How did we become a major investor in some of the world’s most innovative companies while remaining an Edinburgh-based private partnership?
1908 – 1919:
Our company takes its name from its two founders. Colonel Augustus Baillie was a lawyer who had served in the Boer War and was 47 years old when he established the business. T.J. Carlyle Gifford, another lawyer, was 20 years younger but had already built a reputation for brilliance and determination.
In the winter of 1908, the two men spotted an opportunity to invest in the rubber industry and created an investment trust.
The Straits Mortgage and Trust Company floated the following year, with its assets managed by the newly created law firm Baillie & Gifford WS. The timing was fortuitous. The Ford Motor Company had just begun production of the Model T, whose tyres required large quantities of rubber. The car took the US by storm, causing the substance’s prices to soar.
It didn't take long for the Trust to broaden its horizons, investing in a US land deal, a Chilean railway and one of the UK's largest theatre groups, among other assets. In 1913, the Board decided to rename it Scottish Mortgage.
Its success led to other trusts, including the Edinburgh and Dundee Investment Company.
1920 - 1928:
The Roaring 20s:
The US economy enjoyed robust growth between 1922 and 1929. Increased use of electricity and rising consumer demand for automobiles and radio entertainment played a role.
Scottish Mortgage was a beneficiary, outperforming the broader British market by a wide margin.
To build on this success, Scottish Mortgage and its fellow trusts increased their balance sheets by selling new shares and raising debt. They were also joined by two further launches: Scottish Central and Scottish Capital.
In 1927, the two founders wanted to add a partner from outside the legal profession. That wasn’t possible within their existing law firm. So they created a new business, Baillie Gifford & Co, to take on the trusts’ management.
1929 - 38:
The Wall Street Crash
The US sell-off began on 24 October 1929 and brought the decade’s stock market boom to an abrupt halt.
The depression that followed impacted the companies and public bodies the trusts had invested in. Even so, Scottish Mortgage investors came off relatively lightly as the Trust had amassed considerable reserves.
Baillie Gifford & Co’s broader business also expanded. In 1931, it took over the management of three trusts previously run by a London-based bank that had failed in the turmoil. Known as ‘the ecclesiasticals’, they were Monks, Friars and Abbots. The firm then opened its first office in London to continue their business.
By 1935, stock markets were enjoying a modest revival. That allowed some of the trusts to start raising fresh capital. But another crisis was looming.
1939 - 48:
Calls to duty
Augustus Baillie died on 8 January 1939. Just over half a year later, Germany invaded Poland, triggering the start of the Second World War.
Many of the firm’s staff served in uniform. Carlyle Gifford, now in his late 50s, received papers of his own from the Bank of England. The Governor requested that he advise HM Treasury on how to build a war chest by requisitioning gold, dollars and dollar-based investments in exchange for government bonds.
These assets were to be sold to the US to pay for military supplies. The US had been badly burnt by non-repayment of loans made to allies in the First World War, and Congress had blocked the financing of further loans to Westminster.
In November, the Treasury sent Gifford to New York to negotiate the best price for the UK’s estimated $4.4bn worth of dollar assets. Success led to his involvement in follow-up discussions in 1941 to secure a $425m loan, which Congress permitted.
Gifford then returned to Edinburgh and the skeleton staff running his business. Other employees returned from service from 1945 onwards.
The post-war investment climate was challenging. However, some British companies’ profits rose because of reduced competition from continental Europe and the Far East. And within a couple of years, the trusts’ performance had surpassed that of the early 1930s.
The firm also acquired its first pension fund clients: the Cadbury Brothers chocolate makers and the Times Newspapers.
1949 - 1964:
The devaluation of sterling in September 1949 – £1 fell from $4.03 to $2.80 – made it much easier to obtain US currency to make portfolio investments. That meant the trusts could reinvest in American assets following the liquidations required by the war.
As a result, shareholders benefited from tremendous returns over the following decade and a half. However, the firm was storing up problems for its future.
By 1950, Carlyle Gifford was approaching 70. He still chaired some meetings but no longer oversaw day-to-day matters.
The partner in charge opted to focus on existing business rather than expansion. He blocked several trusts from borrowing more and turned down opportunities to take on new pension funds.
That’s not to say that all momentum was lost. When, in the early 1960s, Japan opened its market to overseas investors for the first time in decades, Baillie Gifford was among the early buyers of bonds from Canon, among others.
1965 - 1976:
The 1965 Finance Act dealt a blow to the investment trust industry. It replaced profits tax with corporation tax, a side-effect of which was to depress the dividends paid on American assets.
The legislation also introduced capital gains tax. One side-effect was that it encouraged clients to sell shares in trusts and hold stakes in companies directly instead. That led trusts to trade at a discount.
Another law, the 1967 Companies Act, increased disclosure requirements. It led to several of the trusts merging. Monks acquired its fellow ‘ecclesiasticals’, Scottish Mortgage took over Scottish Capital, and Edinburgh & Dundee absorbed Scottish Central, among other unions.
The broader investment environment worsened in the early 1970s. A Saudi-led oil embargo and rising inflation, which topped 20 per cent in the UK, sent stocks plunging.
In a further blow, Baillie Gifford lost two pension fund clients after the sale of the Times Newspapers in 1975 and the bankruptcy of another business in 1976.
1977 - 79:
Baillie Gifford’s dependence on a handful of investment trusts came into focus when the British Rail Pension Fund announced a bid to acquire Edinburgh & Dundee’s share capital in August 1977.
The Trust’s Board initially resisted the approach but finally agreed in the Spring of 1978 after receiving better terms.
That was a rude awakening. Market conditions were still poor, and discounts on trusts were wide. Baillie Gifford might have become unviable if a predator had picked off another trust.
