Join us as we trace our firm's approach to investment management through the generations, right back to our founders Colonel Augustus Baillie and the irrepressible Carlyle Gifford.
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Your capital is at risk. Past performance is not a guide to future returns.
2000 - 2017
The dramatic global events of the new millennium combined with a
stock market crash brought on by the 'burst of the internet bubble',
created a severe bear market that lasted until the spring of 2003.
Worse to come, the sub-prime mortgage scandal in 2007 hit the over-extended
banking system, quickly leading to huge losses in the financial sector.
Which meant confidence was not high, to put it mildly.
The massive impact of China’s emergence as a major economic force was followed by that of India
and Brazil. The world’s growth rate began to pick up to levels not seen for four decades.
Demand for active global equity management saw the rapid development of the
firm’s overseas business to the point where it represented over 40% of assets under
management by the end of 2007.
A key decision taken by this generation demonstrates perfectly the importance placed on getting
the balance of curiosity, patience and bravery just right. Some partners had become acutely frustrated by
the way in which benchmark-based investing in the 90's had led to a lack of creativity, flexibility
and imagination in the firm's investing. So they decided to do something about it.
The concept of a concentrated 'global best' ideas portfolio, run by a separate global team with no reference to benchmarks, was born. The idea was to identify superior quality businesses and build highly concentrated portfolios by Baillie Gifford’s recent standards. In many ways a return to the firm’s traditional style of investing. It proved to be a tremendous success story.
Today you see a company that actively manages specialist equity, fixed income
and multi-asset portfolios for a global client base. The firm's clients include 10 of the 20 largest
global pension funds. There are 1,252 staff* of which 265* are investment professionals.
Baillie Gifford has been investing in equities for 110 years. And has always remained based in Edinburgh.
The firm is now unique certainly in the UK in being a large-scale investment business that has
remained an independent private partnership.
*As at September 2019.
In the spring of 1979, Margaret Thatcher led the Conservative Party to power and their radical
policies would produce solutions to the UK’s relative decline among industrialised economies.
In sweeping changes early into their term they abolished all exchange controls and in their
first budget investment trusts were relieved of their liability to pay capital gains tax.
Which was hugely helpful to the industry.
The government’s drastic reductions in personal taxation levels were also behind the
revival in entrepreneurial activity and this too proved very beneficial for financial markets.
Investing in the British market continued to produce positive outcomes and as a result the firm
looked for opportunities in the UK. And the performance of the UK team over the next
20 years was a key component of the success of the firm as a whole.
Another key decision for growth at Baillie Gifford was the serious move into pension funds.
The first pension fund won as a competitive pitch came in late 1984. And by 1987 the firm
was beginning to be a serious player in the UK pensions business.
Between 1989 and 1994 forty-six new clients with assets of
£2.75 billion were welcomed.
The big bang of 1986 was the change to the rules of the London Stock Exchange.
This led to major changes in structure and ownership of broker and merchant banking industries.
Resulting in a high level of amalgamations and takeovers. It took a long time to convince
suitors that Baillie Gifford really did not want to become part of a larger entity.
A brave decision when it would have been all too easy to look
to the short term and simply cash in.
In May 1979 funds under management at Baillie Gifford were a comparatively tiny £300 million.
But as a result of the great bull market of 1982-2000 the British market rose by 170% between
April 1989 and April 1999. The American by 338% and the European by 223%. This generation
of partners took full advantage of the opportunities it found in the UK and its fledgling
overseas business activities.
At end of 1998 the firm was managing portfolio assets of around £16.2 billion.
Difficult times for this generation of Baillie Gifford began with the election of Labour
in 1964 and the introduction of the Finance Act in 1965, which radically changed the fiscal
regime under which investment trusts operated, and not for the better.
Corporation tax up. Capital gains tax up. Higher rates of personal tax
up too, to an eye watering 83%.
Labour lost power and the new Tory Government introduced its dash for growth...but instead
the outbreak of war between Israel and its Arab neighbours resulted in a quadrupling of the oil
prices in the space of a few months. Power see-sawed again with Labour back in government
in 1974, with inflation now at well over 20% and interest rates approaching 18%.
The worst period for stock markets since the 1930’s saw the British
market fall over 90% in real terms.
Looking back to September 1949, the devaluation of sterling began an era of growing prosperity
for financial businesses like Baillie Gifford and its main group of clients, the investment trust
companies. During the following decade and a half the trust companies produced tremendous returns
for their shareholders. But when this benign fiscal and economic environment that the trusts had enjoyed
for the last fifteen years deteriorated, Baillie Gifford had no other revenue to turn to.
The senior partner of the time did not exhibit the curiosity or bravery displayed by the firm's
founders who always looked to seek out new opportunities. Tellingly, he did not have an eye on the long term.
Rather he believed the firm should simply get on and manage the money of those clients that it had.
New business would merely be a distraction and the firm was sufficiently prosperous. He favoured
keeping Baillie Gifford small and focussed. So the firm remained almost exclusively
focused on investment trust clients. As their place in the savings market was
beginning to slip, this was to prove a strategic error.
In the spring of 1978 trouble struck Baillie Gifford. A takeover of Edinburgh and Dundee Trust meant the
firm's second largest client was lost. Desperate times led to desperate measures. But the merger and acquisition
discussions that followed only served to clarify the view that the partners wanted to stay in business as
an independent firm working for themselves in a profession they enjoyed.
But to succeed they actively needed to seek out new business, explore new opportunities.
It all began in the modest surroundings of number 12 Hill Street, Edinburgh. The firm's first move
into the investment business came in 1908 when the idea formed to float an investment trust to
invest in the rubber industry. It is worth pointing out that at this time Carlyle Gifford had no experience
in either the rubber industry or the business of managing an investment trust company.
