What makes actual investors not just different, but better?
Perhaps a good start would be to explain what we are not. We are not passive investors who think that current share prices capture the future prospects of companies. We don’t believe that investment decisions can be made on numbers alone, even by super computers and complex algorithms. Passive has its place, providing low-cost market access with, on average, better after fees results than active managers.
However, it has little to do with the process of allocating capital to innovative companies - though on that point it has much in common with many active managers. We are not a typical active manager either: we believe this term has become a one-size-fits-all description which is very unhelpful for investors. It has been hijacked by many fund managers who think it suggests ‘activity’ and simply being different from an index. The reality is that much of this activity has more to do with trying to outsmart other investors than with the creative deployment of capital, and that defining active 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. They’re not even trying to do the fundamental job of investing.
Some see the collective failure of active management as an argument to embrace passive. We see it as an opportunity to redefine our original purpose of deploying clients’ capital into tangible, returns generating activities. And we believe that redefinition is ‘actual investment'.
Actual investment is not easy in our world of 24-hour news, where complexity and noise is confused with rational judgement. It requires the resolve to focus only on what really matters, to think independently and to maintain a long-term perspective. It requires a willingness to be different, to accept uncertainty and the possibility of being wrong. Most of all, it requires a rejection of the now conventional wisdom that has led our industry astray: investment management is not about processing power, trading and speed. It is about imagination and creativity, and working constructively on behalf of our clients with inspiring individuals and companies who have greater ideas than our own.
Baillie Gifford is privately and wholly owned by its partners. This is the crucial underpinning of our approach: we have no short-term commercial imperatives and no outside shareholders to distract us. We can simply do what’s right for clients, and that’s what has sustained our business for 110 years (so far).
We believe our approach to investing not only best delivers good outcomes for clients, but it also helps to develop great companies that provide for the needs and wants of people, thereby benefiting society as a whole. Investing responsibly for the long term is not counter to outperforming for clients, it’s intrinsic to it.
Capital at risk
Baillie Gifford. Actually investing.