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Can capitalism
power positive
change?Iona Bain -
September 2020
The value of an investment in the fund, and any income from it, can fall as well as rise and investors may not get back the amount invested.
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While some see capitalism as the problem, Lee Qian, joint manager of Baillie Gifford’s Positive Change Fund, sees it as the solution to many of the pressing problems society faces. He tells Iona Bain why.
The developed world’s relationship with capitalism is becoming increasingly complex and inconsistent. We reprimand Big Oil, Big Pharma, Big Tech, Big everything. Yet we love the choice and convenience these bring to our lives.
Lee Qian doesn’t take the transformative power of capitalism for granted. When he was growing up in Nanjing in the nineties, two out of three people in China lived in poverty. “We lived in an apartment which didn’t have central heating and my parents’ bedroom was our living-room.”
Fast forward to 2020 and China has changed beyond recognition. The poverty level is below 20 per cent, living standards have vastly improved and the country hosts some of the world’s fastest growing and most innovative companies. “Even some of the poorest people in China now have better living conditions than my parents had,” says Lee.
He has seen first-hand how Chinese businesses, particularly the big ‘platform companies’ such as Alibaba and Tencent have helped transform the world’s most populous country: “Chinese businesses have made a tremendously positive impact on society. They have created benefits broadly for the whole of society.”
Lee’s own journey took him to the West, and to Edinburgh, where he co-manages Baillie Gifford’s Positive Change Fund.
In the world of Positive Change companies are backed for their potential to drive society forward as well as to offer returns. Take Kenya’s Safaricom, one of the 30 or so “truly exceptional” investments in the fund. It started off as a telecoms business and now derives a third of its revenue from providing mobile financial services. Lee explains: “It’s used by millions of people in Kenya to pay for goods and services and send money to loved ones, enabling them to participate in the economy more efficiently. It’s also a great business opportunity.”
For Lee, purpose and profit can go hand-in-hand. Ørsted, once known as Danish Oil and Natural Gas, has increased profits thanks to its pivot towards renewables and investment in turbine manufacturing to bring down the cost of offshore wind. Other examples include: Bank Rakyat, which provides responsible microfinance loans to households and businesses in Indonesia; HDFC which invests in affordable housing in India; and Discovery, a South African insurer, that rewards you for going to the gym rather than the pub.
© SimplyCreativePhotography/Getty Images
Is this what responsible capitalism looks like? Lee thinks so, as he and his team strive to find the (mostly) good guys. Of the famous FAANGs - Facebook, Apple, Amazon, Netflix and Google - only the last one makes the cut. “Think how Android smartphones are used by millions of people in emerging markets, creating a more equal society in the long term.”
While Lee concedes Alphabet (Google’s parent) could pay more tax rather than “thinking up ways to minimise it,” overall, he still believes this is outweighed by its positive impact on society.
Then there’s one of the fund’s standout companies, the electric carmaker Tesla. With its ‘rock-star’ founder and altruistic goals, it’s an obvious choice: many superfans have already bought into the firm’s vision with just a few taps on their phone, thanks to new trading apps.
So why shouldn’t investors cut out Lee and his colleagues and invest directly in the changemakers? The problem is that for every Elon Musk, there are many more ‘social impact’ gurus who don’t live up to their hype.
“The biggest risk for long-term investing is permanent loss of capital, by investing in a company that doesn’t have good technology or the right people and could actually go bankrupt. Most of our research takes months if not years, from starting to look at a company to the point where we actually invest.”
And where do tracker and index funds, promising lower fees for a new generation of investors, sit in all of this? Lee wonders how funds investing in hundreds of companies with “minimal research behind the scenes” can drive positive change compared with just 34 handpicked global game-changers.
It’s a fair point, and one to be resolved if we genuinely want to solve the world’s problems. Lee says: “The younger generation is fortunate to be growing up in a period of relative prosperity and stability, able to think more about environmental social and sustainability issues. We are more aware of them because we have a window to the world in our pockets.”
For Lee, it’s what you do with that information, and your money, that counts. “I want to demonstrate that you can do good for the world and do well financially at the same time.” Perhaps – finally – there’s a form of capitalism that we can all get behind.
