Baillie Gifford, beacon of the Scottish financial sector, has seen its funds plunge back to 2005 levels in the market turmoil, after last year-end's £55bn was slashed to £38bn last Monday morning.

Baillie Gifford, beacon of the Scottish financial sector, has seen its funds plunge back to 2005 levels in the market turmoil, after last year-end's £55bn was slashed to £38bn last Monday morning.

However, on the morning that its Edinburgh banking neighbours, founded in 1695 and 1727 respectively, had to be rescued from disaster, the global fund manager with the enduring partnership structure was celebrating its 100th anniversary by toasting the market rally.

Chief executive Alex Callander said of the crisis: "It is surprising it has happened so fast, with major institutions failing on a day-by-day basis. But the fact that markets fall is not something that is completely unexpected in the fund management business. We are fortunate in being a private partnership in not having to react immediately. We are hoping on the investment side to be looking around to see what long-term value might appear in the general chaos."

Baillie Gifford's centenary newsletter records: "When it was established, many of the circumstances were similar to those of today. The previous year had seen a credit crisis - the panic of 1907 - precipitated by bank runs and the failure of several US institutions".

Callander said: "It is not as if this is completely unique. The market is down 35% from its peak. In the crash of 87 it fell by 37% and, while it was over a longer period, in the early years of this decade from September 2000 to March 2003 it was down over 50%."

He said the 600-strong firm, housed predominantly in its shiny new Edinburgh headquarters under Calton Hill, could still boast positive net inflows of £1.4bn in the year so far, but admitted to a difficult third quarter with "extremely volatile" performance. But Callander stressed: "One of the advantages of being a partnership is that we don't have outside shareholders breathing down our neck."

Graduate recruitment, for instance, has continued as normal this autumn. "We have eight just arriving for this year and we are planning to get another eight. During 2001-03 we continued recruiting and it stood us in good stead."

Callander said: "When I go to conferences of CEOs of asset management firms, they tell me they come under pressure to cut costs that they don't think are sensible things to cut in the long run, they do that because they have parent companies setting budgets or shareholders jumping up and down Within reason we can take a longer view and it doesn't matter so much if profits are down for a year or two provided we think we are doing the right thing in the long run."

The past year or two has seen the Scottish fund management sector attract major investments, with Walter Scott, Martin Currie and Artemis all surrendering some or all of their independence, and Aberdeen recently selling a stake to the same Japanese partner that Baillie Gifford has been working with since 1989.

Callander commented: "Investment management firms do not need a huge amount of capital, they don't need to have external shareholders Our partners broadly regard themselves as holding the business in trust for the next generation. You don't pay a huge amount for it at the beginning and don't get a huge amount when you sell out at the end, but get a reasonable income in the middle - and there is no pressure to change that."

When Callander joined the firm (straight from Cambridge) in 1982 it was managing £500m, by 1994 it was £4bn, and when he became joint senior partner in 2001 it was £19bn.

Critical to growth has been the overseas client business, which last year accounted for 42% of funds against 17% a decade earlier. UK pension funds, which fuelled growth in the 1980s and 1990s, provide 43%, and investment trusts, the bulk of the business back in 1982, now contribute less than 10%.

Callander said: "We are now in the position where the business is quite well diversified, so that is no longer a strategic goal. What we try to do is concentrate on a relatively small number of relatively big clients, it keeps things simple and allows us to give a relatively high level of service.

"Where we can get smaller or medium-sized clients and do the servicing reasonably easily we might consider having a pooled business."

Unlike the experiment of the Witan investment trust, which broke up its portfolio into chunks and gave it to supposedly high-performing managers around the world (with underwhelming results), Baillie Gifford believes that "holistic" management by one team can be more effective, and applies that discipline to around a third of its funds, with a third split between teams and a third run as specialist mandates.

Six months ago the group added two more mandates for Pennysylvania-based Vanguard, in global and US equities, and now runs more than £2.5bn of assets for what is one of the world's largest fund managers. Together with a joint venture with Guardian Life in New York, it gives the Edinburgh firm access to tens of millions of US retail investors and the country's huge retirement plan market.

"I would expect the overseas part of our business to continue to grow," Callander said. "We are big enough that we can employ enough analysts to cover the waterfront, but not so big as to be completely bureaucratic and non-nimble - whatever the word for that is."

At home, the growth of pension and wrap platforms which offer access to selected fund managers holds out the prospect of a new type of client for Baillie Gifford. "More of our clients will be financial institutions," Callander said.

Performance will be key. This year's continued progress has come in both equity and fixed income mandates, led by global equities where the firm has closed off one of its emerging markets funds to new money.

James Anderson, investment director and manager of the flagship £2bn Scottish Mortgage investment trust, has championed stocks such as Brazilian oil producer Petrobras and China Mobile, and said earlier this year: "There was much more risk of permanent loss of capital investing in things that were big in the British and American stock indices, like banks."

On whether the firm was reviewing its ideas, given the contagion that had spread more recently to all markets from the US, Callander commented: "China is slowing down - to growth of 8% or 9%, that is one of the bright spots James amongst others is trying to elicit a wider range of views. For the moment there has not been a huge change in our strategy."