Baillie Gifford’s flagship Scottish Mortgage Investment Trust removed one of its non-executive directors at a board meeting on Thursday, following what he said was a disagreement over the appointment of new board members at the £13.4bn FTSE-listed company.
The breakdown in relations on the board of one of the UK’s best-known investment vehicles comes after a year in which the trust’s share price has dropped by more than 30 per cent as the rise of growth stocks that had propelled its performance over the past decade was curbed by higher interest rates.
It also follows a change in management at Scottish Mortgage after James Anderson, who led a pioneering shift at Baillie Gifford more than a decade ago into venture capital investments, retired last year after almost four decades at the Edinburgh-based private partnership. He was replaced at Scottish Mortgage by his co-manager Tom Slater, and Lawrence Burns.
Amar Bhidé, a director of Scottish Mortgage since 2020, told the Financial Times that he had clashed with chair Fiona McBain over the process to appoint two new board members, and his assessment of the risks posed by the trust’s investments in unquoted companies, valued at £3.8bn as of the end of January.
Bhidé, a business academic and author, aged 67, who has no other directorships, said he felt that he could not go quietly. “I’ve been very concerned about the share price performance and the discount, and trying to get people to understand that there is a structural reason for this.”
Bhidé said he had tried to raise concerns about the portfolio’s exposure to illiquid investments, at a time when a sell-off in public tech markets heralds a reckoning in the private sphere. Scottish Mortgage’s early bets on companies such as Tesla, Amazon and ecommerce giant Alibaba were partly responsible for its rise to prominence.
Comparing the trust’s resources and low fee structure to those of venture capital firms and other specialists, he said: “In my opinion they do not have the capabilities and governance clout to be able to monitor the illiquid investments on which there is little audited information in the public sphere. The fact that you’ve pulled it off for the last 10 years has been due to an utterly aberrant period in financial history. Don’t delude yourself that you can keep playing this game.”
McBain said: “Current topics such as short-term volatility, share price and private companies are discussed regularly with shareholders in various forums by the managers of Scottish Mortgage. They are also debated at length and scrutinised by the board.
“As chair of Scottish Mortgage, I have complete confidence that Scottish Mortgage’s board provides robust governance and oversight. We remain convinced that the managers are taking the right long-term investment approach, and building a portfolio of transformational companies that can deliver for shareholders over five years or more.”
Scottish Mortgage has a strong long-term record. In the 10 years to the end of February it had gained 361.7 per cent, ahead of its FTSE All World index benchmark, which was up 183.1 per cent in the same period.
Bhidé is a professor of business at Tufts University in Massachusetts and the author of A Call for Judgment: Sensible Finance for a Dynamic Economy, which argued for human decision-making in financial institutions over centralised financial models.
Last year, Baillie Gifford suffered its worst annual fall in assets under management. The Edinburgh-based partnership’s AUM dropped by a third, from £336bn at the end of 2021 to £223bn at the end of 2022. The fall was largely driven by valuation decreases in its portfolio of investments.