Inside Investor Relations - Volume 46 - Foreign institutional investor series – Baillie Gifford

Source: Baillie Gifford

For any listed company or Investor Relations Officers, it is crucial for the company to understand who the investors are and their investment strategies to efficiently conduct investor meetings and benchmarking. In our previous volume of Inside Investor Relations, we introduced you to some of Taiwan’s key foreign institutional investors such as Blackrock, Schroder Investment Management, Franklin Templeton, Nikko Asset Management, Allianz Global Investors, and Matthews Asia. In this volume, we will go into a deep dive on another important foreign institutional investor in Taiwan – Baillie Gifford.

Ballie Gifford was founded in 1908 in Edinburgh, Scotland, as a law firm which provides investment trust service to their clients. Since the financial condition at that time gave the company many opportunities to expand the firm’s investment business, Ballie Gifford transformed itself into an investment management company in 1927. After almost a century of development, Baillie Gifford manages US$ 280bn for their clients and has offices in New York, London, and Hong Kong. In the Taiwan market Baillie Gifford is ranked the 14th largest foreign institutional investor with over US$3 billion invested in 17 Taiwan-listed companies.

Baillie Gifford’s Investment Philosophy

According to our Research, even today, Baillie Gifford still operates under a partnership structure. The firm is wholly owned by its 51 partners who work within the firm. Without outside investors requesting short term return, this ownership style allows them to buy and hold what they think are the most competitive, innovative and efficient growth companies for 5 to 10 years based on fundamental information and bottom-up research.

Furthermore, Baillie Gifford defines itself as an “Actual Investor”. Different from active investors, they focus on the four main aspects listed below to discover potential companies:

1. Focus on fundamental information – Create alpha based on detailed research.

2. Think in decades – Focus on long-term growth, ignore short-term fluctuation.

3. Form close relationship with management team – Help and encourage management to make sensible long-term decisions.

4. Move with times – Discover companies with disruptive innovation.

This investment philosophy allowed Baillie Gifford to become an early stage investor of several game changing companies such as Tesla (invested in 2013), Amazon(invested in 2004), Illumina(invested in 2011), Alibaba(invested in 2014), Shopify(invested in 2017), proving that the company has an eye for discovering hidden gems.

Investment Process of Baillie Gifford

Since Baillie Gifford believes that Asia ex Japan market is inefficient, they focus on finding those companies that is underestimated and can double on a five-year view. Furthermore, they are particularly interested in companies with three characteristics, including:

1. Under appreciated growth duration

2. Under appreciated growth momentum

3. Under appreciated growth expectation

After discovering their target companies, Baillie Gifford will put these companies under its rigorous research framework in order to generate investment decisions. The framework is built up with four main questions, including:

1. Industry background: What is the TAM and how will this develop?

2. Competitive advantage: How does the company attract and retain customers?

3. Management strength: Are the business leaders well placed to execute?

4. Financial strength: Do the financial characteristics suit the growth ambitions?

Baillie Gifford’s Viewpoint for ESG

ESG is also a key emphasis of Baillie Gifford. They believe that the long-term success of a company depends not only on business development, but also its impact on the environment. Baillie Gifford has been focusing on ESG for over 10 years. They have established a dedicated ESG team which will incorporate with internal ESG experts and provide suggestions when making investment decisions. The number of ESG experts in Baillie Gifford has grown sixfold since 2010. In addition, they also promote and follow on various ESG topics by conducting research on specifics such as human rights, climate change, corporate governance, etc. Furthermore, they also collaborate with academic institutions such as The University of Edinburgh and Lancaster University, to regularly conduct courses related to climate change for employees or to evaluating the way their portfolio companies respond to the climate change.

Baillie Gifford believes that quantitative data such as third-party ESG scores are not the only indicators to evaluate a company’s ESG performance. They also focus on multi-dimensional long-term qualitative aspects will also be considered in their investment process to evaluate the company's ESG performance. Below are the three main aspects in which Baillie Gifford focus on when evaluating ESG performance:

1. Impact: What is the company's impact on the environment and the society as a whole? Can the company's products or services contribute to a more sustainable society?

2. Ambition: How ambitous is the company’s goal? Do they solve the most important opportunities and challenges? What difference does the company’s success make? How engaged are the management and the board? Do they consider purpose as a core of the company’s strategy? How aligned are these goals as the time passes? Do the management honestly discuss the progress?

3. Trust: Can people who run the business be trusted to deliver on their promises to investors and other stakeholders?

Baillie Gifford publishes an ESG Report on its official website every year, recording some points of sustainability they concentrated on, voting situation, and management direction of the previous year. For example, in the 2022 ESG Report, Baillie Gifford has mentioned that climate and diversity issue are important for the company. Furthermore, for the first time, they released the results of the climate audit, demonstrating the efforts their portfolio companies have made. Baillie Gifford has pledged to achieve the goal of net zero emissions of it investment portfolio in 2050.

Baillie Gifford’s holdings in Taiwan

According to our database, Baillie Gifford is invested in 17 companies in Taiwan, spanning from large to small cap. The top three holdings in Taiwan are TSMC (US$2.75bn), Mediatek (U$190mn), and Accton Technology (US$50mn).

Source: QIC database

QIC advisors consist of experienced professionals that have worked in major sell-side and buy-side companies. Leveraging our knowledge in industries and relationships with investors, we assist companies and investors to achieve effective two-way communication to enhance shareholder value. QIC also supports our clients with our many years of experience in corporate access services. We plan, schedule and execute tailor-made roadshows and targeted investor events for high-quality corporate clients. If you are interested in learning more about Baillie Gifford or our services, you are welcome to contact us.

Contact: yvonnehuang@qtumic.com