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<p class="MsoNormal"><strong>As with any investment, your capital may be at risk.</strong></p>
<p class="MsoNormal"> </p>
<p class="MsoNormal"><strong>Joe Stellato (JS):</strong> I’m Joe Stellato. I’m responsible for our US Wealth Team. I’m privileged to introduce Stuart, and I’m really excited for this conversation to effectively walk you through all the different parts of our industry that are problematic and why we think we’re failing investors, companies, every participant across the board. Stuart’s been at the firm for 23 years. He’s an owner of our business. He’s one of our firm’s leaders, clearly.</p>
<p class="MsoNormal">He’s helped shape our investment philosophy across a number of different strategies. But also, he’s been a spokesperson for the firm. He’s talked to clients across the globe. Anything that I missed?</p>
<p class="MsoNormal"><strong>Stuart Dunbar (SD):</strong> No, that’s about accurate. OK. A very pessimistic approach. I don’t think I’m that. Well, let’s let everyone else judge on that.</p>
<p class="MsoNormal"><strong>JS:</strong> I think the most important part is he is the most passionate karaoke enthusiast that you’re ever going to meet. So let’s see how tonight ends up. The first question I’d like to ask, we heard Theo talk through tokenisation and the potential impact on what that means for liquidity. I’ve heard you say on multiple occasions, it wouldn’t be the worst thing in the world if the stock market was open for one day a month for a couple of hours at a time. Help us understand that in the context of a firm that’s about to launch our own ETF suite and effectively make things a lot more accessible for our investors.</p>
<p class="MsoNormal"><strong>SD:</strong> Yeah, so there are a number of things I think we can do better. And one of them is not get confused about the need for liquidity and the ability to think long term. So as you know, we’re going to launch ETFs in a couple of months’ time. Just one month, actually. Where are we? Are we in May already? Yeah, that’s great, because you’ve got to meet your clients where they are, in the vehicles that they want, in a way that works for them.</p>
<p class="MsoNormal">But one of the things that I think our industry, we need to understand better is that’s not the same thing as the frantic noise that confronts us every day to actually do something on the investment side. I had, weirdly enough, before I came over here this week, but I had the questionable pleasure of being on Schwab TV the other night. And as I sat in their virtual waiting room for 15 minutes before I was called on, I just thought it was astonishing, this constant results coming out every two minutes and some guy coming on and analysing instantly the results.</p>
<p class="MsoNormal">Palantir’s revenues were $50 more than the guy before, and what does it mean? And it was – and I didn’t want to go on after that, because I thought, so I kind of went on and I said, “I think that I come from a land where time goes at a different speed.” Because the sort of constant that we use stock markets now as a vehicle for speculation rather than a vehicle for capital allocation. So to go back to your ETF point. The vehicles don’t matter.</p>
<p class="MsoNormal">I love to see people – I don’t actually think stock markets matter very much, which is a really weird thing to say for someone who makes his living in the company like we do. But it’s this lack of focus on underlying companies. So everything you’ve heard here today, we always talk about the underlying companies. You definitely won’t hear us talking about share price patterns. So whether it’s an ETF or mutual fund or anything else, my sort of plea for everyone here is, can we go back to the basics of what capital asset allocation is actually supposed to look like?</p>
<p class="MsoNormal"><strong>JS:</strong> Let’s pull that thread. So what is it supposed to look like? What is the actual purpose of the stock market? Is it what we all learned at university, or are we missing the point?</p>
<p class="MsoNormal"><strong>SD:</strong> It’s very straightforward. It’s supposed to be a way of combining investors with surplus capital on different horizons, so it’s a mechanism for translating that pooling risks and allowing companies to have semi-permanent capital. I actually think stock markets worked better about 50 years ago than they work now, before everyone could trade by pressing buttons on their phone. I think it’s, you know, just because there’s this 24-hour liquidity doesn’t mean we should all be so fixated upon it. And I think it’s – but it’s neither good nor bad, because we can choose to ignore it.</p>
<p class="MsoNormal">And in our firm, we do choose to ignore it. But I think it’s really bizarre that you can now go on your phone, and on the same app, you can buy and sell stocks, you can play blackjack, and you can bet on sports. It’s literally all there in the same app. And I think this is cheapening or undermining the importance of what we’re actually trying to do in our industry, which is serious capital allocation to generate investment returns for our clients, but also to try and create the productivity that makes society work better. And I think we’re really losing sight of that.</p>