So it decided to pursue new business.
Drawing on partners’ personal connections, the WS Widows Fund became a client, and the firm began managing a Church of Scotland Trust income fund.
1980 - 1989:
Building for the future
Three decisions boosted the UK finance industry in the 80s:
- The scrapping of exchange controls
- The exemption of investment trusts from capital gains tax
- Successive cuts to the top rate of income tax
Together they sparked a bull market that ran from 1982 until 2000. The strong performance of our UK team over the period contributed to the turnaround in Baillie Gifford’s fortunes.
The launch of BG Japan Trust in 1981 and BG Shin Nippon in 1985, focusing on smaller Japanese stocks, also signalled we were back on the front foot. So too, did our introduction of a series of open-ended funds targeted at smaller investors, including BG Income Growth, BG Europe and BG British Growth.
The other critical factor was that we built up our pensions fund business. In 1984, we won our first competitive pitch, securing lorry trailer maker Crane Fruehauf’s retirement fund. Others followed, including the drinks and pharmaceutical company Distillers, Essex County Council and the tyre maker Michelin. And in 1987, the Managed Fund launched, a unit trust designed for smaller pension funds.
Overall funds under management grew from £300m in 1979 to £3.5bn in 1989.
1990 - 1998:
The outstanding story of the 90s was the development of our overseas business. This included joint ventures with Japan’s Toyo Trust and Banking Company and the Guardian Life Insurance Company of America.
We also took on some big-name North American public and corporate pension funds, including those belonging to the states of New York and Wisconsin, Puerto Rico Teachers, Goodyear Tire and United Airlines. These opportunities led us to open a US office in New Jersey, which later moved to Manhattan.
At home, our UK pension fund business continued to grow. It now served many Scottish and English local authorities, including Highland Council and the Royal Borough of Kensington and Chelsea.
The Finance Act of 1997 required us to change how we administered this business. So we created Baillie Gifford Life Limited, a life assurance company owned by our partners.
We also made gains elsewhere, including the addition of Pacific Horizon Trust in 1992 after weak performance by its previous manager.
By the end of 1998, portfolio assets totalled £16.2bn.
1999 - 2007:
‘Global best ideas’ equities
This period marked a significant shift in strategy. During the 1990s, the broader industry had shifted towards a more benchmark-based approach to measuring performance. But some of our partners felt this had:
- led to a misunderstanding of risk
- reduced flexibility to make portfolio adjustments
- discouraged imagination
All of which acted against long-term client returns.
The insight spurred them to develop concentrated, low-turnover portfolios of ‘superior quality’ businesses, which they managed without regard for deviating from an index or other benchmark.
These soon attracted forward-thinking pension fund clients from far afield, including those of companies and public bodies in Australia, South Korea and Hong Kong, as well as closer to home, including the BBC.
China, India and other rising emerging markets helped boost the world’s growth rate. But the new millennium also brought the dotcom crash of internet stocks and the subprime mortgage-sparked Global Financial Crisis.
Despite all the turmoil, we continued to advance.
In 2003, the giant US investment firm Vanguard appointed us to help manage its International Growth Fund, kickstarting a long-lasting relationship.
Toyo Trust’s merger with two other banks in 2002 and subsequent absorption into Mitsubishi UFJ Trust and Banking Corporation in 2005 also played to our favour, as we continued to partner with the now enlarged business.
The boards of Edinburgh Worldwide Investment Trust and the Scottish American Investment Company (SAINTS) also switched management to us.
And we added a range of fixed-income products to our open-ended investment companies, starting with the High Yield Bond Fund and Investment Grade Bond Fund.
At the end of 2007, as we prepared to celebrate our centenary, total assets under management were £55.3bn.
2008 - present:
The tech-enabled age
The rise of smartphones, cloud computing and electric vehicles, alongside advances in biotechnology and growing awareness of climate change, continue to create rich investment opportunities.
Our increased focus on exceptional companies, often founder-led, drew us to many of the fastest-growing companies of recent times.
In addition, we increasingly sought out and partnered with distinguished thinkers from academia and elsewhere to inform our worldview, guiding us to think about long-term opportunities before they became common knowledge.
But there have been challenges too. The Financial Crisis of 2008, the Covid-19 pandemic, increasing geopolitical instability and the return of high inflation all added volatility to the markets.
We have also had to adapt to the shrinking defined benefit pensions market in some countries, with many private sector employers now offering defined contribution schemes and de-risking their older plans. While we do not see the growth of our firm as an end in itself – that should naturally follow from achieving good results for clients – we have gradually built our ability to target a broader audience geographically and by client type.
We now work with clients in 46 countries, covering a wide spectrum from pension funds to other financial institutions, sovereign wealth funds, wealth managers, financial advisers and, in our home market, retail investors.
China has become an increased focus. We opened an office in Hong Kong in 2015 and in Shanghai in 2020. They help us to serve local savers and institutions looking to invest overseas and give us an edge when researching and investing in Chinese companies.
In addition, we established a Private Companies Team to support investments outside public markets, where some of the most exciting, fast-rising companies thrive.
We also continued to launch new funds, including:
- Multi Asset options that mix equities and bonds
- The Health Innovation Fund
- Our first funds with explicit sustainability goals as well as performance targets: Sustainable Growth and Positive Change
And we took over the management of two further trusts: Witan Pacific, whose board renamed it Baillie Gifford China Growth Trust, and Keystone Investment Trust, which became Keystone Positive Change.
At the end of 2022, we had over £223bn of assets under management.
As we’ve increased in size, we have also cut our fees across many products to share the benefits of our own growth with clients.
We are now the UK’s only large-scale asset manager that’s an independent, unlimited liability, private partnership. It’s a model that lets us continue to put our clients’ interests above all else.