It’s crucial to see the big picture
IN a world all too often beset by a supreme lack of original thinking, the meditations of fund management veteran James Anderson are always a breath of fresh air.
Mr Anderson’s thought process, and the approach taken by his fellow Scottish Mortgage Investment Trust joint manager Tom Slater, seem like the antithesis of the Stepford-style thinking of many highly paid management consultants and the big corporate bosses who crave this expensive advice.
Of course, the management consultants and bosses try to dress up their tiresome “take 10 per cent or 15% out of costs” plan as something different. They try to weave some strategy around their umpteenth cost-cutting round.
Sometimes, they even go so far as to claim their cost-cutting is actually facilitating growth, or amounts to an investment, when what it is usually doing is culling the most expensive but often also the most experienced individuals. And in many cases also some of the most talented.
However, in the world of the corporate spreadsheet, detached management types are hardly likely to give much contemplation to the individuals who depart as they embrace the tarted-up, off-the-shelf strategy from the management consultants or their own unimaginative plan.
It is, of course, not just in the big corporate world that it seems all too often people cannot think for themselves.
For example, in the UK, you hear people from all walks of life, thankfully with enough exceptions to ward off despair, repeating some soundbite which has been fed to them. The Johnson Government has probably proved the most adept at feeding such truthobscuring soundbites – such as dressing up dramatic damage to the UK economy through Brexit as “unleashing Britain’s potential”.
However, there are many other examples. All too often, you come across situations where people seem not even to contemplate the idea of thinking for themselves – looking at the facts of a situation and judging for themselves whether what they are being told is right or not.
Returning to the thoughts of the managers of the £18 billion Scottish Mortgage Investment Trust, Mr
Anderson was on form in his statement on the fund’s latest annual results.
Mr Anderson, who is retiring from funds house Baillie Gifford and stepping down as joint manager of Scottish Mortgage on April 30 next year, declared: “After many years of anodyne reviews perhaps some bluntness is permissible in this final and twenty-second version.”
Thankfully, Mr Anderson has been plenty blunt over the years, providing not only the original thought that is so desperately needed but also for example in not beating about the bush when it has come to assessing the contributions of our political leaders in the UK.
In an interview with The Herald last June, Mr Anderson predicted that Prime Minister Boris Johnson would not be prepared to risk his prospects of re-election by returning to austerity in the wake of the coronavirus crisis, in spite of the Conservative Party’s “ideology”.
Referring to Mr Johnson and his now former adviser Dominic Cummings, Mr Anderson declared: “Do I believe Boris Johnson and his lovely adviser are going to be prepared to risk not being re-elected by clamping down on public expenditure? I don’t.”
He added: “My bet at the moment, even in the UK, is that austerity doesn’t work any longer.”
He had in 2013, in calling for moderation of the Conservative Government’s fiscal austerity programme under David Cameron and George Osborne, described the UK’S political and economic leadership as “deeply lacking” and “profoundly frivolous”.
He said then: “Austerity, from the perspective of cutting current expenditure, is to my mind counterproductive. I think we are increasingly learning that.”
And, viewing the UK as isolated in policy terms, he had asked: “Austerity for the sake of it – is it being pursued anywhere other than Britain now?”
Mr Anderson made no bones about his view last June that the UK, in terms of Brexit negotiations ongoing at that stage with the European Union, was “approaching it with a fairly great degree of arrogance and an inability to recognise where power lies in this relationship”.
These comments seemed prescient at the time, and their wisdom has been demonstrated by subsequent events. Mr Anderson’s comments about austerity were obviously also on the money.
The fund manager declared back in 2015 that the “tragedy” of the era since Margaret Thatcher came to power had been that the notion of entrepreneurial freedom had not translated into creating great companies.
And he said last June: “I am probably more pessimistic now than I have been about the British stock market’s ability to throw up companies that are able to participate in this extraordinary pace of change. I think it is quite surprising to be honest. I think in a way that has got worse.”
Referring to the chief executive of US electric vehicle pioneer Tesla, Mr Anderson added: “I don’t see an Elon Musk around, do you?”
It has been fascinating over the years to meet with Mr Anderson and listen to him as he contemplates the huge shifts in the global economy and society, as well as massive technological advances and the importance of tackling climate change.
Among the things he has contemplated has been developments in the relationship between the US and China, what has been driving those, and what they mean or do not mean on the investment front.