<p class="MsoNormal">And you’ll ask me a question in a minute about how we interact with companies, which I think is very relevant. So Lawrence’s chat with Nubank earlier.</p>
<p class="MsoNormal"><strong>JS:</strong> We could go there. If you’re going to start asking your own questions, I could just get off stage. You’re absolutely right. I mean, I did want to bring up the conversation with Cristina from earlier. And she said something that stuck out to me.</p>
<p class="MsoNormal">She said, at her previous firm before Nubank, people were not bold enough to pursue big ideas. And I think that leads us to the next question, which is, is the stock market not supporting management teams of these companies in the way that allows them to pursue these big ideas?</p>
<p class="MsoNormal"><strong>SD:</strong> Yes, I think that’s broadly true. So there are clearly exceptional companies who may have started in private and become public, or maybe they’re longstanding public companies. But there are exceptional firms, and it’s companies, and it’s for firms like ours to try and find those management of those companies and work with them. But I think it’s true to say that as a general point, participants in the stock market no longer really provide meaningful support to the companies in which they’re investing. And I think that that can be particularly dangerous because the management of the companies respond in kind to how their shareholders are thinking about them.</p>
<p class="MsoNormal">So management often start to act short term as well. So you have this slowly disintegrating system where the management of the companies, they’re the ones that do the capital allocation job. This is another thing. Who’s the investor? And I think it’s very interesting.</p>
<p class="MsoNormal">The reason that we spend so much time focusing on building relationships with the management of the companies we invest in is it’s actually them who are the investors. So we might provide capital. If it’s private markets, it might be primary capital. If it’s secondary markets, they’re using existing cash flows, and if they use them wisely, they can deploy that well to create future wealth. We need to work with management to make sure that they’re both encouraged to do that and willing to do that in the face of the constant barracking of short-term investors.</p>
<p class="MsoNormal">I saw a stat recently that only seven percent of turnover on the US stock market can now be traced back to long-term investors. And long term means a year or longer or something. So, you know, the whole system is becoming, I don’t want to – this is sort of overly depressing. There are ways to make this better, but the system is becoming quite dysfunctional.</p>
<p class="MsoNormal"><strong>JS:</strong> So you spoke about this, I know you were on Schwab TV, but you were also at the OECD last month. The idea about quality shareholders. Could you maybe just tell everyone what the OECD is and then what your role there was?</p>
<p class="MsoNormal"><strong>SD:</strong> Yeah, so danger of giving the impression here that I just sort of swung around the world having pointless conversations. The OECD, as I’m sure many of you will know, is the Organisation for Economic Co-operation and Development. It’s a Paris-based think tank with over 2,000 people. It’s funded by multiple governments, including yours and mine. And it’s very well-intentioned.</p>
<p class="MsoNormal">They do policy framework to try and make the world work better in a number of ways. And they were kind enough to invite me over a couple of weeks ago to talk to their science and innovation committee, because they wanted to explore whether the financial system was actually working in a way that maximised society’s ability to progress. What became very clear, I find it slightly worrying because they said to me in 20 years of the science and innovation committee they had never spoken to anyone before who actually thought about where the funding for these companies comes from.</p>
<p class="MsoNormal">So you’ve just got this enormous disconnect between the sort of really smart people who are making scientific discoveries and other things and then those of us who work in the financial sector who don’t really understand the science. And so the OECD try and work together to, they do research, they advise governments on how to try and improve the policy framework, which does mean that investment goes to the right places, capital allocation works better. And this all seems very abstract, but I think it really matters.</p>
<p class="MsoNormal">I mean, there’s a lot of evidence out there that management of companies increasingly and knowingly forgo good investment opportunities because they know that short-term shareholders won’t respond well to that. So one of the things we can do as a company as we get to know the management of the small number of great companies that there are, is to really encourage them to do what they know to be the right thing and to demonstrate to them that there are supportive shareholders. And then there’s another aspect of this, if anyone’s really interested, you can go and read about quality shareholders.</p>
