Minutes:
The Committee received a presentation from John Carnegie and Tim Gooding from Baillie Gifford on their Global Alpha Fund. John Carnegie began by reporting that as at 31st March 2021, the Fund had been worth nearly £600m and it was now at about £620m. The approach to investment was to seek out companies that were well-placed to grow, rather than to focus on markets and cycles. Growth of 7-10% from equity markets was expected and Tesla and SEA Limited had contributed strong performance in recent quarters. A table of the Global Alpha portfolio and transactions showed companies divided into four categories – growth stalwarts, rapid growth, cyclical growth and latent growth.
Tim Gooding addressed the issue of investing in China. He recognised the concerns about human rights and government control but emphasised that the opportunities in China could not be ignored and that their focus was on investing in a small number of privately owned companies, not state-owned enterprises. Baillie Gifford’s research agenda was wide ranging and covered issues such as Web 3.0 and energy transition. Stewardship was important and focused through five key principles – prioritisation of long-term value creation, having a constructive and purposeful board, long-term focussed remuneration with stretching targets, fair treatment of all stakeholders and sustainable business practices. He gave a number of examples where these principles had supported engagement with particular companies.
Members then asked questions, focussing initially on China, and noting that no engagement examples had been given involving Chines Companies. There were 11 Chinese companies in the portfolio, making up about 10% of the Fund, and a brief description was given for each. There would be engagement examples in the next report, including Alibaba. Baillie Gifford were aware of the risks around trade wars, the technology battle between China and the USA, the situation in Taiwan, and governance, but emphasised their focus on investing in the right companies. Members had concerns around forced labour in supply chains, but Baillie Gifford confirmed that they did carry out due diligence to at least tier 3 suppliers. Members raised concerns about hostile governments spying on companies and investors, but Bailie Gifford responded that this was always a risk, and the greater risks came from government regulation impacting on these companies. The fund also had a small holding in a Russian company - Baillie Gifford were aware of the risks, but these were factored into the price.
A Member asked whether the rapid growth seen in companies like Tesla, Spotify and Netflix was sustainable over the long term. Baillie Gifford considered that there was a huge market for electric vehicles, but accepted that it was possible that disruptors in the market could themselves be quickly overtaken by new disruptors. On the issue of ESG, they commented that information was often poor, and one of their first engagements with any company was to seek metrics on ESG issues.
John Arthur commented that fund performance had been exceptional in the last year, but Members should be wary of expecting this to continue. He asked for comments on Paris-aligned funds and on the likelihood of continuing high growth. Bailley-Gifford explained that they did run a couple of screens, but some good companies, such as airlines, would always have difficulty becoming carbon-neutral.
The Chairman thanked Mr Carnegie and Mr Gooding for their attendance and their valuable presentation.