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<p><strong>As with any investment, your capital is at risk. Past performance is not a guide to future returns.</strong></p>
<p><br><strong>Kristin Ross (KR):</strong> Welcome, everyone, to Baillie Gifford's fourth quarter private companies update. My name is Kristin Ross. I am a member of our US financial institutions group. I'm based here in Palm Beach, Florida. And I'm joined today by Dale Ledbetter. He's an investment specialist and director with our private companies team, and he's based in New York. Dale, how you doing today?</p>
<p><strong>Dale Ledbetter (DL):</strong> Good, Kristin, thanks for having me.</p>
<p><strong>KR:</strong> Great, thanks for joining us. We're excited to dive in. I think many folks here, it's been really interesting risk in the private markets over the last several years, so we're excited to dive in deeper today. But before we do, let me just lay out the agenda for everyone. I'll kick us off, I'll give a little bit of background on Baillie Gifford's efforts across the private market space. I'll turn it over to Dale, he'll give us a bit more background, more deeper drive into what we saw across privates broadly for the fourth quarter. And then, we'll zoom the lens out a little bit and look at the year as a whole, before we dive further and most specifically into the private equity, growth equity space, what we're seeing, what we're excited about, and what we think on the go-forward.</p>
<p>So let me give you all some background on Baillie Gifford's private market efforts. I think that many of you are familiar with us for our public market investing, we're a $270 billion asset manager. You know us for our public equity as long-term growth investors. We would think of ourselves similarly on the private market side. We're looking for the most exceptional growth companies across the globe. We've been doing this now on the private side since 2012. We've made over 150 investments. We've invested nearly $10 billion on behalf of our clients across private markets.</p>
<p>I think it's worth flagging we are super-excited to be in-market in the States for the first time with a handful of vehicles. We just completed a first raise this past quarter. We're very excited about what the future looks like for us and how we can partner with you, so if there's any interest, we would encourage you to reach out to your Baillie Gifford contact, and we can share more there. I'm going to put a pin in there, let's turn things over to Dale. This next slide is a little busy, when we break it down. Why don't we have you pick out a few that stick out to you and talk to us a little bit more about the state of private markets?</p>
<p><strong>DL:</strong> Sure, thanks, Kristin. I'm not really going to go through each data point, we're going to focus on the reasons why we're seeing certain shifts. I think the two that I think are most critical are liquidity is evolving, and actually growth equity is expanding. These groupings are definitely very much inter-related, but I think we enter 2026 with the same exuberance or excitement that we had initially in 2025. Entering 2025, I think we were looking for an increase in IPO market, we were looking for an uptick in M&A activity, and just a more kind of rational market. That was somewhat stunted by the tariffs in the first half of the year, and then also the government shutdown in the second half of the year.</p>
<p>So looking back at 2025, I think stepping into it looks very much like 2026, where exits are at the top of everyone's minds. Exits would naturally generate liquidity, and that will hopefully cause an improvement in terms of fundraising and well as deal activity. I think in 2025 that didn't come to fruition, and as a result you saw less fundraising, or flight to quality when it came to fundraising in private markets, and you saw uneven deal activity. And that really all stems from the lack of exits in liquidity. And so, as a result of that, you really saw secondary markets become the release value for a number of GPs, specifically talking about continuation funds. And regardless of where you sit on that particular topic, it is becoming a more prominent part of private markets more broadly.</p>
<p>Before turning to growth equity specifically, I'll just briefly touch upon Europe, because I think Europe is having somewhat of a moment, where it secured 34% of private capital in 2025. Then, you have really both private and public funding really going toward Al-native businesses, towards VG-backed business. Now, including the UK in this as well, as they have committed to deploying<br>£500 million capital to Al-native companies. And even if you look at our own portfolio, what we've seen more recently in Europe over the last couple of years is that we've identified a company in Lithuania, Vinted, which is the country's first unicorn. We invested in a company, Tekever, in Portugal. We also invested in a company in Israel called lnsightec. And we also, in 2023, invested in a company called Bending Spoons, which is based in Italy.</p>
