Baillie Gifford calls on rival firms to return to ‘actual’ investing

Baillie Gifford bosses have called out their competitors in the investment industry to return to what they say is the “fundamental purpose” of the fund manager, which they describe as “deploying clients’ capital into tangible, sustainable activities, allowing companies to grow and prosper over the long term, whilst still generating positive returns for shareholders”.

The Edinburgh-based investment management partnership, whose stable also includes the Scottish American Investment Company and Monks Investment Trust, is making the case for what partners are calling ‘actual’ investment, which they say requires a “willingness to be different, to accept uncertainty and the possibility of being wrong”.

In a statement, the fund manager says: “Investment management is not about processing power, trading and speed; it is about imagination, creativity and working constructively on behalf of clients with entrepreneurs and companies who have greater ideas than our own.”

To highlight what it believes is the need for the investment management industry to refocus on its fundamental objective, Baillie Gifford said it is launching an international campaign based on its concept of ‘actual’ investing.

The firm’s statement continued: “While passive has its place, providing low cost market access with, on average, better after fees results than active managers, Baillie Gifford does not believe investment decisions can be made on numbers alone, using super computers and complex algorithms. This has little to do with the process of targeting and subsequently allocating capital to the innovative companies changing the world.”

In its intervention, Baillie Gifford describes itself as “not a typical ‘active’ manager”, and in its opinion, the term has been hijacked by many fund managers who think active means ‘activity’ and simply being different from an index.

“Activity has more to do with trying to outsmart other fund managers, rather than with the creative deployment of capital”, Baillie Gifford said.

Stuart Dunbar, partner, Baillie Gifford, but who is not one of the firm’s fund managers and whose background is in marketing, said: “Baillie Gifford is an ‘actual’ investor valuing its duty to direct capital into attractive company projects and in so doing, creating wealth that society needs to fund our future obligations, such as investing in technological progress, medical breakthroughs or building better infrastructure.

“Passive investing has its benefits. Allocating capital with no reference to the underlying uses of that capital is certainly a low-cost way to gain market exposure, but it is not investing, in the purest sense. Similarly, defining active management as being different from an index is to start in the wrong place. This is why most active investors fail to deliver returns that outperform passive investment strategies over the long term.”

James Budden, director of retail marketing & distribution, Baillie Gifford said: “With this international campaign, we are trying to make the point that active investors are not homogenous. The difficulty for the investing public is to understand what makes a successful active manager. We are challenging them, and the industry, to search for actual investors and discover a category of investment managers that truly believe in the fundamentals of investing and its benefits.”