What is ‘Actual Investing’?

Late last year, the normally publicity-shy Edinburghbased asset manager Baillie Gifford launched its first large advertising campaign entitled Let’s Talk About Actual Investing. The reason: the firm was reluctant to go on being bracketed together with what is conventionally seen as active management.

“We consciously came to the view, over the last three or four years, that we’re no longer happy to be deemed as being part of the asset management industry in the same way as everyone else does,” Stuart Dunbar, partner at Baillie Gifford, tells MoneyMarketing. “We’ve always thought like this, but we’ve just become a bit bold about it now,” he adds.

“We think our industry is losing its way and that’s showing in huge flows from active to passive management, as well as a focus on fees. We believe in low fees but the whole debate is unhelpful. It’s more and more apparent to us that most asset managers are self-serving, rather than focused on serving their clients. We’re seen as just another asset manager who’s trying to enrich our sales at the expense of our clients – and that’s not what we’re trying to do”.

He explains that the genesis of the Actual Investing campaign was the making of internal films for clients about how Baillie Gifford is different to other asset managers. “This led us to sharpen our thinking as to how we are different.”

For Dunbar, it’s important to focus on the fundamental job of investing. “Most investors seem to have forgotten – both asset management companies and customers of asset management companies – that the fundamental definition of investment is to take capital from those who have surplus and make it available to those who need it to use in wealth-generating projects. And I say projects rather than companies because companies are just a collection of projects. Investing is not speculating on share prices. Imagine if there was no stock market at all – that’s how people would think about investing – and they’d ask: How am I deploying my capital, how am I working with the management of companies to make sure that we’re successful in doing this?”

Asset management companies have moved away from this type of thinking, Dunbar believes. “Instead of investing being about wealth creation, business management, imagination and entrepreneurism, we work in an industry that is mainly about what people are going to do next week – it’s a case of if I’m smarter I’ll do the opposite to what you’re doing and I’ll get rich at your expense. We don’t think that this serves a social purpose.”

Dunbar sees his firm’s job as outperforming for its clients. “If we focus on wealth creation and longtermism, we understand where the returns are coming from – not share prices but from businesses that are doing very well.”

This implies a five-year-plus view. “We say don’t invest with us if you don’t have a three-, or better, five-year horizon. If you want to invest for a year and you think we can outperform the market, forget it. Over five years there’s a strong correlation between share prices and the fastest growing companies. Over less than five years, this doesn’t exist at all. Rather bizarrely, the way to outperform for clients is to ignore the stock market.” Dunbar has had a lot of feedback from people he knows – and those he doesn’t – about the Actual Investing campaign. “Feedback has been quite positive as I’ve had a lot of people at other asset management companies saying they agree with what we’re doing, but they work in organisations that don’t allow them to think the way we do. That shows how different we are.”

Baillie Gifford operates as a private company with no outside shareholders.

“We don’t have to pay a dividend every year, much less a rising dividend, and if our business makes half as much money this year as it made last year, we won’t change a thing. We don’t have to play the game that other asset managers do: if revenue is under pressure, they merge. But this has nothing to do with doing a good job for clients.”

Due to the United Kingdom giving more say in retirement planning to individuals, there are now fewer defined benefit pension schemes in existence. This means that Baillie Gifford’s core client base is changing and the firm wants to reach new audiences – including those in South Africa.

“We’ve seen our client base starting to decline, but this is not precipitous and we’ve seen it coming. We had to act – reluctantly – in anticipation of that and we now have wholesale businesses in different countries that are in their very early stages. Here in South Africa, we’re starting to work on building relationships with local financial institutions,” Dunbar says. “It’s more about maintaining positive morale and positive momentum than it is about growing, as we have no asset growth targets, but if we want to attract good people, we have to be a reasonably thriving business to offer opportunities – we can’t sit back and watch the world evolve around us.”

Founded in 1908, Baillie Gifford currently manages over £200bn for clients all over the world, mainly in equities. SA’s Financial Sector Conduct Authority is now approving three more of the company’s funds that will bring the total to eight funds given FSCA approval.

Stuart Dunbar, Partner at Baillie Gifford