<p class="MsoNormal">This is a concept that came up, it sort of goes back to the 1970s, but was forgotten for a long time. Quality shareholders are essentially shareholders who invest in size for long periods of time in a relatively small number of companies. And so when we come to this sort of why active debate, I think a big part of that that’s now missing is the evidence that companies that have a preponderance of quality shareholders actually perform better. And if you think about it, I think that makes perfect sense.</p>
<p class="MsoNormal">If you have got a collaborative, positive, but also challenging relationship between shareholders and management, those companies are likely to be better run in the long term. So when we talk a lot about, you know, the importance of quite a resource-intensive exercise of getting out on the road and visiting companies and meeting management. That’s really where that’s coming from. It allows the companies, you know, of course, we’re only one shareholder, but there is evidence that if we and others do that hard work to encourage management, then those companies actually perform much better.</p>
<p class="MsoNormal">It’s a big number. If you go back, I think you’ve got going to take all these statistics with a pinch of salt. But the companies that are best governed in terms of being owned by quality shareholders have outperformed by something like three percent per annum in the last 30 years relative to the market. That’s absolutely huge.</p>
<p class="MsoNormal"><strong>JS:</strong> So if there’s so few long-term shareholders, and I guess by extension, so few quality shareholders, does that then mean public markets are not the place for companies to grow? I mean, is it then an argument for staying private for longer, like we’ve seen so many of the businesses? One thing stuck out to me during Paulina’s session, she said that companies that are most likely to take advantage of AI are private. And she said it flippantly, but I wonder if that underscores the point around public markets just not being able to invest in these longer-term projects. So maybe just talk a little bit about the private versus public conversation, and should companies just remain private?</p>
<p class="MsoNormal"><strong>SD:</strong> Yeah, I think it’s very understandable that more companies, particularly ambitious growth companies, are choosing to stay private because they don’t want to have to deal with both the regulatory issues, but also the short-term nature of being publicly listed, but actually I think the public versus private distinction kind of slightly lands in the wrong place. If you look at, there’s research out there that categorises closely held public companies, widely held public companies, plus VC, plus buy-out stage companies, so it doesn’t look at it through the lens of listing, it looks at it through the sort of ambitiousness of management. And some of that research suggests that actually closely held public companies have the greatest appetite for innovation, even more so than many private companies.</p>
<p class="MsoNormal">So I do think as part of this, our listed equity markets no longer fit for purpose. Kind of, but the way we should be looking at this is through that lens of shareholder management relationships. It’s very peculiar to me that in private markets it’s completely obvious that private companies choose their shareholders, shareholders engage with management, it’s a two-way relationship. And then a company lists, and suddenly that doesn’t seem to be important anymore. I find that quite extraordinary.</p>
<p class="MsoNormal">So that distinction should be in a different place. We should spend much more time looking at the interaction and resources that are brought to bear on the stewarding of the financial system. And that’s just kind of almost being forgotten now. So what’s Baillie Gifford’s role in all of this? So I think you’ve got to remember our job is to deliver for clients first, not actually to make the world a better place.</p>
<p class="MsoNormal">But if we can contribute a bit to helping people understand how the capital market system works. And that’s going to be something that was very triggering for me recently was one of the regulators we work with published a paper in which they were really demanding that large institutional investors do more to contribute to productivity. And they equated that activity to investing in private markets. So they’re like actually, albeit slightly unwittingly, dismissed listed equity investing as a productive activity. And to me, that was very startling.</p>
<p class="MsoNormal">It shows the extent to which on the listed side, we active managers have done a pretty poor job of explaining what our purpose is supposed to be. And I find that I actually had the opportunity to go talk to some of the regulators about it, because I said, “I think this is a major mistake. You can’t just assume that listed equity markets no longer play a role in the financial system.” So I think our job is we can go and talk to people, we can try and help their understanding, we can try and influence in the right direction.</p>
<p class="MsoNormal">As investors, we can find the companies, whether they’re public or private, that are actually investing and achieving things for society. So we can do all of that, but I would be very careful to point out to this audience, this is not my full-time job. This is just something that I think we contribute to, and maybe we’re in a fortunate position that we can get a bit of an audience and have a little bit of influence.</p>