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Important Information and Risk Factors
The views expressed in this article are those of Iona Bain and Lee Qian should not be considered as advice or a recommendation to buy, sell or hold a particular investment. They reflect personal opinion and should not be taken as statements of fact nor should any reliance be placed on them when making investment decisions.
This communication was produced and approved in September 2020 and has not been updated subsequently. It represents views held at the time of writing and may not reflect current thinking.
All information is sourced from Baillie Gifford & Co and is current unless otherwise stated.
The images used in this article are for illustrative purposes only.
POTENTIAL FOR PROFIT AND LOSS
All investment strategies have the potential for profit and loss, your or your clients’ capital may be at risk. Past performance is not a guide to future returns.
Changes in the investment strategies, contributions or withdrawals may materially alter the performance and results of the portfolio.
STOCK EXAMPLES
Any stock examples and images used in this article are not intended to represent recommendations to buy or sell, neither is it implied that they will prove profitable in the future. It is not known whether they will feature in any future portfolio produced by us. Any individual examples will represent only a small part of the overall portfolio and are inserted purely to help illustrate our investment style.
This article contains information on investments which does not constitute independent research. Accordingly, it is not subject to the protections afforded to independent research, but is classified as advertising under Art 68 of the Financial Services Act (‘FinSA’) and Baillie Gifford and its staff may have dealt in the investments concerned.
IMPORTANT INFORMATION
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Baillie Gifford Overseas Limited provides investment management and advisory services to non-UK Professional/Institutional clients only. Baillie Gifford Overseas Limited is wholly owned by Baillie Gifford & Co. Baillie Gifford & Co and Baillie Gifford Overseas Limited are authorised and regulated by the FCA in the UK.
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AUSTRALIA
This material is provided on the basis that you are a wholesale client as defined within s761G of the Corporations Act 2001 (Cth). Baillie Gifford Overseas Limited (ARBN 118 567 178) is registered as a foreign company under the Corporations Act 2001 (Cth). It is exempt from the requirement to hold an Australian Financial Services License under the Corporations Act 2001 (Cth) in respect of these financial services provided to Australian wholesale clients. Baillie Gifford Overseas Limited is authorised and regulated by the Financial Conduct Authority under UK laws which differ from those applicable in Australia.
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Baillie Gifford Overseas Limited is registered as a Foreign Financial Services Provider with the Financial Sector Conduct Authority in South Africa.
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The Manager is not resident in Canada, its head office and principal place of business is in Edinburgh, Scotland. Baillie Gifford Overseas Limited is regulated in Canada as a portfolio manager and exempt market dealer with the Ontario Securities Commission. Its portfolio manager licence is currently passported into Alberta, Quebec, Saskatchewan, Manitoba and Newfoundland & Labrador whereas the exempt market dealer licence is passported across all Canadian provinces and territories. Baillie Gifford Investment Management (Europe) Limited (‘BGE’) relies on the International Investment Fund Manager Exemption in the provinces of Ontario and Quebec.
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OMAN
Baillie Gifford Overseas Limited (“BGO”) neither has a registered business presence nor a representative office in Oman and does not undertake banking business or provide financial services in Oman. Consequently, BGO is not regulated by either the Central Bank of Oman or Oman’s Capital Market Authority. No authorization, licence or approval has been received from the Capital Market Authority of Oman or any other regulatory authority in Oman, to provide such advice or service within Oman. BGO does not solicit business in Oman and does not market, offer, sell or distribute any financial or investment products or services in Oman and no subscription to any securities, products or financial services may or will be consummated within Oman. The recipient of this document represents that it is a financial institution or a sophisticated investor (as described in Article 139 of the Executive Regulations of the Capital Market Law) and that its officers/employees have such experience in business and financial matters that they are capable of evaluating the merits and risks of investments.
QATAR
This strategy is only being offered to a limited number of investors who are willing and able to conduct an independent investigation of the risks involved. This does not constitute an offer to the public and is for the use only of the named addressee and should not be given or shown to any other person (other than employees, agents, or consultants in connection with the addressee’s consideration thereof). Baillie Gifford Overseas Limited has not been and will not be registered with Qatar Central Bank or under any laws of the State of Qatar. No transactions will be concluded in your jurisdiction and any inquiries regarding the strategy should be made to Baillie Gifford.
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