1. Trip notes – BRUSSELS

    By Spencer Adair. Autumn 2018
    Illustrations by Andrew Lyons.
  2. How are regulators thinking about the rapid growth of the tech titans? Spencer Adair, joint deputy manager of the Monks Investment Trust, went to the world’s capital of regulation to find out.


    This article originally featured in Baillie Gifford’s Autumn 2018 issue of Trust magazine.

  3. I have a confession: I risked violating Mark Zuckerberg’s data privacy on a trip to Brussels.

    The Facebook boss and accompanying media scrum walked within six feet of me in the corridors of the European Parliament. He was due to give evidence to MEPs and I was there to learn how the European Union thinks about the regulation of the social media and internet giants.

    Yes, I took some iPhone snaps. He is a public figure after all. But, just to clarify, I didn’t share the pictures on Facebook.

    Knowing that Mr Zuckerberg was being grilled next door gave an added edge of currency to an enlightening programme in Brussels, learning about the potential impact of regulation on some of the companies held by Monks and other Baillie Gifford investment trusts. Topics included data protection, mental health, political interference, protection of children and – the most complex issue of all – how the great fortunes of the social media platforms might be taxed fairly.

    Those sparing time to meet me included MEPs; the chair of the Global Antitrust Group at the European Competition Commission; an adviser to the Directorate-General for Justice and Consumers, European Commission; the European Data Protection Supervisor; and an adviser to the Data Protection Commissioner.

    This visit came at a critical moment in the rise of the tech giants such as Alphabet (Google’s parent company), Amazon, Facebook and Netflix. Never in the history of commerce have companies scaled so quickly and to such an extent. Facebook alone has 2.2 billion monthly active users worldwide, a number that has continued to rise, despite recent adverse publicity.

    This scrutiny of Facebook and the introduction of the EU’s new regime governing the use of personal data, the General Data Protection Regulation (GDPR), are signs that society is catching up with the implications of the data revolution. With Europe ahead of the US and Asia, regulators have begun to challenge the tech giants. How the companies choose to respond over the next few years will be crucial to their future.

    My own view of companies such as Facebook is that they are the equivalent of teenagers. Following a growth spurt they are coltish, awkward and a little hot-headed. They’ve had their first brush with adulthood (the trouble over Cambridge Analytica in Facebook’s case), their confidence is slightly bruised and they have to rethink and reassess. On balance, I think they will look back at this period as a positive period of progress.

    Baillie Gifford has made a lot of money for shareholders by owning these large tech platforms. But our job at Monks is to look to the future.

    Because we are thinking about companies’ potential to more than double earnings over the next five-to-ten years, we also have to think about what could derail that growth story, hence our trip to Brussels. There is greater chance of finding insight relevant to our time horizon talking to regulators than investment bankers. We came away believing that these companies should take the opportunity not to fight regulation but to embrace and influence it.

    The analogy for this process I heard more than once was with the early days of the motorcar.

    When cars first took off in the early 20th century they had no seat belts, very poor lights, and no laminated glass. Regulations designed for horse-drawn carriages no longer applied to a much more powerful and adaptable mode of transport. Gradually the regulations caught up without detracting from the core utility of the car.



    With the digital platforms we need to tighten regulation in ways that do not affect the core benefits we all appreciate. For Monks, if regulation makes these companies more stable and more socially acceptable for another 20 years, we would be delighted.

    By growing so quickly the net giants have outpaced regulation, the legal system, and the tax system. These elements now have to catch up.

    Like everyone else, we also want our portfolio companies to pay the proper amount of tax. We’re not interested in them maximising annual profits at the expense of the goodwill of customers or their corporate reputation. These companies are increasingly important to society and their conduct should reflect that.

    In this new environment there are things that everyone can agree on – the need to protect children and personal privacy being the most obvious. But there are trickier issues, such as how best to tax these companies in a way that is fair and commands unanimity throughout the EU. The idea of a three-to-four per cent flat tax on revenues, as opposed to profits, was mentioned in some of our discussions, but there is a long way to go before anything is agreed.

    What were my chief takeaways, apart from fleeting pictures of Mark Z?

    That the EU machine is not hostile to data collection per se. Brussels appreciates the legitimate business reasons for collecting it and doesn’t want to stand in the way of the data revolution, as some imply. Its focus is on that tiny slither of all the data out there that is identifiable user data. GDPR raises the standards but doesn’t destroy business models.

    Another is that you can have a very good conversation with regulators as long as you’re not trying to influence them. On that basis they are very open about their concerns, for example about Facebook and Google’s dominance of online advertising.

    Finally, it was clear from my visit that the EU takes a strikingly western perspective, focusing on American and European companies, whereas the biggest social media and e-commerce players are now in China. I suspect that the EU still files this reality in the ‘too difficult to confront’ file, though given the extent of Monks’ holdings in Chinese tech companies such as Alibaba, whose scale and growth potential exceed their western equivalents, we need to focus on this.

    It remains to be seen whether China’s governance culture is as open as Europe’s appeared to be, but depending on that, my next trip note could be from Beijing, and the corridors of China’s Ministry of Industry and Information Technology.


    Annual past performance to 30 June each year (%)







    The Monks Investment Trust






    FTSE World Index







    Source: Morningstar, FTSE. Share price, total return.
    Past performance is not a guide to future returns.


    If you would like to register to receive Trust magazine please visit www.bailliegifford.com/trust


    Please remember that the value of a stock market investment and any income from it can fall as well as rise and investors may not get back the amount invested. Investments with exposure to overseas securities can be affected by changing stock market conditions and currency exchange rates. Investing in emerging markets is only suitable for those investors prepared to accept a higher level of risk. This is because difficulties in dealing, settlement and custody could arise, resulting in a negative impact on the value of your investment. Investment trusts can borrow money to make further investments (sometimes known as gearing’ or ‘leverage’). The risk is that when this money is repaid by the trust, the value of the investments may not be enough to cover the borrowing and interest costs, and the trust will make a loss. If the trust's investments fall in value, any invested borrowings will increase the amount of this loss.

    Source: FTSE International Limited (FTSE) © FTSE 2018. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under licence. All rights in the FTSE indices and / or FTSE ratings vest in FTSE and / or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and / or FTSE ratings or underlying data and no party may rely on any FTSE indices, ratings and / or data underlying data contained in this communication. No further distribution of FTSE Data is permitted without FTSE’s express written consent. FTSE does not promote, sponsor or endorse the content of this communication.

    The views expressed in this article should not be considered as advice or a recommendation to buy, sell or hold a particular investment. The article contains information and opinion on investments that does not constitute independent investment research, and is therefore not subject to the protections afforded to independent research.

    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.

    Some of the views expressed are not necessarily those of Baillie Gifford. Investment markets and conditions can change rapidly, therefore the views expressed should not be taken as statements of fact nor should reliance be placed on them when making investment decisions.

    Baillie Gifford Savings Management Limited, Baillie Gifford & Co Limited and Baillie Gifford & Co are authorised and regulated by the Financial Conduct Authority and are based at Calton Square, 1 Greenside Row, Edinburgh EH1 3AN.

    The investment trusts managed by Baillie Gifford & Co Limited are listed on the London Stock Exchange and are not authorised or regulated by the Financial Conduct Authority.

    A Key Information Document is available by visiting www.bailliegifford.com


    Ref: 34726 IND WE 1129


  5. Spencer Adair

    Spencer Adair is joint deputy manager of the Monks Investment Trust. Spencer worked in the Fixed Income, Japanese, European and UK teams, before becoming an investment manager for the Global Alpha team.