Baillie Gifford saw its assets under management drop by more than £100mn last year as a result of the impact of higher interest rates on growth companies.
The asset manager’s AUM fell from £336bn at the end of 2021 to £223bn at the end of 2022, the company said today (February 6).
The majority of this drop was due to a decrease in valuations, a spokesperson said, as client outflows over the year represented £20bn of that loss, £3.6bn of which was UK retail flows.
A spokesperson for the company said though 2022 was a tough year for growth investors, Baillie Gifford's more recent performance had been positive.
“But all this does need to be seen in Baillie Gifford’s long term timeframe of 5-10 years where performance for clients remains strong," the spokesperson said.
Focus on growth
Baillie Gifford has been one of the most high-profile beneficiaries of the low interest rate environment seen in the past decade as its funds and trusts profited from the investments made mainly in the US technology sector.
The asset manager’s flagship vehicle, the Scottish Mortgage Investment Trust, was an early investor in Amazon and Tesla under its former manager, James Anderson, who retired from the firm in 2021.
The trust’s performance soared between early 2020 and late 2021, gaining 180 per cent in 18 months, however high inflation and rising interest rates in 2021 saw its value drop significantly.
Growth companies have been thrown out with the bathwater by financial marketsJames Budden, Baillie GiffordThe trust’s share price is now around 780p, similar to where it was in mid-2020.
Interest rate rises, which have been implemented in the US where Baillie Gifford has its biggest exposure, aim to reduce inflation by increasing the cost of borrowing.
One of the impacts of this is that growth companies, which tend to be smaller and not profitable, see their value drop as higher interest rates reduce their potential returns in the future.
Though the company has repeatedly said it believes the companies it invests in are the best option for long-term investors.
At the end of last year, Baillie Gifford's head of distribution told FTAdviser that growth companies had been thrown out “with the bathwater” by financial markets, and a number currently have low share prices that do not reflect their strength.
“[We think] you would rather be involved in a company that has some pretty extraordinary long-term growth prospects,” James Budden said.
Motivation for investing
Baillie Gifford has stood out among its peers in the past year, speaking regularly about the unique impact of the extraordinary nature of market volatility in the past three years on growth assets.
The company's fund and trust managers have also repeatedly acknowledged how they have been “humbled” by the wild swings in markets in the past three years, after big losses on firms such as Tesla and Shopify.
The figures were first reported by the Financial Times.
sally.hickey@ft.com