<p class="MsoNormal"><strong>JS:</strong> Is part of this just due to the unintended consequences of passive investing?</p>
<p class="MsoNormal"><strong>SD:</strong> Yeah, so I’m not against passive investing, even though, of course, we are not in that game. It can be a very cost-effective way to access growth. What I don’t think people are considering is, as passive or just very low-cost approaches become more popular, that’s unhelpful to a firm like ours, but this is not a tale of Baillie Gifford’s success. This is a tale of, do the markets work? And I think that as more money goes to low-cost, passive, which is an economic model that is inconsistent with building good relationships with companies, than the companies themselves.</p>
<p class="MsoNormal">Again, there is evidence that companies tend to misbehave more when they are effectively ownerless. And the more that that happens, the more the system misfunctions. And I think we’re going to find lots of investors who are going passive, very well-intentioned, because it’s cheap and safe, and they will track the market. But the market itself is going to be lower returning than it otherwise would have been because there’s going to be insufficient governance in the system. And I think we’re starting to see that already.</p>
<p class="MsoNormal">So that’s not that there’s no place for passivists. I think we could overshoot and end up in a place where actually the really bizarre outcome of this could be really the best growth companies want to stay private because they want quality shareholders. And we don’t operate in a vacuum. So those companies themselves, they either stay private or they go private.</p>
<p class="MsoNormal">And we could end up in a position where because investors want to pay five basis points for listed equity investing, the companies go private and you end up paying two and 20 instead of 50 basis points for the very same companies that would have been public 15 years ago. So I think there’s lots in this that we need to think through. It’ll take a long time for this to play out, but I think there are consequences to taking too much governance resource out of the system.</p>
<p class="MsoNormal"><strong>JS:</strong> It’s a ringing endorsement, by the way, for our private equity drawdown business. So thank you. Let me pause here. I’ve got a few more lightning-round questions, but any bigger-picture existential questions in the room that we want to draw on to ask Stuart? OK, if not, or just drink more of the alcohol and maybe they’ll come to you. OK, raise your hand if OK.</p>
<p class="MsoNormal"><strong>Audience member:</strong> We talked earlier about the incorporation of blockchain and tokenisation, and if that moves into the private markets, increases liquidity there, do you see further issues coming into the private markets that we’re now facing in the public markets?</p>
<p class="MsoNormal"><strong>SD:</strong> Maybe. I suppose the logic of that is that it follows the same pattern, but it needn’t. So for me, the answer to that is it’s the distinguishing between the mechanism that allows people to share risk and shift maturities shouldn’t become the point. It should just be the way that investors come together with companies. And that’s basically where, arguably, we’ve failed a bit in public markets.</p>
<p class="MsoNormal">So it needn’t go that way. I’d like to think we could democratise private markets access without interfering with the actions of the management of those companies because we don’t put them in this very difficult listed position. One of the things that’s going to be interesting is as we try to find ways for more and more people to access private companies and there is this, whether or not it should exist, this need for liquidity. Lots of our firms are building up our secondary market capabilities in private.</p>
<p class="MsoNormal">And so that helps that. But as that grows, you end up with actually something that looked like, the stock market looked like 50 years ago, but maybe it ends in, maybe, you know, if we stop at that point, we’ll be in a much better place.</p>
<p class="MsoNormal"><strong>JS:</strong> Can you give any company examples maybe that bring that to life? The idea of maybe we held them in the private side of the world, and then when they move public, we’d stay with them, and how does the dynamic change?</p>
<p class="MsoNormal"><strong>SD:</strong> Yeah. The real advantage there is getting to know. Somebody else said earlier, but we learn from the management of the companies. We get to spend time with management.</p>
<p class="MsoNormal">We learn from them. When they’re private, we can encourage them. Again, we shouldn’t take credit for this. We encourage them, but it’s the management of these companies that are the really amazing people. But we can help them through that. We can help them through the process of becoming public. They know that the way that we think about investing even once it becomes public. If you think the business case is intact, there’s still more growth to come. So yeah, there’s a number of examples of that.</p>
