Baillie Gifford legendary investor James Anderson has said fund management “has inherently become inward looking” too often obsessed with share buybacks and dividends.

Anderson said in a podcast interview on Bloomberg Opinion that for decades now in the US and UK “more money has been given back by companies in the quoted markets than has been raised …”

He said the quoted market has become “a machine for recycling rather than a machine for creation …”

In a wide-ranging interview, Anderson said he wonders “whether America will be a democracy in five years’ time” and that he is surprised the capital markets “are not more bothered by what’s happening in American politics and society than they are …”

Anderson also said he thinks the governance that Chinese authorities are obtaining from internet companies is “more than justifiable.”

Anderson is preparing to leave Baillie Gifford in April after four decades at the Edinburgh investment giant to join Swedish investment company Kinnevik AB.

He will step down as joint manager of Baillie Gifford’s high-flying Scottish Mortgage Investment Trust plc and retire from the Baillie Gifford partnership.

Baillie Gifford had around £294 billion under management and advice as at February 10, 2021.

Asked in the podcast to explain his statement last year that fund management is “irretrievably broken,” Anderson said: “I think fund management has inherently become inward looking …

“People measure themselves by how they do to their comparators …

“If I go back to the early days of stock markets what we were in the business of was helping to create and nurture great companies that were going to move society as well as investors onwards …

“And I think that we have lost that sense of purpose over the years …

“I would evidence it … by the lacerating overall facts that both in Britain and America for … very long decades now, more money has been given back by companies in the quoted markets than has been raised …

“It has become a machine for recycling rather than a machine for creation …

“Fundamentally, I think that is the great trouble …

“Share buybacks, in many cases excessive dividends, insufficient investment … I think this is a real problem …

“To build these companies you need a time horizon that is well longer than quarters, years and possibly  even than decades.”

On Baillie Gifford’s current investments around the world, Anderson was asked about China “going after” the leadership of its own tech sector and whether China has become “uninvestable.”

Anderson replied: “I would have considered myself, my colleagues in Shanghai, Baillie Gifford at large, to be incredibly naive if we hadn’t thought about these issues beforehand …

“The Chinese government does not conceal that it has a leading role in society …

“We did have a mentality around this that we had to accept that there were risks …

“I think there was a set of companies which both the Chinese authorities … and … many in society, many writing in the media domestically … who … made it absolutely clear that they thought the educational system and the tutoring system was a very bad thing for Chinese society …

“Scottish Mortgage did not … invest in these companies … but we did have holdings in some … of the educational companies … and I think that was a very bad, very serious mistake because were were not listening to what the available information, the available flow of government, was saying …

“All of us in the West … have to think through very seriously what the correct societal attitude, regulatory attitude, government policy is towards the internet companies and the e-commerce companies …

“I think their untrammeled dominance has many both economic and societal problems within it …

“If I look at it in that light … I think the governance that the Chinese authorities are looking for and currently obtaining from those internet companies is justifiable … and more than justifiable …

“I think in the long run it makes for a better functioning of the whole sector …

“I don’t … view the policy and the attitudes of the Chinese government as in any way either illegitimate, unforecastable or something that one doesn’t regard as perfectly intellectually and practically and humanitarianly legal from the point of view of the overall set up of society …

“I am not a wholehearted opponent … of the technology sector or at least the internet sector and what has happened in China.

“I think it might actually be good policy …”

Asked about the prospects for markets in the United States, Anderson said: “I’ve increasingly had some reservations …

“I wonder whether the lack of regulation of the American internet world … means that the ability of new young companies to rise in America is more constrained than it was …

“We are effectively talking about entrenched oligopolies in many cases which are not necessarily helping the up and comers …

“The second one which is much, much more controversial but I think one cannot exclude …

“I found it very difficult in the last two years or so when people asked me … about illegitimate anti-democratic actions as they are perceived to be in China to wonder in all honesty whether America will be a democracy in five years time …

“I’m surprised the capital markets are not more bothered by what’s happening in American politics and society than they are …

“If I was 20 years earlier in my career I think I would be concerned about theses issues …”