It is our view that long-term wealth is created by exceptional growth companies that contribute to productive innovation in society. Over time, we believe that such companies will develop deep ‘competitive moats1’ and generate high profits and shareholder returns. We endeavour to generate strong performance for our clients by helping in the creation and improvement of such worthwhile enterprise. We believe that, if we can identify and invest in these companies, we can multiply our clients’ investments over the long term.
The companies we are looking for are rare, and the opportunities to invest in them are rarer still, not least because we demand a clear distinction between our view of the value of a stock and that implied by the market price. For most of Baillie Gifford’s history the stock market has been the best method to access these companies. While this remains predominantly true today, our observation is that many companies are now choosing to stay private for longer. The median age of a company at IPO has risen from around seven years in the 1980s to around 12 years today. At the same time, the number of companies listed on US exchanges has shrunk by half over the last two decades.
Median age in years at IPO
Source: Jay Ritter, University of Florida.
Number of listed companies listed on US exchanges
Source: Center for Research in Security Prices at University of Chicagoís Booth School of Business.
1Moats – refers to a process where companies are able to distinguish themselves from their competition and create conditions that make it difficult for competitors to replicate or impinge upon their success.
There are three reasons that we believe this new dynamic is here to stay: regulation, capital, and technological change. The US Sarbanes-Oxley Act, enacted in 2002 as a response to the high-profile accounting scandals of Enron and WorldCom, introduced more stringent reporting and controls requirements for public companies. The cost of compliance has a disproportionate effect on small, fast-growing companies, and takes time and resources that could otherwise be spent growing the business. Furthermore, the US Jumpstart Our Business Startups Act, which passed into law in 2012, increased the maximum number of shareholders a company can have before it must go public by fourfold, making it easier for companies to remain private. At the same time, there has been an influx of capital as traditional public market investors have been increasingly willing to invest before IPO. Lastly, but in our view most importantly, technology has made it easier for companies to scale up without large upfront capital investments. Companies coming to market are not just older, but are at a later stage in their growth phase.
The combination of these factors has meant that there are many attractive businesses of scale to be found in the private market. Moreover, as long as companies are able to raise capital in the private market, it is desirable for them to remain private. They avoid the distraction of short-term quarterly reporting expectations, allowing them to devote their time and resources to long-term value creation. This is good for long-term shareholders, but it means that the way to participate in the growth phase of businesses, where the greatest potential rewards are on offer, is increasingly through investing in unlisted companies.
We believe that Baillie Gifford’s ownership structure and our investment approach of long-termism, embracing asymmetry of equity market returns, and taking a global perspective gives us advantages as investors, whether looking at listed or unlisted companies. Baillie Gifford has a history of investing in US companies. Our US OEIC, the Baillie Gifford American Fund, celebrated its 20th anniversary last year. In our attempts to seek out different sources of information, we have been meeting and researching unlisted companies to help us better understand the nature of potential future opportunities. We believe the relationships we have built and the knowledge we have acquired have made us better investors, and investing in these companies represents a natural evolution for the US Equities Team. We are fortunate that Baillie Gifford has a strong reputation as a long-term, supportive shareholder, and this has given us access to some of the most influential entrepreneurs in the US, both in public and private companies. We have a dedicated unlisted equity team within Baillie Gifford, and a number of our strategies already have the capability to invest in unlisted equities. We therefore believe we have the relationships, expertise, and infrastructure in place to support this new trust.
We believe the relationships we have built and the knowledge we have acquired have made us better investors.
The views expressed in this document are those of Helen Xiong and should not be considered as advice or a recommendation to buy, sell or hold a particular investment, including in Baillie Gifford US Growth Trust plc (the “Company”). The views reflect personal opinion and should not be taken as statements of fact nor should any reliance be placed on them when making investment decisions. It is recommended that investors seek their own independent legal, tax, financial and other advice.
This communication was produced and approved on the stated date and has not been updated subsequently. It represents views held at the time of writing and may not reflect current thinking.
The Company will be listed on the London Stock Exchange and will not be authorised or regulated by the Financial Conduct Authority.
This document has been prepared by and is issued by Baillie Gifford & Co Limited, which is authorised and regulated in the UK by the Financial Conduct Authority and whose registered address is at Calton Square, 1 Greenside Row, Edinburgh, EH1 3AN, United Kingdom. Baillie Gifford & Co Limited will be the authorised Alternative Investment Fund Manager and Company Secretary of the Company.
This article contains information on the Company. The Company will adopt an investment philosophy and process similar to that employed by the Baillie Gifford American Fund. This document includes information on the Baillie Gifford American Fund by way of example of Baillie Gifford’s US equity investing approach. This information is not a guide to the potential performance of the Company. Past performance is not a guide to future returns.
Unlike the Baillie Gifford American Fund, the Company is expected to have a significant exposure to unlisted securities. Investment in unlisted securities may involve a higher degree of risk, for example because the companies issuing such securities are at an early stage in their life, or because such assets may be more difficult to buy or sell, so changes in their prices may be greater. Further, the Company may not be able to exit from its investments in unlisted securities, or it may be required to dispose of an investment in unlisted securities on unsatisfactory terms.
This document may include statements that are, or may be deemed to be, “forward-looking statements”. In some cases, such forward-looking statements can be identified by the use of forward-looking terminology, including the terms “targets”, “believes”, “estimates”, “anticipates”, “expects”, “intends”, “may”, “will” or “should” or, in each case, their negative or other variations or comparable terminology. By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. Forward-looking statements are not guarantees of future performance. The Company’s actual performance, results of operations, returns, financial condition, liquidity, distributions to shareholders and the development of its financing strategies may differ materially from the impression created by any forward-looking statements contained in this paper.
The Company may borrow money to make further investments (sometimes known as ‘gearing’ or ‘leverage’). There is a risk that when the Company repays its borrowings, the value of the Company’s investments may not be enough to cover the borrowing and interest costs, and the Company will therefore make a loss. If the Company’s investments fall in value, any invested borrowings will increase the amount of this loss.
If you invest in the Company, you might not see a return on money for a number of years, if at all. The value of shares and the income from them is not guaranteed and can fall as well as rise, due to stock market and currency movements. When you sell your investment you may get back less than originally invested. As with any investment, capital is at risk. All data and information is sourced from Baillie Gifford & Co unless otherwise stated.
This document is an advertisement and does not constitute a prospectus, offering memorandum, or offer or solicitation to any person in any jurisdiction to purchase or sell any investment and does not contain sufficient information to support an investment decision. Investment decisions should be based solely on the prospectus issued in connection with the Company. Copies of the prospectus are available, subject to applicable law, free of charge from the registered office of the Company. Copies of the prospectus are also available on the Company’s website and from the National Storage Mechanism at http://www.hemscott.com/nsm.do
A Key Information Document is available for the Company at www.bailliegifford.com
This document contains information on investments which does not constitute independent research. Accordingly, it is not subject to the protections afforded to independent research and Baillie Gifford and its staff may have dealt in the investments concerned.
The images used in this document are for illustrative purposes only.