Baillie Gifford’s market woes put UK pension funds at risk

(Bloomberg) – The drop in tech stocks that has hit Baillie Gifford risks exposing a group of UK pension funds to volatility as they have more money tied to the Scottish fund company than any other stock picker.

Data compiled by Bloomberg from the roughly 90 municipal pension funds in England and Wales shows that 21 of them had allocated between 13% and 40% of their assets in growth strategies managed by the company based in Edinburgh. Collectively, these funds held around £11.5 billion ($15.7 billion) in assets with Baillie Gifford, based on their latest annual reports.

Baillie Gifford, who oversaw a total of £336bn for clients globally at the end of last year, is suffering from a drop in his stock bets running through his portfolios. About 20% of its assets are concentrated in 15 investments that made the company such a success during the pandemic and are now falling just as dramatically.

In January, the company saw more than a tenth of assets wiped out of its UK-domiciled lineup, largely due to poor performance, data from research firm Morningstar Inc. showed last week. Clients withdrew record amounts from its retail funds during the month.

Baillie Gifford is one of the biggest investors in several technology and biotechnology companies, including vaccine producer Moderna Inc., Illumina Inc., Zoom Video Communications Inc., e-commerce company Shopify Inc. and Netflix Inc. , data compiled by Bloomberg show. All of these stocks have plunged between 30% and 60% since late August.

Long-haul

Pension funds invest for the long term and any decline in performance is usually ironed out over the years. But the declines reflect how important Baillie Gifford’s success has become to UK funds that pay the pensions of people such as teachers and police officers.

Baillie Gifford said municipal pension fund clients have an investment horizon in line with the firm’s approach to markets. “They understand that on the path to great long-term investment performance, there will inevitably be periods of underperformance,” a spokesperson said by email.

Bloomberg spoke to seven of the 21 funds that by the numbers hold the largest positions with Baillie Gifford, all of whom said they were comfortable with their technology exposure through Baillie Gifford and that they trusted the company’s stock selection. Some said the company reassured them that it was taking steps to address recent performance.

“Winning Formula”

Indeed, some municipalities have held senior positions with Baillie Gifford for years, while others have benefited from the more recent success of the Scottish asset manager. The outstanding performance of the company before the crisis has increased the value of the assets in many pension funds and now makes them more vulnerable in the event of a downturn.

The £1.7bn Westminster pension fund in London, for example, had around 25% of its assets invested in global equities through Baillie Gifford in 2021, up from 20% in 2019 as their value rose, according to reports. annual reports. The £9bn Hampshire pension fund had 18% of its assets invested in two similar Baillie Gifford strategies, up from 11% in 2019.

“The only thing I would really worry about would be style drift, which is to set aside a winning formula in response to short-term events,” said Quentin Marshall, who chairs the investment committee. Kensington and Chelsea pension funds.

The Kensington fund has invested with Baillie Gifford since 1994 and 24% of its assets were managed by the company in 2021, according to its latest accounts. Marshall said the allowance has been rebalanced over the years to prevent it from becoming “excessive”.

Data compiled by Bloomberg shows that the majority of stocks in Baillie Gifford’s global portfolios belong to technology or biotechnology companies. Many pension funds invest in global equities through the so-called separate mandates of Baillie Gifford, whose holdings are not publicly available.

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