While unveiling a 111.2 per cent total return on net asset value for the year to March 31, nearly three times the 39.6% recorded by the FTSE All-world Index over the same period, Scottish Mortgage last week hammered home its long-term approach.
This approach is beneficial to the companies in which Scottish Mortgage invests, giving them room to achieve what they are trying to do rather than having to worry about someone throwing their toys out of the pram because of one bad quarter.
Many of the businesses in which Scottish Mortgage invests are entrepreneurial in nature, or taking the examples of US groups Illumina or Moderna, which have seen their technologies in the spotlight in the fight against the coronavirus pandemic, are at the cutting edge of scientific advances. Such major progress must be nurtured.
Scottish Mortgage’s patient approach, the trust’s significant scale and no doubt also its managers’ personal relationships with entrepreneurs have seen it invited in as an investor to companies before they float on stock markets. This has generated some big returns for the trust.
As an aside, it would be good to see a long-term approach being taken by many leaders of established companies across a raft of sectors, who all too often engage in value-destroying, short-term meddling in their own businesses, sometimes with pressure from an unenlightened external investor but often not.
Returning to Mr Anderson, he declared in Scottish Mortgage’s latest annual results: “There’s much that I have misunderstood and misjudged over the two decades but my ever-growing conviction is that my greatest failing has been to be insufficiently radical. To be blunt: the world of conventional investment management is irretrievably broken. It demands far in excess of the canonical ‘six impossible things before breakfast’ that Alice in Wonderland propounds.”
Many people would do well to contemplate Mr Anderson’s self-reflection.
Mr Anderson added: “There will almost certainly be more wrenching, inspiring and dramatic change in the next decade than we have ever seen. I’m very envious of the opportunities and experiences that my successors will enjoy. Even in the last year, amidst the tragedies of the pandemic, there have been hints of what is to come. I don’t mean the surge in digital platforms that helped to navigate the constraints of the pandemic but still more dramatic and important rising forces.
“From the extraordinary revolution that will transform our societies for the better in renewable energy becoming mainstream to the emerging wonders of synthetic biology to the possibility that healthcare innovation becomes a regular series of beneficial revolutions rather than a complex and frustrating drain of resources the potential is wonderful and the threat to old empires looms. It would have been hard for us to have educated ourselves in these areas of unashamed excitement without our involvement in venture capital. We are forever grateful that we have found our way to interact with the extraordinary minds and energies in the unquoted world.”
He added: “We need to remain eccentric. In fact we need to become more so and more prepared to be radical. We’ve always claimed to learn from the remarkable leaders we are lucky enough to meet in managing Scottish Mortgage.”
In a world dominated by bland corporate jargon devoid of meaning, and amid the general chaos of the nonsense echoing on social media platforms, Mr Anderson’s observations about what the future holds highlight huge turmoil ahead but also major opportunities.
Mr Slater, meanwhile, drew a parallel between lack of preparedness for a pandemic and an “apathetic response” in tackling climate change, albeit he was encouraged by a shift in attitude on the part of a previously “hostile” investment community toward Tesla.
He said: “Scientists had been clear about the potential for a global pandemic for some time, but their warnings had not prompted the necessary preparation. The apathetic response to similar scientific warnings about climate change ought now to be questioned. While we hope that lessons will be learned by our institutions and governments, we can also take inspiration from the leadership that the corporate sector has shown in delivering us from Covid.
“As with vaccines, so with decarbonisation; the value that Tesla has created by addressing the need to decarbonise has forced a hostile investment community to reconsider its position. Tesla has become one of the world’s largest companies as its highly rated products have continued to improve, along with its ability to manufacture them at scale. Other companies are now following, and history tells us that the more generous funding environment that has ensued is a prerequisite for further progress.”
Scottish Mortgage’s joint managers have proven adept over the years at taking a truly global approach and contemplating what their investments mean for society, as well as for returns.
Mr Anderson said last June that it was “absolutely right both in economic and moral terms” to back what Mr Musk is doing. He highlighted what Tesla’s chief had achieved with his Spacex venture too.
Mr Slater’s thoughts on the investment backdrop for technologies that will tackle climate change are fascinating.
And his views on the potential for “further progress” of such technologies, as a previously “hostile” investment community has begun to wake up to the fact that value can be created by tackling this urgent environmental issue, are encouraging.