Lifetime of InvestmentBy Colin Donald. Spring 2021
What was meant to be a two-year apprenticeship turned into a transformative career. Charles Plowden, manager of The Monks Investment Trust, tells Colin Donald why he’s retiring from Baillie Gifford on a high
Please remember that the value of an investment can fall and you may not get back the amount invested.
This article originally featured in Baillie Gifford’s Spring 2021 issue of Trust magazine.
Charles Plowden has been talking about a revolution. “I find I’ve been using the term quite often when talking to clients: the online revolution that’s allowing companies to scale at incredible speed, the green energy revolution, the revolution in personalised medicine. This ‘regime change’ means that much of what I’ve learned over my investment career no longer applies.”
For The Monks Investment Trust, managed by Baillie Gifford since 1931 and by the Plowden-led Global Alpha Strategy Team since 2015, the revolution rolls on. These are, he says, “exciting times” for the trust and for Baillie Gifford, whose wider fortunes he has done much to shape. Monks, he believes, is in “mid-leap”, positioning itself for 10 or 20 years in the future, “when nearly every company will be a ‘technology company’ of sorts, or it won’t exist”.
One of two Senior Partners at Baillie Gifford, Plowden retires in May “while the party is in full swing, not just in stock market terms but in our performance and reputation for client service”. Deputy manager Spencer Adair succeeds him as Monks’ manager and Malcolm MacColl continues in his role as deputy manager, while assuming Plowden’s Senior Partner role.
Monks’ managers will continue the shift towards faster-growing global technology companies, based on their understanding of the businesses that will thrive in this fast-changing world. The over-arching shift, according to Plowden, demands that enterprises of many kinds turn themselves into data or machine learning-driven companies.
“The revolution started with the consumer internet and social media companies. The next frontier will be about using data to make business more efficient and better at targeting customers. The banks, for example, must realign themselves around the use of data and mobility or they’ll lose out to fintech. Car companies, insurers, gyms, cinemas, TV companies, the list is endless. We never thought our high streets would be so vulnerable to disruption from technology, but they were.”
Intertwined with this theme, Plowden sees the rise of Asian – mainly Chinese – consumption and savings as transformational for the investment industry. “China is not going to slow down and wait for us to catch up.”
All of which is a world away from Plowden’s early years at Baillie Gifford when, he says, “if you wanted ‘a bit of Asia’ in your portfolio you bought HSBC or Standard Chartered”. He joined the firm as a graduate trainee in 1983, straight from Oxford. With sights set on a City career as an investment banker, his plan was to come to Edinburgh “for a couple of years” and learn the fund management trade. He stayed for just short of 40.
In those days the firm was based in the labyrinthine New Town premises of its Edwardian origins, employing fewer than 40 people (it’s now almost 1,400). Partners were addressed as ‘Mr’, computers were all but unknown, and global trusts were “divvied up into regional teams”. A partner at 27, one of Plowden’s duties was to run the UK equities in Monks, then a much larger portion of the portfolio than the current 10 per cent.
Charles Plowden (standing) in the late 1980s, with fellow partners (left to right) Gavin Gemmell, Richard Burns and James Anderson.
A Century of Investing: Baillie Gifford’s First 100 Years, written by former Senior Partner Richard Burns, describes the firm of the early 1980s as in a fragile state, following the investment industry slump of the 1970s. “We were desperate to build a sustainable business and we weren’t too fussy about which strategies we offered,” Plowden recalls. “There were a lot of very bright people and stock markets were fun and exciting, but portfolios tended to be put together on the basis of ‘we’ll have one of those and one of those and one of those’. It was a simpler world back then, without all this information at our fingertips.”
Leading the investment department from the mid-2000s, Plowden and James Anderson, now joint manager of Scottish Mortgage, divided up strategic and people management duties, while keeping their desks on the investment floor. Custodian of the firm’s collegiate culture, Plowden encouraged autonomy and promoted debate among small, trusted teams. “It led to better decisions and less office politics.”
