“Deep illness” in UK capital markets has stifled the growth of local tech entrepreneurs and left London’s leading FTSE 100 index looking like a 19th-century index, according to one of Britain’s top fund managers.
In a stinging critique, James Anderson, whose early bets on Facebook, Amazon and Tesla have made him one of the world’s most successful investors, said many UK asset managers are obsessed with short-term performance ratings and are risk-averse.
“Why haven’t we grown any giant companies? Of course I don’t expect everyone to be like [Amazon founder] Jeff Bezos. But it seems to me that there is a real problem here,” Anderson, co-manager of Baillie Gifford’s Scottish Mortgage Investment Trust, told the Financial Times.
“The FTSE 100 is really a 19th century benchmark and not even a 20th century index,” he added, pointing to a dearth of innovative, fast-growing companies in Britain.
With bold bets on American and Chinese entrepreneurs, including Amazon’s Bezos, Tesla’s Elon Musk and Tencent’s Bonnie Ma, Anderson has turned Scottish mortgages into an unexpected star of tech investment over the past two decades.
The £18 billion trust has generated returns of 1,500 per cent to shareholders since Anderson began operating in 2000, compared to 277 per cent for the FTSE All World Index. Anderson will retire from Edinburgh-based Baillie Gifford in April, handing Scottish Mortgage to Tom Slater, who has been its co-manager since 2015.
Anderson’s criticism comes after a Government-backed review of the city In March he called for an overhaul of listing rules, including the introduction of dual-class shares favored by entrepreneurs, so London could push more tech companies away from Wall Street.
Pointing to the lack of an entrepreneurial culture in the UK, Anderson said: “Why are people happy to be paid for things that are relatively unrequited, but not dreaming of creating these really great companies?”
“I find this kind of depression, and there must be many different reasons for it. A lot of them are on both sides of the fence. But it seems to me that something is wrong.”
Anderson added that Britain needed “one or two people” who could lead the way to entrepreneurship. “When will some of these people suddenly happen?”
He referred to different entrepreneurial cultures in other European countries—”[Dutch chipmaker] ASML is not the same [Swedish streaming company] Spotify “-” but neither is available in the UK. I think there aren’t enough supportive people.”
In a wide-ranging interview, Anderson also said that local shareholders in the UK had failed to defend local companies during the takeover approach, pointing to Japan’s SoftBank’s £23.4 billion acquisition of Arm Holdings in 2016.
Although some shareholders opposed the deal, including Billy Gifford, “we were unable to find enough shareholders to support a serious effort to preserve ARM’s independence.”
Anderson compared Arm’s fate to that of the American biotechnology company Illumina, the second-largest company currently owned by Scottish Mortgage. Billy Gifford and other shareholders helped Illumina fend off a hostile $6.8 billion takeover attempt by Roche Holdings in 2012.
He also warned that too many investment firms are “run as corporations, for business, and themselves rather than as investment firms. Those sums of money involved, may be too tempting.”
Anderson is retiring from Billy Gifford as environmental, social and governance issues race on the fund management and corporate industry agenda, and he has warned of the dangers of a fund approach at ESG.
“Bad managers have a much easier time, because if they comply with what the reward system and the system of ESG tells them, they can survive . . . and get paid very well. It is becoming more difficult for companies to really think about the task of building their competitive moats” .