This did not deter him. Test
Why a Trust to invest in the rubber industry?
Because demand for rubber was growing rapidly, thanks to an automotive industry
beginning to reach a mass market, and Charles Goodyear, who had discovered the vulcanisation process.
By 1909 there was a real boom in the rubber industry thanks to the Model T Ford, launched in 1908,
which took America by storm. An opportunity too good for Baillie and Gifford to pass up.
By 1910 the brief opportunity in rubber shares was passing and by 1913 it was obvious
that the Trust should invest in a broad range of securities. In recognition of this the
board changed its name to the Scottish Mortgage and Trust Limited.
Amazingly, still going strong after a century it has grown to be one of the UK's
largest and is considered to be Baillie Gifford’s flagship investment trust.
By 1914 the firm had increased its staff so it was necessary to find a bigger office. In May it moved
to 3 Glenfinlas Street (where the firm stayed until 1991). By the end of the decade, Carlyle Gifford's
appetite for expanding the investment business had been whetted. The roaring twenties were to
provide many opportunities for feeding his appetite. Best summed up in the statement:
"An investment company like any other business cannot stand still."
The strong US market, meant performance benefited from the many funds held by the Trusts invested in America.
Scottish Mortgage dividend rose almost 78% over 11 years to 1930. Compared to a rise of 43% for British dividends.
With the US markets booming, substantial capital was raised from existing clients. By 1927 Baillie and
Gifford's business had grown to such an extent that new partners were necessary.
Baillie Gifford and Co was formed and the firm now boasted five partners.
The Wall Street Crash began on 24 October 1929 drawing an abrupt end to the prosperous
1920s and the booming stock markets that had enabled Carlyle Gifford to develop his
small firm into a reasonably substantial investment business.
Despite the crash, this did not mean the firm could not expand. As other
investment firms failed, Baillie Gifford was awarded their business.
And by 1931 the number of partners had grown to six.
Baillie Gifford’s staff were called to war service. What was not anticipated
was that the senior partner himself would receive a form of call-up paper. On 27 September
a letter from Montague Norman, Governor of the Bank of England invited Gifford to become a member of
a small important committee to requisition all gold, dollars and dollar investments in return for government
bonds to acquire war material from the USA.
Britain’s total dollar assets were $4.385 billion, to see the country through the war and
after. Gifford was sent to New York to quietly, efficiently, secretly and for the best price sell
the assets to build the war chest. Not only did he achieve his goals, the way he went about
it made him a minor celebrity in the US. Time magazine even ran articles about him.
Time magazine heaped praise on Gifford as he went about his wartime task:
"The market breathed easier when Britain forced its nationals (holders of better than half of
the allied hoard) to register their US securities and sell them only with Government permission.
Last week it breathed still more freely when Britain announced that Scots securities tycoon
T.J. Carlyle Gifford was in Manhattan to handle the orderly liquidation of British holdings."
And they summed him up as:
"No nervous Nellie to be panicked into witless sales."
A new millennium dawns. But with it a world of problems is ushered in.
A severe bear market. The sub-prime mortgage scandal. The destruction of the twin towers. The second gulf war. A bloody war in Iraq. Confidence in the markets is not high.
Yet this generation of Baillie Gifford’s partners will go on to deliver unprecedented global growth for its clients. How?
The successful surge in overseas business. A growing reputation for expertise in emerging market investing.
The birth of a concentrated 'global best' ideas portfolio that would prove to be a new way of looking at investing in the 21st century.
And a determination that despite a world in turmoil the firm must maintain its passion for investing, ultimately for the benefit of its clients.
It is the spring of 1979. And the UK market is about to go from strength to strength.
The Conservatives take power introducing sweeping changes. This leads to new opportunities.
The performance of the Baillie Gifford UK team over the next 20 years will prove invaluable to the firm’s clients.
But the key decision that will lead to growth is the serious move into pension funds.
Fortunately Baillie Gifford’s approach to investing will attract a large number of pension fund clients to want to invest with them.
And this will see assets under management grow from £3.5 billion to £16.2 billion pounds.
In only 10 years.
Proof that this generation of partners took full advantage for their clients during the great bull market of 1982 to 2000.
The finance act of '65. The Arab Israeli war in '73, leading to the quadrupling of oil prices. Rampant inflation. Sky high interest rates.
Problems for the markets mounted. And this generation was caught unprepared.
The problem was that the senior partner saw new business as a distraction, and so declined to seek any out.
But allowing the firm to become so dependent on Trusts was a strategic error.
Then in '78 the firm lost its second biggest client.
Mergers were considered. The sale of the business was discussed. But the partners were determined to remain independent.
And so they set the firm on the path that would lead to new business opportunities.
Colonel Augustus Baillie and the young Carlyle Gifford's first move into the investment business came in 1908 with the idea for a Trust to invest in the rubber industry, as the launch of the Model T Ford took America by storm.
The roaring twenties fed the pair's appetite for growth. Despite even the Wall Street Crash in 1929, the firm continued to expand.
Then in World War Two came Gifford's finest hour. The Governor of the Bank of England chose him to sell the country's assets on the New York Stock Exchange in order to build the nation's war chest. The way he went about it made him a celebrity in the US.
Time magazine calling him, "No nervous Nellie as he oversees the biggest selling order in history."
It was a fitting final success story for the first generation of Baillie Gifford.
In one way the Baillie Gifford of today, based in Calton Square, is a very far cry
from the original two partners and five clerks who started it all in Hill Street in 1908.
But when it comes to taking a curious, patient and brave approach to investment
management for the benefit of its clients, absolutely nothing has changed.