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A recharged James Anderson comes home to Baillie Gifford

When star fund managers depart on a "sabbatical", they sometimes fail to come back.

FRONT LINE: Fund manager James Anderson, renowned for his outspokenness as well as his success, has returned to the sector after a year away, brandishing bold ideas about business practice.
FRONT LINE: Fund manager James Anderson, renowned for his outspokenness as well as his success, has returned to the sector after a year away, brandishing bold ideas about business practice.

But when Baillie Gifford's outspoken guru James Anderson clocked off last July, after a decade driving Scottish Mortgage to become the UK's biggest investment trust on the back of a stellar performance, he had no plans to abscond.

Instead, the manager who has accused his own industry of the minor crimes of sinking the banks, ruining companies, and exploiting clients, was recharging. He launched the UK's first Investor Forum, wrote a book, and re-wrote his own job description. "After six months out of the office I don't believe we do fund management in the right fashion," Mr Anderson told an Edinburgh seminar last week, soon after resurfacing. "I don't accept that sitting in the office five days a week with this barrage of noise coming at you from machines, brokers, colleagues, is going to help you make right decisions."

Instead, he says, managers should be out on the front line, and city-hopping, absorbing environments, trends, companies and markets first-hand. Hence the exiling of co-manager Tom Slater to California for two months in 2012 and Mr Anderson's own departure last week, almost as soon as he was back, for Australia.

In late 2009, the then chief investment officer of Scotland's most successful fund firm ruffled more feathers than usual when he said "the Scottish establishment, whether it be the financial sector, whether it be fund managers or more broadly defined, did an appalling job with Royal Bank of Scotland and Bank of Scotland". Then in May 2011, as he stepped down as CIO after five years, he dared to observe publicly that "the entire industry superstructure is a construct made to defend the ideology of fund managers and investment banks taking their profits". He comments now: "There are plenty of fund managers where the eternal imperative for keeping assets and building money is more important than the outcome for shareholders."

Mr Anderson says the 40-partner structure at Baillie Gifford accommodates "different temperaments" among managers and respects different client mandates, but says it is "really important both internally and externally that people have the freedom to explore new philosophies".

Above all, managers should be "genuinely long-term", Mr Anderson says. Step forward the cheerleader for the new institutional Investor Forum, who told last week's seminar that fund managers' pressure for quarterly returns "has come to ruin an awful lot of companies". He added: "We are so powerful and have so much wealth at our disposal … I really believe that we ought to able to do a better job - and returns would be better." Of Scottish stock ("my grandfather was Archibald Kennedy Anderson"), brought up in Norfolk, and educated at Oxford (history) and Johns Hopkins University (international affairs, economics, politics - "I was taught by people from 35 countries") the high-flier was recruited by Baillie Gifford in 1982, aged 23.

By 2000 he was in pole position to take over Scottish Mortgage, which, like other funds with a conventional 'global' mandate, was an assemblage of regional portfolios, with relatively low 'active share' - the proportion that differs from an index-tracking portfolio.

Mr Anderson says: "If you are trying to survive, the easiest thing is to imitate what other people do and do it better." Unusually, the up and coming manager was prepared to admit in 2001 to a worry that performance might become "mediocre", and by 2004 he was reshaping the venerable trust, founded in 1909, into a more exotic beast. Eyebrows were raised when the trust ditched BP, Shell and Exxon Mobil for holdings in Petrobras of Brazil, Russia's Gazprom and Suncor Energy of Canada. But in October 2005, Mr Anderson unveiled a 23% jump in half-year asset value, 10% ahead of the world index, partly thanks to the esoteric oils. That month he also revealed a first £10m investment in Amazon - now the trust's biggest holding worth over £200m. The three-year performance was already strong and today's record is even stronger, with a 313% share price rise beating the 132% rise in the world index. "Once you have a 10-year record you begin to think it means something," he says. "Stock markets are not a matter of most companies going up a bit. The vast majority of returns are generated by a very small number of companies, so you may as well be honest about it - that is the truth of how markets work."

The 2008-09 crash saw the trust harder hit than most - rivals gloated about its "high-risk" portfolio - but Mr Anderson famously kept his tin hat on and stuck to his guns, enabling him to deliver spectacular numbers as the market bounced back. He says: "The pay-off for staying true to your principles is absolutely huge. It shows yet another danger of looking at performance numbers on a short-term basis."

Today's Scottish Mortgage has 80% of its £2.6 billion in just 30 stocks conforming not to indices or geographical areas but themes - notably the advance of China, and the disruptive effects of technology.

The trust's loyalty has put Mr Anderson on cosy terms with Amazon's Jeff Bezos ("my corporate hero") and Facebook's Mark Zuckerberg. "To the laughter of many people, including some colleagues, we bought shares in Facebook at the time of the IPO, we didn't sell any and have bought some more," he told the seminar. He is openly dismissive of whole sectors viewed as blue-chip investments.

"I think big oil, and big pharma, are finished and banks still haven't found the right business model. The perception that because they are big parts of an industry these companies are 'safe' is wrong in the long run."

Instead he is mapping the global future - from online retailing and Chinese search engines to genomics and electric cars - and is prepared to allow big holdings (Amazon is more than 9% of the fund) to get bigger.

Mr Anderson, 54, has no intention of disappearing - except from his desk in BG's glazed palace in the lee of Calton Hill. He says: "I don't get more moderate as I get older, I get more extreme, whilst trying to do it with good humour - and not suggesting everybody ought to be doing the same thing."

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