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Baillie Gifford to launch a US growth trust

Baillie Gifford plans to launch an investment trust to tap into unlisted companies
February 15, 2018

Baillie Gifford plans to launch a new investment trust that will invest in listed and unlisted American companies with the aim of achieving long-term capital growth.

The Baillie Gifford US Growth Trust is looking to raise £250m in an initial public offering (IPO), which is expected to take place in March. If the issue is successful, the new trust will be managed by members of Baillie Gifford's US equities, team with Gary Robinson as lead manager, and Helen Xiong and Andrei Kiselev as deputy managers.

Mr Robinson and Ms Xiong currently manage Baillie Gifford American Fund (GB0006061963), alongside Tom Slater, who is also co-manager of Scottish Mortgage Investment Trust (SMT). Scottish Mortgage has about 15 per cent of its assets in unlisted companies and almost half in the US (see this week's Fund Tip on page 41), but Baillie Gifford American only invests in publicly-listed American companies.

The new trust will also invest in unlisted companies because increasingly US companies are choosing to stay in private hands for longer.

Its managers say: "This [trend] represents a structural shift in the nature of capital markets, which is likely to persist in the long term. The necessity to list on a stock exchange as a means of entering the next stage of growth is not as acute as it was before. As a result, there are many attractive businesses to be found in the private market."

Initially the trust will mostly invest in listed companies but over time the allocation to unlisted ones is expected to increase, so that they could account for up to 50 per cent of the trust's net asset value (NAV). The trust will focus on listed stocks with a market capitalisation of at least $1.5bn (£1.08bn) and unlisted securities with pre-raise valuations of at least $500m. It will have up to 90 holdings, typically 30 to 50 of which will be listed with no more than 10 per cent of its total assets in any one holding.

The trust will have an annual management charge of 0.7 per cent on the first £100m of NAV and 0.55 per cent thereafter.

Details of the trust's placing and offer for subscription will be set out in a full prospectus due to be published in early to mid-March.

Jason Hollands, managing director at Tilney Group, said launching a US equity trust while valuations are high, and markets are worried about US inflation and monetary tightening, was a brave move.

"Previous attempts to launch US equity trusts in the UK have proven quite challenging," he explained. "In February 2015, Mario Gabelli, a celebrated US value manager launched the Gabelli Value Plus + Trust (GVP), but it had limited demand and remains small. In 2012 F&C, one of the biggest players in the investment trust industry, announced plans to launch a US equity investment trust, sub-advised by respected US value manager Barrow Hanley, but the launch was pulled due to lack of demand.

"It may be that Baillie Gifford has identified demand from clients and it is very much a growth rather than value manager. Baillie Gifford American's track record, which is managed by the same team, is good, although it reflects the strong run that growth stocks have had over the period they have run it."

Baillie Gifford American's performance

Fund/benchmark1-year total return (%)3-year cumulative total return (%)5-year cumulative total return (%)
Baillie Gifford American23.678.7165.2
IA North America sector average10.548.9129.5
S&P 500 Index10.656.4142.4
Source: Baillie Gifford, as at 31/12/17