The majority of the team, including the trust’s lead manager Robinson, don’t have any experience directly investing in US private companies or unicorn stocks, illusive start-ups that have reached the $1bn valuation mark.
The £1.2bn Baillie Gifford American fund, run by Robinson and the US equities team, does not contain any unlisted investments on the basis that an Oeic structure was “not appropriate” for these types of investments.
Despite the team not having a physical presence in the US, the American fund has an impressive track record, beating the Investment Association North America sector over one, three and five-year periods. Over the last 12-months it has returned 32.5% to investors, over five times more than the sector’s 5.4%.
On day one, Robinson has said that the US trust will be an exact replica of the American fund but over time will increase its stockpile of private stocks.
However, the fund will only be able to hold up to 50% of its net asset value in unquoted securities.
The 50% figure is a limit, not a target, which the team believes will give it ample “long-term flexibility” to find where the best opportunities in the private sector are.
The team has not confirmed what the mix of private/public companies in the trust will be.
By mirroring the Baillie Gifford American fund, the trust is “fully invested on day one” and “there is no pressure to invest”, explained Helen Xiong, one of the deputy managers on the US trust.
However, Robinson stressed that “in the very long-term it won’t just be the same as the open-ended fund plus a bolt-on of unquoted firms”.
Like with the American fund, the US trust is looking for “exceptional growth companies in America”, which the team defines as companies that address large market opportunities relative to their size, those that can develop a strong and sustainable competitive advantage over the long term and those with distinctive cultures that are genuinely run for the long term.
Over the medium term, he expects the majority of the companies they own in the portfolio will continue to be listed.
Exploiting asymmetry
Although the team hasn’t had a “direct outlet for these ideas” until the launch of the trust, “we have been researching private companies in America for many, many years,” said Robinson. “We do it because we think it makes us better investors.”
When travelling to America for research, Robinson said he spends three quarters of his time meeting with CEOs of listed companies and the remainder talking with bosses in the private sector.
“Over the past three years, we’ve evaluated over 350 private names of which we’ve invested in about 30 something,” added Xiong. “Out of the top 10 largest unicorns in the US, we’ve looked at nine of them.”
Those investments have found their way into other investment trusts at Baillie Gifford, most notably, the Scottish Mortgage Investment Trust, which holds unicorn stocks like Airbnb, Palantir, Lift and Dropbox.
On how that experience will translate into informing their stock picking for the US trust, Xiong said: “We expect to get some of them wrong, and we hope that we would get a small number of them right. We think that the private market is even more asymmetric than the public market so as long we get a few of them right, it doesn’t matter. It’s not how often you’re right but how much you make when you are.”
The decision to launch a US trust isn’t about “growth for the sake of growth”, Robinson stressed.
“We believe there is a significant opportunity set out there and secondly we think Baillie Gifford has the reputation and relationships necessary to gain access to the best opportunities in the private space.”
