Mary McDougall, Financial Times, MARCH 25 2023:
The boardroom bust-up at Baillie Gifford’s flagship Scottish Mortgage Investment Trust has put the oversight of these venerable structures under an awkward spotlight.
Last week the 114-year-old investment trust asked one of its non-executive directors to leave following a searing critique of the firm’s corporate governance. This week the trust announced its chair, Fiona McBain, would step down at the annual general meeting in June.
The concerns of Amar Bhidé, the recently departed director of Scottish Mortgage, appeared to stem from the company’s expansion into unquoted holdings. He said the board did not have the requisite experience and was led by a chair who had ceased to be independent, as she had served as a director for too long.
He added that the managers were not sufficiently resourced to monitor the trust’s diversification out of quoted stocks into unlisted securities…
The saga at Baillie Gifford comes as rising interest rates have knocked the share price performance of several investment trusts.
With their closed-ended structure, trusts have offered a way for retail investors to own privately held companies, because investors could trade a trust’s stock without disturbing the underlying portfolio…
Private holdings
Scottish Mortgage has owned private companies since 2012, with a 30 per cent maximum for the share of the portfolio in private companies at the point of investment.
But as public markets have fallen at greater speed than valuations in private markets, the proportion of the fund in private holdings has grown. At the end of February, unquoted holdings made up 29.9 per cent of the Scottish Mortgage portfolio.
James Carthew, head of investment trusts at research company QuotedData, says this puts the managers in a tight spot: if the cap is not lifted the trust risks being unable to invest further in portfolio companies, so its holdings will get diluted.
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