The manager of Baillie Gifford’s flagship £3.5bn trust, Scottish Mortgage Investment, has defended his recent move to allow unlisted companies to make up to 25 per cent of his trust’s portfolio, and denied it was a risky move.
Early this week, the trust’s board announced its plan to increase the upper limit of the holdings for unquoted companies, driven by the movement of corporate financing from the public to private sector.
But the move was met with criticism by some advisers, who suggested this level of exposure was very high, particularly given the lower disclosure requirements for unlisted investments.
When Financial Adviser asked James Anderson how he planned to calm concerns over the move, he said it was “the opposite of risky”.
“We think there is a terrible and dangerous confusion between risk and volatility in financial markets,” he added, describing risk as “the permanent loss of capital”.
He said: “It is that potential destruction of the vast bulk of the quoted major British companies that would worry me, rather than the volatility and disclosure surrounding unquoted firms, which we will do our best to mitigate.”
The fund manager explained that one of the reasons his team had decided to boost the unquoted cap was the lack of growth prospects and competitive advantage for quoted companies.
Currently, the £3.5bn trust has an informal limit of 15 per cent for unlisted companies and uses up approximately 10 per cent.
The US and China are currently where he sees the most potential for unquoted companies, with the Scottish Mortgage portfolio heavily weighted towards North America at 46 per cent and China at 17 per cent.
Adviser view
Ben Yearsley, investment director at the Wealth Club, agreed with Mr Anderson’s approach.
He said: “Unquoted companies are often misunderstood and perceived as high-risk just because they aren’t listed. Whereas in fact there are many great profitable and growing companies which are unlisted.
“In the investment trust structure I think it’s perfectly acceptable to have exposure as long as the manager has the requisite experience.”
katherine.denham@ft.com
