Dressed in a pale blue shirt and navy blue jacket, the 62-year-old sitting across the table from me at the Ristorante Cesarina in Bologna could be any British visitor enjoying the city’s medieval architecture and the March Italian sunshine. There are no obvious signs of either fame or fortune. But I am facing a revolutionary — and a successful one too.
James Anderson is an unlikely star of tech investing. Ignoring legions of dissenters, he made big early bets on the likes of Amazon and Tesla when their shares were still a bargain — and hung on to them for years before they turned a profit. Through these contrarian bets, he has helped turn Edinburgh-based Baillie Gifford into one of the UK’s top fund managers. He is also something of a Renaissance man, as comfortable taking Tesla chief executive Elon Musk to task as discussing 19th-century French literature, and heavily involved in Baillie Gifford’s sponsorship of literary festivals and a non-fiction prize.
So how is it that this affable figure, whose manner resembles that of a maverick professor rather than a swashbuckling fund manager, has surfed the tech wave and presided over a 15-fold surge in Baillie Gifford’s assets under management over the past two decades?
We peruse the extensive menu. Anderson recommends the fantasia di carciofi — a selection of different artichokes — and I’m keen to try the mortadella, which originated in Bologna. At his suggestion, we decide to share a plate of Italian cured meats and the fantasia. For the main course I order tagliatelle alla bolognese and Anderson picks the fritto misto — fried fish.
The crisp sunny day has inclined us towards white wine, and Anderson orders a bottle of the local variety, which is very slightly sparkling. Anderson first came here more than 40 years ago, as a postgraduate student at the European campus of Johns Hopkins University. Back then he was fresh out of Oxford university with a history degree and little idea of what he wanted to do.
His contemporaries came from all over the world. “You felt like you were being taught from 30 different directions,” he says. “This notion that there are different ways of interpreting any set of information, rather than there being one right way, is incredibly important.”
Anderson has made his name taking patient bets on founder-led companies that stand to make exponential gains by shaping the future. First he looked to Silicon Valley; more recently he has gone all in on China. He will retire later this month with a stellar long-term record, which has made him a cult figure among retail investors.
Together with Tom Slater, Anderson co-manages the £16.7bn Scottish Mortgage Investment Trust, which was formed in 1909 to finance rubber plantations and is now a constituent of the FTSE 100 in its own right. He led a pioneering move about a decade ago into venture capital investments, giving ordinary investors cheap access to promising companies such as ByteDance, Northvolt, Stripe and SpaceX before they hit the public markets — one of the things he says he’s most proud of doing. In the just over two decades since he’s managed it, Scottish Mortgage has recorded a 1,371 per cent return for shareholders, compared with 343 per cent for the FTSE All-World benchmark.
But a recent sell-off has taken some of the sheen off Scottish Mortgage. Anderson is retiring as it is down around a fifth over the past 12 months, as expectations of rising interest rates have prompted a fall in technology stocks. Sceptics are wondering whether some of the themes that have made it so successful have run out of steam.
When I spoke to Anderson in November, he urged investors not to “give up on China”, despite a sweeping clampdown by President Xi Jinping. But even some of Anderson’s admirers worry that he’s so blown away by the entrepreneurs he sees in China — and has so much invested in them succeeding — that he’s blind to the political risk of investing in the country.
“I thoroughly admit that it wasn’t necessarily the last few months that I was wanting or expecting,” he says.
Under Anderson, Baillie Gifford evolved from an old-fashioned Scottish partnership into an investment firm that is radically different both from other active managers and the passive giants that track an index. Crucially, he says, the group looked outwards, deepening relationships with companies and academia.
He has countless anecdotes about encounters with gutsy entrepreneurs. There’s the founder of Chinese food delivery app Meituan, who came to Edinburgh and “wanted to quiz me about the differences between the Scottish and English enlightenment”, he recalls. Another time, Anderson visited the founder of Chinese social media group ByteDance: “There was this small, unassuming gentleman having a doze on this desk. His vision of where [the company] could go was profoundly different.”
