Baillie Gifford’s Richard Burns tells Ian Fraser that entering the pension fund management market was one of Baillie Gifford’s smartest moves
Soon after joining Baillie Gifford & Co in 1973, Richard Burns made it his private ambition that the investment firm would one day overtake its Edinburgh rival Ivory & Sime in terms of assets under management.
This was a tough goal, since Ivory & Sime was at the time enjoying a purple patch under the legendary investment manager James Gammell. Mr Burns recalls: “It seemed a completely implausible ambition, as they were putting on more new money each year than we had in funds under management.”
Mr Burns, who retires later this month after 33 years with Baillie Gifford having been the firm’s joint senior partner and chief investment officer since Max Wards retirement in 2000, has more than achieved his goal. Beset by managerial strife from the 1980s, and following a string of mergers, Ivory & Sime has become a mere subset of F&C Asset Management.
Baillie Gifford, however, has remained an independent firm, and has since 2002 more than doubled its assets under management to £47bn. Last year the company, established in 1909, won £3.1bn of new business, including a £330m global equity mandate from Rhondda Cynon Taf Council pension fund. Today it employs 480 people, mostly at its new headquarters beneath Edinburgh’s Calton Hill.
Mr Burns seems almost bemused that so many of Scotland’s other independent fund management firms — including Ivory & Sime, Murray Johnstone and Edinburgh Fund Managers — have either fallen by the wayside or been taken over, while Baillie Gifford has gone from strength to strength. “I don’t think we’ve done anything particularly clever” he says.
He believes Baillie Gifford’s “secret weapon” may have been that it remained a partnership, an ownership structure that has brought stability and encouraged a responsible, steady-as-she-goes approach to managing the business, partly because its 30 partners could be exposed to unlimited liabilities in the event of a major disaster. However, the rewards massively outweigh the risks and many of Baillie Gifford’s staff spend their entire working lives with the firm.
“If one part of the business is experiencing a lack of success — and that is unavoidable from time to time — [being a partnership] gives people an incentive to stay around and try to fix it.”
Mr Burns thinks one of the “smartest” things Baillie Gifford ever did was to enter the market for managing UK pension funds in the early 1980s. The decision was spurred by the loss of the Edinburgh & Dundee investment trust in 1978 and the partners’ realisation that the relative importance of investment trusts, on which it was formerly dependent, was going to decline.
After addressing its performance in the UK equities arena, through an internal reorganisation and the appointment of Max Ward as head of UK equities in 1979, Bailli Gifford started winning business from UK pension schemes in the early 1980s.
The first “beauty parade” victory was with the UK subsidiary of American trailer company Crane Fruehauf in 1984. Baillie Gifford has since added scores more and has latterly been particularly successful in winning business from US pension funds.
Today Baillie Gifford numbers Calpers and Massachusetts PRIM, as well as the Centrica and City of Glasgow pension funds among its clients. Baillie Gifford’s UK equities investment skills are in such demand that it has been forced to close this sector to new business. Such a decision, which involves prioritising existing clients over short-term growth, comes more easily to a partnership than it would to a limited company or plc.
What about investment style? Mr Burns says: “We categorise ourselves as growth rather than value investors. This means we try to find successful businesses and then not to pay too much for them.”
The fund manager’s penchant for Brazilian oil company Petrobras and Russian gas company Gazprom illustrates the approach. Mr Burns says these companies’ massive reserves are valued by the stock market at just $6 and $2 per barrel respectively, which compares with the $18 per barrel of reserves recently paid for Burlington Resources by ConocoPhillips.
The approach has worked well for the Monks Investment trust, the £1bn global growth fund that Mr Burns has managed since 1999. Its shares rose by 51 per cent over one year, and by 111.4 per cent over three years, in the period to February 28. The trust is strongly weighted towards oil companies, and Petrobas is its second biggest holding.
Mr Burns does not seem overly concerned that the current high oil price is going to severely dent global growth, particularly since demand for oil is as yet unaffected.
But he is not convinced that all the changes in fund management over the past 33 years have been for the better. Although the quantity of financial media and newswires coverage has increased enormously, he remains unconvinced of the usefulness of much of this. “The biggest change is the speed with which information flows. The difficulty is there is so much information.”
He believes that while UK corporate governance codes have had some beneficial impact on sectors including investment trusts, this has come at a considerable cost of a great deal of time and paperwork.
While Mr Burns personally feels company visits have become less fruitful largely due to US full disclosure rules, he is delighted that new hunting grounds have opened up to western investors. “The idea we would be investing clients’ money in Russia and China is just incredible, quite apart from countries that were never Communist like Indonesia.”
When Mr Burns steps down, his role is to be split. Charles Plowden is taking over as Baillie Gifford’s joint senior partner, as well as assuming responsibility for managing its 70 investment staff; James Anderson takes over driving investment policies; and Gerald Smith steps in as manager on Monks.
Alex Callander will remain as overall chief executive and joint senior partner, a role he has filled since 2001.
Mr Burns does not believe that Baillie Gifford is going to pursue a different path after his departure and he stresses that the business is definitely not considering a sale.
This article was published in the Financial Times (FTfm section) on 24 April 2006