<p>If you look at three of those four businesses, they were already profitable businesses when we invested in them. They had average revenue multiples of 6.1 times, and they are growing at over 50% on average. So you're really getting profitable businesses, profitable businesses that are growing at really good prices in Europe. And that really is directly related to my comments on growth equity specifically, which is that after the zero interest rate environment, you're seeing companies that have become stronger, that are thriving, they've become leaner as they're really focused in on their cost structures without sacrificing growth. But you've also seen one move to profitability, where we kind of walked away from the growth-at-all-cost environment. Companies are really focused on being close to breakeven or profitable.</p>
<p>Secondly, you've seen less competition in the space. There are less tourists, so hedge funds, crossover investors, strategics that were causing upward pricing pressure on valuations are less active. And I think this actually really gives us, or highlights, the advantages that we have at Baillie Gifford, because being true growth investors, on both private and public assets, founders will tend to want to partner with us more, because they know that we're not just opportunistically playing in the space, we're actually truly growth specialists, and this is all that we've done.</p>
<p>And currently, what you're seeing in growth equity, it's not dissimilar from what you're seeing in public markets, is a great deal of concentration. Concentration around sector themes such as Al and defence, but also concentration around well-sought-after names. And this includes names like [unclear], Anthropic, SpaceX, etc. But what's unique about our platform and our value proposition is while you do get the opportunity to invest in those larger, well-sought-after names, we also have invested in companies that sit somewhat outside of the venture capital ecosystem. I've previously mentioned Bending Spoons and Tekever, both in Europe, but even a company like Mattu, which is a Latin American fintech business, or a company like Avanci, which is an intellectual property business in the US, all four of those companies had very little VC capital on their cap table prior to Baillie Gifford investing in them.</p>
<p>And lastly, I'll just touch briefly upon valuations in growth equity. When you compare public growth companies to private growth companies in terms of valuations, if you invest in a public company at 20 times revenue, you're likely getting 40% to 50% growth rates. But if you invest in a company in private markets at that same price, you're looking at 100%-plus, or even upwards of 500% in terms of top line growth. So when you think about the headlines that valuations are expensive, that may be true in some regard, but when you factor in growth, things start to look a lot cheaper.</p>
<p><strong>KR:</strong> That's a good point, Dale. Thanks for bringing that up. And I do just want to add, we've very happy to keep today's conversation very interactive, so if you have any questions, do feel free, there's a Q&A box on your screen. I'm going to be monitoring that throughout, so if you want to interject at any point, please feel free to put a Q&A there. Okay, Dale, let's keep the conversation moving. Good points on the public versus private. We here a ton in our conversations with intermediaries and across all of our clients and prospects, and we've been seeing companies staying private for longer. Does the team have any thoughts, there?</p>
<p><strong>DL: </strong>Yes, think that's a theme that's been prominent for a while. I think it's something that's stuck with us, and it's really proven out in the data. The reason that we're excited about private growth is that the opportunity set has really shifted to private markets. There are more scaled companies in private markets. If you look at over the last 25-plus years, the number of VG-backed companies has expanded dramatically, while public markets have been relatively flat or declining. If you look at companies generating over $100 million in revenue, the majority of them are in private markets.<br>And it's really an acceleration of a trend that we've seen over the last decade. Private growth is now a $7 trillion asset class. And that reason for that is that innovation is occurring in private markets.</p>
<p>There are technological risks that you can take in private markets that you can't take in public markets, as a result of the scrutiny that will happen towards your share price. And so, you're seeing innovation in Al and energy, I think that's been well documented, but you're also innovation in space, innovation in defence, and innovation in quantum computing, so hard tech. In addition, you're seeing new platforms around payments, and marketplaces being created as well. And this innovation is funded by deep pools of capital. Founders are very selective about who they're shareholders are, and, simultaneously, we have a burgeoning secondary market that is allowing employees and early stage investors to generate liquidity. So when you combine all those things, private growth is really becoming a very interesting asset class that can't be ignored.</p>
<p>And the last thing I'll say is that private growth is really one of the hardest hit asset classes post the prior period. Access to capital has really dried up, valuations became compressed, but despite all those headwinds, you really saw revenues continue to climb. And so, if companies are staying private for longer, it really changes the potential in terms of where returns are being generated.</p>
