Scottish Mortgage Investment Trust, Baillie Gifford’s flagship, sacked one of its non-executive directors at a board meeting on Thursday, following what it said was a disagreement over the appointment of new board members of the £13.4 billion FTSE-listed company.
The severance of 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 fell more than 30 % due to the rise in growth stocks that had propelled its performance over the past decade. was held back by higher interest rates.
It also follows a leadership change at Scottish Mortgage after James Anderson, who led a pioneering change at Baillie Gifford more than a decade ago in venture capital investments, retired last year. after nearly four decades in the Edinburgh-based private partnership. He was replaced at Scottish Mortgage by his co-manager Tom Slater and Lawrence Burns.
Amar Bhidé, director of Scottish Mortgage since 2020, told the Financial Times that he clashed with chairman Fiona McBain over the process of appointing two new board members and his assessment of the risks posed by the trust’s investments in unlisted companies, valued at £3.8 billion at the end of January.
Bhidé, a 67-year-old business scholar and author who has no other directorship, said he felt he could not go quietly. “I’ve been very concerned about the stock price performance and the discount, and I’ve tried to get people to understand that there’s a structural reason for that.”
Bhide said he tried to raise concerns about the portfolio’s exposure to illiquid investments, at a time when a public market sale of the tech heralds a settling of scores in the private sphere. Scottish Mortgage’s early bets on companies such as Tesla, Amazon and e-commerce giant Alibaba were partly responsible for its rise to prominence.
Comparing the trust’s resources and low fee structure to those of venture capitalists and other specialists, he said, “In my view, they don’t have the capabilities and the governance power to be able to monitor illiquid investments on which there is little audited information in the public sphere. The fact that you have been successful for the past 10 years is due to a totally aberrant period in financial history. Do not delude yourself that you can continue to play this game.
McBain said: “Scottish Mortgage managers regularly discuss topical issues such as short-term volatility, share prices and private companies with shareholders in various forums. They are also extensively debated and reviewed by the board.
“As Chairman of Scottish Mortgage, I have complete confidence that the Scottish Mortgage Board provides strong governance and oversight. We remain confident that managers are taking the right approach to long-term investing and building a portfolio of transformational companies that can deliver to shareholders over five years or more.
Scottish Mortgage has a strong long-term balance sheet. In the 10 years to the end of February, it had gained 361.7%, ahead of its benchmark FTSE All World, which had risen 183.1% over the same period.
Bhidé is a professor of business at Tufts University in Massachusetts and author of A Call for Judgment: Sensible Financing for a Vibrant Economywhich advocates for human decision-making in financial institutions rather than centralized financial models.
Last year, Baillie Gifford suffered her worst annual fall in assets under management. The Edinburgh-based partnership’s assets under management fell by a third, from £336bn at the end of 2021 to £223bn at the end of 2022. The drop was largely due to lower the valuation of its investment portfolio.