A director of the Baillie Gifford investment trust, Scottish Mortgage, appears to have been removed from a board meeting on Thursday following a disagreement around the appointment of two new board members and risks surrounding the trust’s investments in unquoted assets worth almost £4bn, or 27% of the total portfolio.
The FT has reported that the non-executive director was Amar Bhidé, an academic and author, and a relatively recent appointment, joining the company in 2020. His concerns stem from the recent performance of the fund, with shares down more than 31% in the last 12 months while the discount has continued to widen, closing at almost 17% overnight. Commenting on the removal, Bhidé said that there is a structural reason for this under-performance and that he had tried to raise his concerns around the portfolio’s exposure to liquid investments.
“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.”
[Boardroom rows are probably commonplace, it is just that us investors rarely get to hear about them. Amar raises a serious question about the depth and expertise of Baillie Gifford’s unlisted investment team that the firm will have to respond to, we think. However, with 51 partners and over 1,700 staff working at the HQ in Edinburgh, it’s not a small organisation. There is also a practical question about the extent to which Baillie Gifford should be rolling up its sleeves and getting involved in the day-to-day business of the companies that it invests in – we would say, not at all. It is far more important that Baillie Gifford ensures that these underlying businesses are properly staffed.
What is more problematic is the proportion of SMT’s portfolio that is invested in unquoteds. This is flirting with its 30% limit. We have suggested that this be lifted to 50% but with a stated ambition to keep the exposure to around 30% over the long term. This would get around any potential problem with SMT being unable to provide extra finance to these companies over coming months. Without this, Scottish Mortgage could find itself diluted.]
Scottish Mortgage has not made an announcement this morning and there is no sign of anything filed at Companies House so we aren’t sure whether Amar is still a director or not – we have asked the company.
SMT : Boardroom row at Scottish Mortgage