From Amazon to Zalando, from Flipkart to Souq, Baillie Gifford and its Scottish Mortgage Investment Trust are worldwide holding shares in almost anything that can be defined as a growth company in online retail.
Bloomberg recently published a look behind the scenes (“How an old-school money manager became one of the world’s most important tech investors”):
Jeff Bezos, the billionaire founder and chief executive officer of Amazon.com Inc., doesn’t spend much time schmoozing with investors. He takes just a handful of meetings with the fund managers who own Amazon’s shares each year. And when he comes to the U.K., there’s just one investor he regularly meets with: Baillie Gifford. […]
In the past five years, the Scottish firm has joined a handful of U.S. asset managers, like Fidelity and T. Rowe Price, in backing fast-growing private tech companies with globe-spanning ambitions. Its stable of “unicorns” – private companies with valuations north of $1 billion — now includes Airbnb Inc., Spotify Ltd., Dropbox Inc., Palantir Technologies Inc., Indian e-commerce giant Flipkart Ltd. and Indian Uber-rival Ola, and U.K. peer-to-peer lender Funding Circle Ltd., among others.
In this portrait one learns about the investment strategy and thus also how they handle under-performers like Rocket Internet. (Baillie Gifford is Rocket’s 4th largest investor.) The thesis behind the investment in Rocket sounds a tiny bit naive:
[…] the firm believed Berlin could become a tech hub to rival Silicon Valley and that investing in Rocket was a good way to get a slice of the Berlin tech scene.
This only makes sense because Rocket was the only way in which to invest a large sum “into Berlin” in one fell swoop. When you are not bound by large sums, you don’t invest in Berlin by investing in Rocket.
Anyway, for an institutional investment manager this size, Baillie Gifford’s current overall approach is fascinating:
“Our investment in Amazon has a lot to do with how we got to where we are today in terms of tech investment,” Slater said. “We learned a lot from Bezos and his approach.”
One of those lessons was about focusing less on profits and more on growth, a company’s on-going investment in innovation, and the size of the market it is trying to address.
Baillie Gifford saw the necessity to start investing in private companies because companies such as AirBnB and Uber don’t see the need to go public while they are still growing fast. To participate in that growth, institutional investors have to invest in those private companies. (It is not helping that recent US laws made it easier for companies such as Uber to stay longer private while growing in every dimension. But that’s a different discussion.)
Bloomberg on the structural consequences for investors like Baillie Gifford:
Baillie Gifford tends to hold its private company investments only in closed-end funds, so that it is shielded from the possibility of having to sell illiquid assets to meet investor redemptions. Even then, Scottish Mortgage’s board has formally limited the fund’s total exposure to unlisted companies to no more than 25 percent.
Here is an overview over the “Unlisted Equities” of the Scottish Mortgage Investment Trust (PDF), which reads like a who is who of today’s tech landscape from AirBnB to Spotify to Warby Parker:
The main takeaway, and this may be trite, is that in today’s environment, being just a little bit smart about it is enough to create a relatively decent investment portfolio. (Investing in companies like Alibaba, Netflix, AirBnB and Amazon is, to a certain extent, a no-brainer, compared to investing in other areas. Those companies are large enough, have shown they can execute, and are sitting right in the middle of growth markets.)
This may sound contrarian, but not just online retail but tech in general is still currently under-valued in aggregate. (Doesn’t mean there aren’t single overvalued companies. There is a ton of them out there.)
Read the Bloomberg article to get a good sense on how Baillie Gifford is investing. It’s smart.
In related news: Softbank is getting along nicely in setting up it’s huge tech fund. Recently, Apple confirmed a $1 billion investment in Softbank’s tech fund.
SoftBank has said it is investing at least $25 billion in the fund and has been in talks with Saudi Arabia’s Public Investment Fund for an investment that could be as much as $45 billion.
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