Written by Sheridan Admans, Head of Fund Selection at TILLIT
How bad is the situation at Scottish Mortgage?
We continue to support Baillie Gifford Scottish Mortgage Investment Trust as a constituent of TILLIT’s curated platform despite recent press surrounding it.
There are two key elements causing alarm: the long tenure of Ms Fiona McBain on the board and the oversight of the trust’s unlisted holdings.
The spotlight on Ms McBain’s tenure has seen her resign this week from the board after serving for 14 years, which is 5 years longer than recommended by the corporate governance code. For us, her resignation resolves the first criticism levelled at the board by Professor Amar Bhidé, who also recently left the board. Justin Dowley will take over as chair. Dowley is the deputy chair of the Takeover Panel.
Regarding the second criticism related to a continuous breach of the 30% holding limit in unlisted companies, we would be supportive of that limit being raised, if only temporarily. By not allowing the managers to invest capital when companies in their portfolio undertake funding rounds risks having the trust’s holdings diluted. It could also lead to missed growth opportunities that could benefit long-term shareholders of Scottish Mortgage.
Furthermore, we disagree with Bhidé’s view that Baillie Gifford and Scottish Mortgage lack the capabilities required to manage their unlisted holdings. When it comes to private companies, Scottish Mortgage predominantly invests in late-stage funding rounds and doesn’t typically lead rounds. The level of operational involvement required in companies at this stage is incredibly low, if not nonexistent. We, therefore, remain confident that Baillie Gifford and Scottish Mortgage have the capabilities required to manage this type of private holdings.
While Bhidé was right to raise concerns, as we want NEDs to do, we continue to have faith in the managers of Scottish Mortgage and we welcome further Board refreshments.