Baillie Gifford’s Stuart Dunbar Warns of Investor Myopia

(Bloomberg) -- The U.K. fund manager that made a name for itself betting early on many of the world’s most successful technology companies, including Amazon.com Inc., Facebook Inc. and Tesla Inc., warns that today’s startups will suffer from the investment industry’s desire for quick success.

Baillie Gifford partner Stuart Dunbar said investors and public companies are stuck in a “terrible vicious circle of nobody thinking long-term because they are anticipating how everybody else is going to react”.

“In the investment industry, we have created this apparatus where we have a quarterly reporting cycle,” Dunbar said in a Bloomberg TV interview. “We report index relative performance. We don’t really talk about operational progress of the companies we are investing in. It takes five years plus to know if companies are making great operational progress.”

Dunbar added that short-term pressures on fund managers are causing the market to punish companies for making good investments.

Dunbar, whose Edinburgh-based Baillie Gifford managed $254 billion of assets as of Sept. 30, also said investment firms’ obsession with their own expansion was impairing the quality of decision making.

“A fundamental challenge in the industry is if firms want to get bigger, if growth is your goal, you are going to take on assets, arguably, beyond the point at which you can invest successfully, which likely is what led you to gain assets in the first place.”

‘Being Excellent’

“There is an imbalance between the distributing and marketing in our industry and the job of, can we just try and be really good at investing,” he said. “If you lose focus on the fundamental investing job, you hire more and more marketers to go and sell stuff. There is a much easier way to go about this: just try to focus on being excellent.”

One bright spot for the industry is the ongoing emphasis investors are placing on environmental, social and governance issues. Dunbar said that’s having the unintended effect of compelling fund managers and companies to think longer term.

He cautioned, however, that the deterioration of fees suffered by asset managers over the past few years is making it harder for investors to keep atop the growing number of decisions.

“If you try to push fees down to the point where we can’t reasonably put in place the substantial resources needed for effective implementation of the responsible ownership thing,” he said, “it just doesn’t work very well.”

To contact the reporters on this story: Luke McGrath in New York at lmcgrath18@bloomberg.net;Ed Hammond in New York at ehammond12@bloomberg.net

To contact the editors responsible for this story: Liana Baker at lbaker75@bloomberg.net, Michael Hytha

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