<p class="MsoNormal">And there’s even in, back to this point about public and private, or is maybe not the right place to draw the distinction, it was famously, obviously, invested in Tesla pretty early. And although it was a public company at that point, I think had we, again, not for us to take the credit, but we definitely played our part in being supportive for that company at a time when it was being dismissed by stock markets, and on a couple of occasions, very nearly ran out of funding. And we were there for them. Now, does that mean we are responsible for the success of Tesla? Yes. But I think it’s important. I think we helped.</p>
<p class="MsoNormal"><strong>JS:</strong> Everyone in the room here is responsible for allocating their own clients’ pools of capital. You work with clients across the globe. Just love to hear your perspective on how do you walk through clients through difficult times where you’re going through periods of underperformance?</p>
<p class="MsoNormal"><strong>SD:</strong> And I think that’s a question about being very clear about what you do at the beginning. So even before we have clients, I would hope that for everyone in here and everywhere else, we set out very clearly, this is how we go about the task of investing. And then you can measure us on whether we’re doing what we said we would do. So simplistically, we’re trying to find the greatest growth companies of the next five to 10 years, and we’re trying to be patient and regardless of short-term performance and share price movements, you should be able to judge us on whether you think we’re doing a good job of uncovering those companies and understanding those companies and asking us about the quality of our analysis.</p>
<p class="MsoNormal">I think if we’re very clear with clients upfront that this is our philosophy, and then we execute on that philosophy, we’re doing what we were hired to do, and that’s where you find solace when times are difficult. You know, we’re sticking to our philosophy, we’re doing what, this is it, we won’t change. And I think the biggest, I think we’ve always got to reconsider, is everything that we’re doing intact? Should this still be working?</p>
<p class="MsoNormal">It’s very hard. I can’t bring myself around to the view that in the long run, earnings growth doesn’t drive share prices. So if you continue to believe in that and execute on it, our clients can measure us on that. And there are inevitable, like just now actually, there are inevitably periods when I think extreme short-termism in the market really places very low valuations on some of these companies. But at least if you’d said at the beginning, these are the types of companies we’re going to own, your clients hopefully are going to be pretty content with that.</p>
<p class="MsoNormal"><strong>JS:</strong> OK, let’s try to end on a slightly more positive note here. As I say that, I’m going to frame this out in a pretty negative way. Rise of nationalism, social media contributing to division across the world. There’s conflict almost everywhere you look. You’re responsible for a firm of 1,500-plus people. What brings people together?</p>
<p class="MsoNormal"><strong>SD:</strong> Well, I guess different people would answer that. I think it’s shared purpose at a company level. I think it’s what are we trying to do? We try very hard in our firm to keep reminding everyone that this is about client outcomes. It’s not an exercise in, you know, investing can look a bit like an academic exercise at times.</p>
<p class="MsoNormal">It really helps if everyone remembers that there are real people at the real end of this with ambitions for the saving, whether it’s school funds or whether it’s pension funds or whatever it might be. I think that common purpose helps bring people together. I’m talking about our firm here, but it’s up to you guys whether you think there’s anything broader than this. I try to listen more than you speak. I’m not doing right now, but ordinarily I try to do.</p>
<p class="MsoNormal">People who have differing opinions from your own typically have good reason for it, so listen and respect. I think if you do that, you create a very close working environment in which people understand each other. I think if you do that, you set yourself up for collaboration and cooperation and good outcomes. Become a sort of self-help.</p>
<p class="MsoNormal"><strong>JS:</strong> Sometimes that’s what we need. Yeah. Let’s leave it there.</p>
<p class="MsoNormal"> </p>
<h3>Risk Factors</h3>
<p>The views expressed should not be considered as advice or a recommendation to buy, sell or hold a particular investment. They reflect opinion and should not be taken as statements of fact nor should any reliance be placed on them when making investment decisions.</p>
<p>This communication was produced and approved in May 2026 and has not been updated subsequently. It represents views held at the time of writing and may not reflect current thinking.</p>
<p>Potential for Profit and Loss <br>All investment strategies have the potential for profit and loss, your or your clients’ capital may be at risk. Past performance is not a guide to future returns. </p>
<p>This communication contains information on investments which does not constitute independent research. Accordingly, it is not subject to the protections afforded to independent research, but is classified as advertising under Art 68 of the Financial Services Act (‘FinSA’) and Baillie Gifford and its staff may have dealt in the investments concerned.</p>
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