Banking

Scottish Mortgage’s Slater: We place an ‘outsized degree of importance’ on company founders to drive returns

Like many Baillie Gifford portfolios, the house’s flagship trust invests in several names whose reputation is closely linked to its founders. The likes of Tesla and Amazon are intimately associated with their creators – Elon Musk and Jeff Bezos respectively – figures Slater and his co-manager Lawrence Burns said were a credit to those companies achieving outsized returns.

The latter said that having the founders ever-present in the management of the company is “very important to enabling companies to stay focused on their long-term mission”, especially during periods of poor performance “like we have right now”, ensuring that they did not “succumb to the pressures to sacrifice the long-term for short-term gains, and to sort of push up into profitability”.

Burns said the “legacy” of “core persons” it was “really important for driving companies forward”.

Scottish Mortgage loses position as largest trust

Indeed, Slater said that the sole reason for reducing the trust’s weighting in e-commerce giant Amazon earlier this year was “directly linked to [Jeff] Bezos stepping back from the CEO role”.

The trust had reduced its exposure to Amazon in the past, but Slater said this was the first time they had done so “for reasons other than diversification since 2005”.

When asked about the importance Elon Musk plays in the success of Tesla, Slater told Investment Week that it was “his drive and vision that was necessary” to take the company from just a “becoming a good, mature car company” to delivering a tenfold increase in share price.

Although Musk is now less involved in the day-to-day of the company, according to Slater he has played a large part in the “transformational impact” of the company.

He said: “We are placing an outsized degree of importance on the founders or enablers of that corporate culture.”

Burns’ point about the importance of not drifting from your objective in the face of poor performance was particularly pertinent given the recent underperformance of Scottish Mortgage and Baillie Gifford’s fleet of products.

Adhering to a growth bias, which had them leading markets for years, many of the firm’s portfolios have now fallen to fourth-quartile near-term after markets rotated out of growth stocks into more inflationary and interest rate defensive options.

In the past year Scottish Mortgage has lost 30.1% compared to the the average IT Global trust loss of 13.2%.

This poor performance was addressed head on at the firm’s latest investment trust conference in Edinburgh, as Slater said if it had gone ahead as planned last year “we would not be talking to you when we had seen the worst start to the year for growth stocks in 90 years”.

This was Slater’s first presentation as lead manager of the trust following James Anderson’s official retirement last week.

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