Baillie Gifford bets £5.6bn on private companies

Baillie Gifford's current Edinburgh HQ

The £600 million Baillie Gifford European Growth Trust said on Wednesday it will be seeking shareholder approval to increase its permitted investments in unlisted companies from the current 10% to a proposed 20% of total assets.

The move comes as the European Growth Trust’s annual financial report revealed that Baillie Gifford had £5.6 billion invested in 73 private companies, nine of these being European, as at September 30, 2021.

Edinburgh-based Baillie Gifford had around £360 billion under management and advice as at November 22, 2021.

“The investments undertaken and the reputation Baillie Gifford is establishing as a private company investor is providing an increasing quantum of introductions with entrepreneurs,” said the European Growth Trust.

“This in turn is increasing the number and quality of potential investment opportunities into private companies which are able to demonstrate their ability to scale at an attractive rate.

“The combination of these factors means that the range of opportunities is broader than the one available to the managers in 2019 when management of the company’s assets was moved to Baillie Gifford.

“This evolution is as we had hoped and, given the increasing choice of attractive unlisted investments, the board is seeking shareholder authority, as part of this year’s AGM business, to permit the managers to invest up to 20% of the company’s total assets in this area.”

Baillie Gifford European Growth Trust said the company’s net asset value per share (NAV) total return was 24% for the year compared to a total return of 23% for the FTSE Europe ex UK Index. The share price total return for the same period was 25.2%.

The closed-end fund said several companies contributed positively to performance, including medtech distributor Addlife, specialty chemicals distributor IMCD, and heat pump manufacturer Nibe.

Five holdings were sold, and 12 new positions initiated during the 12 months.

The portfolio now contains three unlisted companies accounting for 4.5% of total assets as at 30 September 2021 (2020: 0.9% in one company),” said the fund.

“These are Swedish battery manufacturer Northvolt, German transport services company FlixMobility, and German digital freight-forwarder sennder Technologies.”

A final dividend of 0.35p per share is being recommended.

“As highlighted previously, it is the intention of the board that dividends be paid by way of a single final payment and be the minimum permissible to maintain investment trust status,” said the trust.

The portfolio managers are optimistic about finding attractive investment opportunities capable of delivering significant absolute returns over the coming years.

“They and the board remain enthused by the scope and scale of investable opportunities.”

The managers of the Baillie Gifford European Growth Trust, Stephen Paice and Moritz Sitte, wrote in the annual report: “Despite the rich opportunity set Europe has to offer, our industry has not done enough to support our most promising companies.

“Europe has failed to provide sufficient capital and strategic support to allow enough of our growth companies to scale without worrying about short-term profits.

“Europe’s corporate leaders must also take responsibility for not being as ambitious as their counterparts in other regions.

“This is changing.

“Europe’s start-up ecosystem is now booming, helped by an influx of funding from venture capitalists around the world.

“These investors have helped shape the next generation of European outliers and develop strategies to scale and create global champions.

“Niklas Östberg, the CEO and co-founder of Delivery Hero, highlighted this change in mindset recently when he said, ‘Don’t buy our stock unless you believe we sit strategically right to scale efficiency and become >10x larger.’

“This is a company that in 2020 doubled its revenue but has the ambition to create something much larger.

“Europe needs more of these companies, and those that have shown how innovative Europe can be, to provide inspiration to all those other entrepreneurs.

“We want to match this with our own ambition to become Europe’s best growth manager.

“To do this, we must continue creating value, for both our clients and society, by investing in Europe’s outliers. 

“When it comes to their growth potential, business economics, or corporate cultures, these companies are not just better than average, they are outliers at the extreme end of the spectrum.

“Their potential returns, as a consequence, are also extreme.

“To capture this though, we must focus on the things that matter most, be optimistic and creative when imagining how a company or industry might look in a decade from now, have the confidence to hang on when things go wrong and be comfortable ignoring large parts of the market.”