<p>So if you flip to the next slide, returns have really shifted to the private markets. When we look at the value creation around IPOs and how much has happened before listing, if you look at the more recent period, a lot of that shareholder value has been created prior to a company going public, almost 50% in terms of a valuation. If you only invest at IPO, you're missing out on that great deal of value that's happening in private markets. That's not how it's historically been. If you look at the prior period, much less of the value was created in private markets. And if you look back even further, around the dotcom bubble, or if you look at larger businesses such as Amazon and Nvidia that are trillions of dollars today, they only went public at valuations in the hundreds of millions. So the value proposition has just changed over time. And it's not just about timing. Companies that are IPOing today are much larger.</p>
<p>KR: That's interesting, Dale. In some of the reading we've been doing, we've been talking about how some folks are making the point that growth equity has now become the new small-mid space.</p>
<p>Does the team have any thoughts, there?</p>
<p><strong>DL:</strong> Good question, Kristin. I won't explicitly say that private growth is the new small cap or the new mid cap, that could potentially upset some of my colleagues. But what I will say is that there is evidence that today's IPO-sized companies can be very large. They're large relative to historical IPOs. And in some cases, they're larger than public entities altogether. If you look at the chart from left to right, as I mentioned, Amazon and Nvidia had much smaller IPOs when they initially entered the market. If you fast-forward to the 2020, 21 period, you're seeing IPO valuations at much higher multiples. And you might say, Dale, well, that was a very peak period, do we really want to go back to that time? And I would agree, that is a peak period, there were definitely irrational market decision at play. But even if you look at notable IPOs in 2025, they're still multiples higher than historical IPOs, and still higher than the smaller cap index. And so, again, that value is being created in private markets.</p>
<p>And if you look at the companies that are anticipated, that we're all excited about, potentially going public this year, then their valuations are exponentially higher than any other ones that I've mentioned, especially the SpaceXs, Bitedances of the world, Anthropic as well. And if you look at where Baillie Gifford entered those businesses, and the amount of value that's been created since we've invested, it's seven times value has been created in private markets. And so that's just an asset class that you no longer can ignore. Companies are scaling privately.</p>
<p><strong>KR:</strong> Thanks, Dale. Some pushback that we get, valuation's happening in the private side of their lifecycle, but investors still need liquidity and pathways. Can you talk to us more, there?</p>
<p><strong>DL: </strong>Sure. I think it's important to remember that we're not in private markets for the sake of just saying private. It's the growth quality of these businesses. When you compare average revenue growth of private companies versus the Russell 2000, or buyouts, as an example, which typically takes the lion's share of capital in private markets, and even if you were to say we're strictly going to invest in Magnificent 7, the revenue growth of private assets far exceeds any of those other categories. And then, it becomes a question of how can we access these durable-growth companies with improving unit economics? And that's easier said than done. At Baillie Gifford, we actually have that competitive advantage, or that point of differentiation, where we have access to these businesses.</p>
<p>And so, the reason why I bring up revenue growth as a value driver going forward, and why it's important, is because revenue growth can absorb dilution, and revenue growth can withstand multiple compression. And these companies will still look attractive, even if you have those two factors. So you need revenue growth to absorb those two, but if you don't have that, then I think it will be difficult to drive returns. And if you look at previous periods, from 2015 to 2019 as an example, there were dual engines driving returns. You had multiple expansion on the one hand, and you also had revenue growth. If you look at 2020 and 2021, it was multiple expansion that was powering returns. If you fast-forward to 2022 to now, it's really going to be revenue growth that's going to drive returns. And if you're looking for revenue growth, private markets is where you're going to find it.</p>
<p><strong>KR: </strong>Thanks, Dale. Just a reminder, folks, if you have any thoughts, any questions, feel free to enter them in the chat box. Keep my eyes on that for you. Thanks for [unclear] the revenue growth, Dale. Another area that, when we go to our clients or prospects to talk about the private space, we hear more and more in the recent days, and given the state of what we've seen in private markets, is folks are accessing the space via secondaries. What has the team seen in that space?</p>