The goal for Baillie Gifford, he says, was never asset growth, but continuous improvement in investment capability and client service. The former followed the latter. From almost £700m in 1983, the year Plowden and Anderson joined, assets under management have grown to £326bn.
Plowden’s 2015 return to Monks followed its board’s decision to align the trust with the open-ended Global Alpha Fund he had run with Adair and MacColl since 2005. The new team’s first annual report and accounts, subtitled Global Growth from Different Perspectives, promised a differentiated, active portfolio, with a diversified range of growth stocks, plus “a patient approach”. Also, he recalls, “we cut the dividend and said that the dividend will be as low as we can make it. We reckon that the best use of our money is to reinvest it in future capital growth.”
Managing Monks, he says, has been “about setting out a clear, coherent and consistent strategy, carrying it out and then seeing it work. We’ve gone from buying back £55m worth of shares in the financial year we took it on, to issuing £100m of shares in the last calendar year. This journey from a discount to a premium, from shrinking to growing, has been the kiss of life.”
Plowden’s career swansong at Monks, and Baillie Gifford’s experience in winning and managing new mandates (five new retail investment trusts since 2018), have enhanced his enthusiasm for closed-ended funds. “It’s permanent capital. Trusts can gear. They have external oversight through boards and tend to offer better value than other pooled alternatives.”
And, he adds, they are a “shop window” for investment managers, who are forced by board and shareholder scrutiny to refine their ideas about favoured stock holdings. “Because they are public companies you get feedback. As a trust manager you chat to a lot of people at shareholder events. You get emails saying ‘thank you, you’ve allowed me to pay off my mortgage’ or ‘you’ve allowed me to provide for my children’. It brings you back to the whole purpose of what you’ve been trying to do. It’s nice for vanity to read articles about your investment prowess in the business press, but the ultimate job satisfaction is happy clients.”
Charles Plowden’s 7 pillars of investment wisdom
- Start with a blank sheet of paper. Invest in what you think are the best companies, regardless of sector or geography. Thinking in terms of ‘oil and gas’ or ‘the US’ leads you to be influenced by what others allocate to these categories. Monks stopped reporting by countries and sectors five years ago to avoid that.
- Patience pays. Along with clarity of purpose and a long time horizon, a philosophy and a company structure that support patient investing are big advantages. Few investors have this luxury as, after a couple of years, their bosses or their marketing department start agitating.
- Small teams work best. Why? Because everyone is forced to take responsibility, which grows mutual reliance and trust. Having worked in big teams and small, I’ve found it works much better with two or three trusted colleagues. It also helps with business continuity. One reason I don’t believe in ‘star managers’ is that, by definition, they’re one-generation affairs.
- Root yourself in the real world. Investing should be more than an abstract exercise about percentages of outperformance. Your job is to look after people’s savings. Your success or failure has a real impact on their lives.
- Asymmetry is (almost) everything. Having tended to ‘trim my winners’ and reinvest the money, I learned latterly from Arizona State University’s Professor Hendrik Bessembinder that the vast majority of returns are generated by a tiny cohort of companies. His research taught Baillie Gifford to let our winners run and, unless the fundamentals go wrong, to stick with the companies we believe in.
- The old laws no longer apply. The combination of the technology revolution and the opportunities of Asia represent regime change in the investment world. ‘Reversion to the mean’ ain’t going to happen.
- I picked the right career. It didn’t take me all 38 years to learn that investment is the best possible career. It’s fun, absorbing, challenging and constantly changing. Even better, and increasingly recognised, is the fact that it’s actually useful to society. I’d recommend it to anyone.
Past performance is not a guide to future returns. Investments with exposure to overseas securities can be affected by changing stock market conditions and currency exchange rates. The trust 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. Portfolio data to end December 2020, unless otherwise stated.
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.
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.
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Colin Donald is deputy editor of Trust, having joined Baillie Gifford in 2018. He is a former business editor of the Sunday Herald and has worked as a lecturer and journalist in Japan.
Illustration by darlingforsyth.
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