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Baillie Gifford’s £30bn problem

Baillie Gifford’s £30bn problem

From understated offices in central Edinburgh, Baillie Gifford emerged from the financial crisis as a behemoth of the asset management world, managing more than £338bn across institutional, retail and advised books of business.

But it declined 10 per cent in 30 days over January, losing more than £30bn, according to UK fund flows data from Morningstar. That drop is from a combination of outflows and a steep decline in the value of the investments. The £338bn figure is the number cited on Baillie Gifford's own website as at end of December 2021.

This may prompt questions around what comes next for the business that rode the wave of technology and other investments associated with the growth style of investing, as the market may be about to embark on an extended period where the value investment style does best. 

The concentrated nature of the Baillie Gifford investment process – that is, building portfolios with relatively few stocks even as the funds got bigger – means that any shift in sentiment can have an outsized impact.

The business was sharply in favour in 2021 with retail investors, topping the net sales charts at £3.8bn, according to the latest Pridham Report. But in January alone £875m of retail open-ended funds went out the door, according to the Morningstar data. The data company described the month as the "worst on record" for Baillie Gifford, as the momentum of the previous decade went into reverse. 

However, the downward trend began earlier than January, with the same Pridham Report noting that the inflows came mostly in the first half of the year. 

The decline in Baillie Gifford AUM has mostly been the result of the sharp decline in the share price performance of the very same tech, biotech and other growth shares that carried the business upwards. Baillie Gifford has never hidden its fund managers' preference for using the growth style of investing, a style that has come under pressure as a result of the changed interest rate environment. 

But it is not just the growth shares angle. Baillie Gifford has in recent years also shifted focus to investing more in China, with the company's flagship Scottish Mortgage Investment Trust currently having around 16 per cent of its £14bn of assets invested in the country.

Chinese government interventions in the economy and concerns about the country’s economic growth as it exits the pandemic have caused a steep underperformance of the Chinese equity market, and also of several Chinese equities listed abroad, causing losses for investors in those shares. 

Scottish Mortgage is the largest investment trust in the UK market, but its share price has fallen by more than a third from its peak of more than £15 in November 2021, to below £9 now.

The second largest investment trust in the Baillie Gifford stable, the Monks Investment Trust, has seen its share price fall from £14 to £10 over the past six months.

Those share price declines help contribute to the massive fall in AUM over the course of the past month.