These tête-à-têtes have not always been easy. Anderson recalls “difficult conversations” with Musk in 2018, when the Tesla chief accused a volunteer involved in the Thai cave rescue of being a paedophile. “I think he felt that I was saying that he needed help more than he thought he needed help.” He adds: “I do think what he’s done has been truly phenomenal.”
The first course arrives: a plate of cured meats and a trio of artichoke starters — fresh artichoke salad with slices of Parmesan, a whole cooked artichoke and a warm artichoke mousse with crispy, Roman-style fried artichokes.
Anderson has also travelled to try to better understand how great companies are built, spending extensive periods in the US and years in cities such as Berlin and Amsterdam. He regrets that the pandemic derailed his plan to go to Hangzhou in China and to live in Paris for a year.
He consoled himself by reading the novels of Émile Zola. Anderson says he was drawn to the “extraordinary nature of French compared with English 19th-century fiction — there’s both absolute triumph and absolute disaster. There’s nothing of people wanting to join the middle class. It couldn’t be further away from Jane Austen or George Eliot. In Zola, you either become the richest person in France and become part of the aristocracy or you die. I find it much more appealing. The variety of life is much greater.”
As we enjoy our starters, Anderson runs through some of the big academic influences on Baillie Gifford. There’s Hendrik Bessembinder, a professor at Arizona State University, who found that over many decades the vast majority of stock market returns come from a tiny percentage of business. Another is work by the Santa Fe Institute in New Mexico, which demonstrated that today’s knowledge-based companies tend to exhibit increasing returns to scale: that is, returns of the winners have become exponential rather than linear.
He says that all of this emboldened Baillie Gifford to try to identify as many of the “outlier” companies as possible — very different to most fund managers who have a diversified portfolio of bets. But if you’re wagering big bets on only a handful of companies, then you had better make sure you trust yourself to identify the correct ones, I venture.
“I would absolutely accept that you’ve got to do something brave, radical and perhaps overly optimistic at times about one’s abilities to do it,” he responds. His reputation for being single-minded and not suffering fools may sometimes have ruffled feathers internally but no doubt helped him to pursue this vision.
In recent years, growth investing — which tends to focus on younger companies with big future potential — has become much more crowded, as central bank largesse has propelled profitless tech stocks to dizzying valuations and hedge funds and private equity have tried to get in on the action. Anderson’s response is to question whether other growth investors “have got the resilience to carry on doing it at times like you’ve got at the moment”.
His message to investors is to ride out the volatility and focus on the long term. “The last thing I want to imply is that there are not going to be periods of pain,” he says. The current sell-off in tech stocks is unlike anything he’s seen in his career. Whether it was the dotcom crash or the 2007-08 financial crisis, Anderson says he’s never known a time where all stocks are moving in lockstep with one another, regardless of their future potential, “where frankly anything that may create these outliers in the long term is so ignored”.
By now we have pushed the starters to one side and I ask Anderson how he thinks the Ukraine war will shift the landscape for investors. He pauses before answering.
“I don’t think the record of ‘experts’ making judgments about this is very good,” he says. “And I’m full of embarrassment at the way that the fund management industry thinks it knows the answers to all these things. I think it’s incredibly difficult . . . you could see anything between a nuclear disaster and Russia collapsing.”
Anderson tries not to worry about short-term market moves or to second-guess geopolitics because this detracts from making good long-term investment decisions. “I’m probably more sceptical of my ability to make good judgments on that type of thing than I am on which companies and founders to back.”
As the starters are cleared away, the conversation turns to what makes a great entrepreneur.
“I’ve always loved that sentence in one of [British economist and former Scottish Mortgage board member] Sir John Kay’s books about how companies are the reverse of Anna Karenina: great companies are unique and all mediocre companies are the same,” says Anderson.