<p>DL: That's an interesting question, for sure. I think the reason that you're seeing investors enter the market via secondaries is because liquidity is increasingly coming from secondary routes, and not IPOs. I would say that the lion's share of returns more recently, or exits more recently, have been the secondaries, either tender offers that companies have orchestrated, or just a secondary market more broadly. M&A has also been somewhat of a factor, but IPOs have been somewhat quiet relative to those other exit avenues.</p>
<p>I think that secondaries are important to the liquidity profile of private growth, going forward, but there are different motivations for different sellers when you think about secondary markets. So it's difficult to really assess the true value of a business in secondary markets. I also would say that if you enter private markets completely through secondaries, then you don't necessarily get the same information rights that you get via primaries. So I think, ultimately, a fluid IPO market is more rational and healthy, going forward, but secondaries will continue to play a prominent role in this asset class as it becomes more matured.</p>
<p><strong>KR: </strong>Thanks, Dale. Let's shift gears, let's take the conversation looking forward. What does this all mean for the opportunity set? We touch a little bit on valuations and fundamentals, what does the team think on the go-forward, where are we excited?</p>
<p><strong>DL: </strong>I think if you put it all together, how it's summarised at the moment is that private markets now contain a large cohort of scale growth companies. Value creation is increasingly happening pre-lPO, and the liquidity profile of businesses is evolving. And selectivity will matter. There'll be a focus on fundamentals, durability and price discipline.</p>
<p>All these circular trends, in terms of valuations and companies preferring to not list as early in their value-creation trajectory, is then supported by fundamentals where private markets are continuing to have higher revenue growth in public markets. They're moving towards profitability, and also they have large pile of cash that they can then extend for years to come before entering public markets to be a better public-market business when the time is right. So I think there's a lot of reasons to be excited about growth equity going forward. And I think that our position within the space will be even stronger as a result of some of the changes that have happened over recent years.</p>
<p><strong>KR: </strong>Thanks. Just monitoring the Q&A box, I don't see any that have come in just yet, so feel free, if you have anything you'd like to ask, enter it there. Why don't we shift to 2026 predictions, Dale.</p>
<p>Anything from you and the team, you shake your crystal ball, you'll make a strong prediction?</p>
<p><strong>DL: </strong>Yes, I think predictions are always interesting. I would say, and this maybe somewhat an answer that you don't want to hear, a throwaway, but I do think it is definitely a prediction from me, it's that expect uncertainty. It's inevitable that there'll be some form of externality that will shock the system. But I do think that there will be opportunities as well, despite any of these externalities. So I think that uncertainty is definitely one prediction.</p>
<p>I would say a second prediction is that there'll be more IPOs in 2026 than there were in 2025. We already saw an uptick in 2025. Not returning to 2021 levels, but again an improvement over prior years 22 and 23. As examples, I also think you'll see much larger IPOs than you've ever seen in the market as well. I'm not sure if all the companies slated will actually list, but if they do, it'll be interesting to see how the market handles volumes of that size. I think it's a bit of an unprecedented time.</p>
<p>And a third prediction, I don't know if it's more of a wishful thinking or a prediction but I'll say it anyway, is that private growth will continue to expand and become a more critical part of a client's portfolio. I'm not just saying that because I work for Baillie Gifford and I'm in private growth, but I really do think that if you're a private investor, or a public investor, there's a part of the market which you're essentially missing. And I think that part of the market is private growth, and I think it has a strong value proposition for clients.</p>
<p><strong>KR: </strong>Thanks, Dale. Yes, it's definitely something that we hear day in and day out in our conversations with our clients and prospects. It's an area that the intermediaries that we speak with are certainly trying to figure out how they fit that piece of the puzzle [unclear] their clients. So it's refreshing to hear your thoughts.</p>
<p>At this time, I don't see any questions in the Q&A. As I mentioned, we're very excited to be in-market with a live opportunity, and we'd be very happy to share more with any of your folks if there's interest. Do feel free to reach out to your Baillie Gifford contacts. Thank you for attending today's session. I will just flag that we have our final in this series of 04 webinar updates. Tomorrow is an emerging markets update, at 11:00 AM, with our investment specialist Ben Buckler. So if there's no questions, we'll thank you guys for your time, and we're looking forward to catching up with you for Q1 of 2026. Thanks, Dale.</p>
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