It’s hard to remember a time when the e-commerce group Alibaba (BABA) wasn’t the $423bn (£323bn) behemoth it is today or when $32bn Spotify (SPOT) hadn’t been instrumental in revolutionising the music industry. But spotting an opportunity to invest in these types of companies before they list on a stock exchange are integral for the largest fund management firms in the world.
This is exactly what Baillie Gifford did when it came to both Alibaba, Spotify, and other similar high-growth companies. With big success cases like this under its belt, Baillie Gifford is going to launch a fund dedicated to un-listed stocks, a portfolio manager told Yahoo Finance UK.
“There’s more technological change going at a faster pace and disrupting the global economy than we’ve ever seen before,” said Nick Thomas, a partner at Baillie Gifford who helps manage international portfolios as well as looking after the firm’s North American clients. “This is fantastic from a growth investing point of view because these are the opportunities you can try and pick. What we found is, to try and capture a lot of that value before it’s realised, you have to start looking at the un-listed phase.
“It would be better if you didn’t have to do that because it’s more complicated and difficult for some client types to operationally do that (individually). It’s simpler for them to have companies listed on an exchange. We would rather the growth companies could operate in an entrepreneurial way as public companies but we recognise that that’s getting difficult as the market is so short term therefore we have to follow them in the private market.”
Thomas added that the company is currently on an investor roadshow to discuss the upcoming fund.
The investment management firm has $252bn of assets under management (AUM)—for comparison that’s $100bn more than Ray Dalio’s Bridgewater Associates. While its headquarters is in Edinburgh, Scotland, its AUM by client domicile is split across North America (43.7%), UK (35.8%), Asia (9.1%), with the remainder across the rest of the world.
It counts five of the seven largest pension funds in the US as its customers and makes it clear that it is a long-term investor, not a speculator.
It’s for this reason why Baillie Gifford is one of the largest shareholders in companies that have rapidly grown over the last 20 years, such Amazon (AMZN) and Tesla (TSLA) as well as having holdings in Netflix (NFLX), Facebook (FB) as part of its ‘patient capital-style’ US Growth Trust, which invests predominantly in listed and unlisted US companies. Baillie Gifford believes that companies within that fund have the potential to grow substantially faster than the average company.
Thomas says that the firm has been aware of the major opportunities that these growth companies present so Baillie Gifford has been reorienting the group to accommodate those sweet spots, such as including more un-listed stocks in portfolios.
“Investment trusts are great vehicles for doing un-listed investment because they don’t have any liquidity needs because it’s a closed-end fund, so there is no possibility of the money being needed to be disinvested,” he said.