“I actually think in many ways the best investor, not just businessperson, of the last 30 years has been Jeff Bezos,” he says. Anderson attended a small dinner at the Sun Valley Conference in Idaho in 2013, when the Amazon founder explained how its key ingredients, such as processing power, bandwidth and disk space, were becoming twice as cheap every 12 to 18 months — an example of Moore’s Law. “Bezos then paused and added, ‘I don’t know where this will take us, but I know it’s going to be exciting,’” Anderson recalls.
Baillie Gifford looked first to Silicon Valley and has since ventured further afield, notably to China. “I find some of the entrepreneurs in China pretty analogous in that sense,” says Anderson. “We’re all at the moment pretty involved in looking for differences between China and ourselves, but I think the characters involved and motivations are the same.”
But Xi’s “common prosperity” policy has heightened the risk of government interference in the private sector and it is unclear how this will play out. Last year, Baillie Gifford was among foreign investors who were blindsided when Chinese authorities announced what amounted to a ban on the for-profit education sector. And the Chinese government now holds a stake in another of its investments, TikTok’s parent company ByteDance.
Anderson offers a mea culpa on the clampdown in the education sector — they should have seen it coming. But he adds: “I worry probably more about the consequences of the west, particularly America, divorcing itself from China than I do about ‘common prosperity’.”
The waiter brings our main courses. Anderson has a huge pile of fried squid crowned with a giant prawn. “It’s quite a long way from spaghetti bolognese,” he laughs, pointing to my tagliatelle. As I tackle the neat mound of pasta, we address another of the questions that has troubled him over the years: why hasn’t the UK grown any giant tech companies?
Anderson’s answer ranges from the British stock market’s position as a machine for recycling capital through buying back shares and dishing out excessive dividends rather than creating companies, an entrepreneurial culture that doesn’t dream big enough and a lack of domestic role models in the vein of Sweden’s Daniel Ek or France’s Xavier Niel. Even so, “I think it’s the absence of networks and connections that really strikes me a lot, compared with certainly West Coast America.”
He criticises the “box-ticking” nature of environmental, social and governance frameworks, which make it difficult for companies to “build their unusualness”, before turning on his own profession, arguing that the UK fund management industry favours receiving dividends for income rather than reinvesting them for growth. And its fee structure means that “you can be totally mediocre but still earn a lot of money . . . therefore the incentive is to maintain your job rather than put your head above the parapet.” Of course, that exists in America too, he goes on, but because of the sheer size of the market, “you have enough outliers”.
By this point we’ve been talking for two hours and we order espressos. Conversation turns to life after Baillie Gifford. Anderson has become chair of Swedish investment firm Kinnevik, and last year he joined the board of Heart of Midlothian Football Club. He has been a big benefactor to Scottish football because of a belief in the game’s social importance. Football cuts across wealth and class divides, says Anderson, and “trying to make that type of connection across society, feeding off real emotions, matters and works”.
Turning to the prospect of Scottish independence, Anderson — who grew up in England but has been based in Edinburgh for the past four decades — says he “doesn’t have much sympathy with the current Westminster government”. While he’s “emotionally in favour of [independence] to some extent”, a rupture from the union “would be pretty dramatic” and would “make the economic prospects extremely grim”. However, “in some imaginary world where there was a liberal Labour government in power, and Scotland could also rejoin Europe, then I think it can work, yes.”
By now we are the only people left in the restaurant. I pay the bill and we wander out into the sunshine. As we part ways, I reflect on how timing is everything in fund management. If Anderson had retired last year, he would have stepped back just before the top of the tech market. Now the timing of his departure looks more equivocal.
A year ago, when Scottish Mortgage’s performance was flying high, Anderson was asked how he didn’t become complacent. He recalls his response: “We don’t really think of it in terms of that, it’s on to deciding about the next investment.” He continues: “With hindsight, I should have added, there will always be the Ides of March out there . . . but I think that if you can bear it, and if you have clients and savers who can bear it, trying to find the extreme winners is the best way to invest.”
Harriet Agnew is the FT’s asset management editor
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Star investor’s ‘fritto misto’ had me reading the runes / From Nicola Ricolfi, Milan, Italy