Baillie Gifford has emerged as one of the world’s most active technology investors, and one of a tiny number of European investment houses that matter in Silicon Valley and Shenzhen. Besides Amazon, Edinburgh-based Baillie Gifford owns significant stakes in Facebook, Alphabet (Google’s parent company), Netflix, Salesforce, Nvidia, Tesla, Baidu, Tencent and Alibaba.
In the past five years, the Scottish firm has joined a handful of US asset managers in backing fast-growing private technology companies with global ambitions. Its stable of ‘unicorns’ – private companies with valuations of more than $1bn — now includes Airbnb, Spotify, Dropbox, Palantir Technologies, Indian e-commerce giant Flipkart Ltd. and Indian Uber-rival Ola, and the UK peer-to-peer lender Funding Circle Ltd., among others. In mid-April, it added another; Baillie Gifford was one of a half-dozen investors in a $600m funding round for the ride-hailing service Lyft that valued Uber’s competitor at $7.5bn.
Bloomberg’s Jeremy Kahn reports that Baillie Gifford’s contemporary interest in tech investing stems from a revamp of the firm’s portfolio in 2004, following a period of inconsistent performance during which it lagged the FTSE World Index. That’s when James Anderson, co-manager of Ballie Gifford’s signature fund, the Scottish Mortgage Investment Trust, dropped long-standing investments in Western oil companies and started investing in Amazon and eBay, two survivors of the first dot com boom-turned-bust that were shaking up retailing.
“Our investment in Amazon has a lot to do with how we got to where we are today in terms of tech investment,” said Anderson’s colleague, co-manager Tom Slater. “We learned a lot from Bezos and his approach.” One of those lessons was about focusing less on profits and more on growth, a company’s on-going investment in innovation, and the size of the market it is trying to address. “Profits are what you get when you run out of ideas” is a Bezos quote that Slater says he and his fellow Baillie Gifford portfolio managers love. The first year Baillie Gifford owned Amazon, the stock dropped almost 50%, but they held fast and their initial investment has now increased 15 fold.
Other highlights from the Bloomberg feature:
- Tom Slater studied computer science and mathematics at Edinburgh University and has spent three long periods in San Francisco, along with his family, to better understand Silicon Valley.
- Ballie Gifford looks for “big opportunity sets” – like the growth of green power for both home and transport or “the everything store” idea of Amazon — and disruptive business models, like Netflix. It is also drawn to companies where the founder still calls the shots.
- It worries less about investments that do badly, and more about those where they have been too “timid”, which includes its relatively small holding in Nvidia whose shares have grown 340% since the beginning of 2016.
- The hardest decision is not whether to invest, but when to sell; Ballie Gifford sold its stake in Apple last year, having held it since 2008. “There’s no new billion unit market for them,” said Slater.