(Bloomberg) — The decline in technology shares that’s hit Baillie Gifford risks exposing a group of U.K. pension funds to volatility because they have more money tied up with the Scottish fund company than any other stock picker.
Data compiled by Bloomberg from the roughly 90 municipal retirement funds in England and Wales show 21 of them had allocated between 13% and 40% of their assets in growth strategies run by the Edinburgh-based firm. Collectively, those funds had about 11.5 billion pounds ($15.7 billion) of assets with Baillie Gifford, based on their most recent annual reports.
Baillie Gifford, which oversaw a total 336 billion pounds for clients worldwide at the end of last year, is suffering from a downturn in its bets on the stocks that run across its portfolios. About 20% of its assets is concentrated in 15 investments that made the company such a success story during the pandemic and are now dropping in an equally dramatic manner.
In January, the firm saw more than a tenth of assets wiped off its U.K.-domiciled range, mainly due to poor performance, data from research company Morningstar Inc. showed last week. Clients withdrew record sums from its retail funds during the month.
Baillie Gifford is one of the biggest investors in several technology and biotech companies, including vaccine producer Moderna Inc., Illumina Inc., Zoom Video Communications Inc., e-commerce firm Shopify Inc. and Netflix Inc., data compiled by Bloomberg show. All of those stocks have plunged between between 30% and 60% since the end of August.
Long Haul
Pension funds invest for the long term and any dips in performance are typically ironed out over years. But the declines reflect how important Baillie Gifford’s success has become for U.K. funds that pay for the retirement of people such as teachers and police officers.
Baillie Gifford said municipal pension fund clients have an investment horizon that’s in sync with the firm’s approach to the markets. “They understand that on the route to excellent long-term investment performance, inevitably there will be some periods of under-performance,” a spokesperson said by email.
Bloomberg spoke with seven of the 21 funds that figures show have the largest positions with Baillie Gifford, all of which said they were comfortable with their exposure to tech via Baillie Gifford and that they trust the company’s stock picking. Some said that the firm had reassured them it is taking measures to address recent performance.
‘Winning Formula’
Indeed, some of the municipalities have had hefty positions with Baillie Gifford for years, while others have gained from the Scottish asset manager’s more recent success. The firm’s stellar performance before the slump increased the value of holdings within many pension funds and is now leaving them more vulnerable on the way down.
The 1.7 billion-pound Westminster pension fund in London, for example, had about 25% of its assets invested in global equities via Baillie Gifford in 2021, up from 20% in 2019 as their value increased, annual reports show. The 9 billion-pound Hampshire pension fund had 18% of its assets invested across two similar Baillie Gifford strategies, up from 11% in 2019.
“The only thing that would really worry me would be style drift, i.e. setting aside a winning formula in response to short-term events,” said Quentin Marshall, who chairs the Kensington and Chelsea pension fund investment committee.
The Kensington fund has invested with Baillie Gifford since 1994 and 24% of its assets were managed by the company as of 2021, its latest accounts show. Marshall said the allocation has been re-balanced throughout the years to avoid it becoming “excessive.”
The data compiled by Bloomberg show the majority of stocks in Baillie Gifford’s global portfolios are with tech or biotech companies. Many of the pension funds invest in global equities via Baillie Gifford’s so-called segregated mandates, the holdings of which are not available to the public.
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