares.
From a company perspective, the Directors acknowledge their responsibility for Scottish Mortgage’s risk management and internal control systems and for reviewing their effectiveness. The systems are designed to manage rather than eliminate the risk of failure to achieve business objectives and can only provide reasonable but not absolute assurance against material misstatement or loss.
The Board has processes in place for identifying, evaluating, and managing the significant risks faced by Scottish Mortgage in accordance with the FRC ‘Guidance on Risk Management, Internal Control and Related Financial and Business Reporting’ issued in September 2014.
The practical measures in relation to the design, implementation and maintenance of control policies and procedures to safeguard the assets and to manage its affairs properly, including the maintenance of effective operational and compliance controls, have been delegated to Baillie Gifford. The Board oversees all the functions delegated to Baillie Gifford. Further details can be found in the Annual Report.
From a portfolio management perspective, the Investment Risk, Analytics and Research Team at Baillie Gifford is independent of the investment teams and reports to the Investment Risk Committee (IRC).
The team provides two core functions. Firstly, the team provides an independent risk monitoring function. This involves regular monitoring of investment risk measures that are set out in the guidelines for each of the investment strategies, and the provision of more in-depth and insightful analyses of the levels and sources of risk for investment strategies on a regular basis for investment teams and product groups. Secondly, to provide a research function for the investment teams, product groups and IRC. This further embraces our approach of seeing investment risk as a source of engaging analysis and challenge to the investment process and its execution. The provision of research to the investment teams has the benefit of improving the team’s regular interaction with them, thereby enhancing the effectiveness of the independent risk monitoring function.
Scottish Mortgage’s Investment guidelines are embedded in its investment policy. This is monitored by both the Board of Directors and Baillie Gifford.
Baillie Gifford’s Investment Risk Team report directly to the Board twice a year. It has proprietary systems that assist in monitoring portfolios to ensure they are in compliance with organizational policy and client specific requirements.
The in-house Front Office System (FOS) is used throughout the firm, primarily as a tool for monitoring and adjusting portfolio holdings. A major benefit of FOS is the ability to check clients’ restrictions during the dealing process. A deal cannot be transferred to the Trading Team for action until all restrictions have been checked via the Front Office System and verified by an Investment Manager.
0.34 per cent as at 31 March 2023*. This is made up of the management fee payable to Baillie Gifford (0.29%), and the trust's other administrative expenses (0.05%).
The Ongoing Charge Figure is calculated in accordance with the Association of Investment Companies recommendations. Full details of these costs can be found in the Key Information Document.
The annual management fee payable to Baillie Gifford is 0.30% on the first £4 billion of total assets, less current liabilities (excluding short-term borrowings for investment purposes), and 0.25% thereafter.
Lower charges directly translate into shareholders keeping more of the returns generated from their investment. Ensuring that Scottish Mortgage has one of the lowest cost ratios available among active strategies remains central to our proposition.
It is difficult to draw fair comparison with other investment funds, as so few provide access to both public and private companies in one portfolio, but our ongoing charges of 0.34% are less than most actively managed funds and significantly less than private equity funds. As such, we believe Scottish Mortgage offers shareholders excellent value for money.
*As an investment trust, this figure is calculated annually at the financial year-end.
Scottish Mortgage is publicly listed on the London Stock Exchange and can be held by any person or institution with permissions in place to hold this type of security. There is no minimum investment amount.
In the UK, many individuals choose to invest in Scottish Mortgage via several fund platforms.
Please also note that we do not have an online service for individual investors. Baillie Gifford does not sponsor, maintain or have any control over the content of any other websites. Therefore, we are not responsible for the adequacy or accuracy of any of the information you may view, nor do we undertake to ensure successful transmission to any linked website.
AIC Sector: Global
Benchmark: FTSE All-World Index (in sterling terms)
Launch Date: 1909
Year End: 31 March
Results Announced: May and November
Dividends Paid: July and November
Where can I view the latest annual report: Scottish Mortgage Annual Report
Where can I view the latest interim report: Scottish Mortgage Interim Report
Investment trusts are UK public companies and are not authorised and regulated by the Financial Conduct Authority. You may not get back the amount invested and please bear in mind that past performance is not a guide to future performance.