Tesla investor warns of ‘deep sickness’ in UK capital markets

A “deep sickness” in UK capital markets has stifled the growth of homegrown tech entrepreneurs and left London’s blue-chip FTSE 100 looking like an index from the 19th century, according to one of Britain’s top fund managers.

In a scathing critique, James Anderson, whose early bets on Facebook, Amazon and Tesla have made him one of the world’s most successful investors, said that too many UK asset managers are obsessed with short-term performance rankings and fearful of taking risks.

“Why have we not grown any giant companies? Of course I’m not expecting everybody to be like [Amazon founder] Jeff Bezos. But it seems to me there is a real problem here,” Anderson, joint manager of Baillie Gifford’s Scottish Mortgage Investment Trust, told the Financial Times.

“The FTSE 100 is really a 19th century and not even a 20th century index,” he added, pointing to a scarcity of innovative and fast-growing companies in Britain. 

Through bold bets on US and Chinese entrepreneurs, including Amazon’s Bezos, Tesla’s Elon Musk and Tencent’s Pony Ma, Anderson has turned the Scottish Mortgage into an unlikely star of tech investing over the past two decades.

The roughly £18bn trust has delivered 1,500 per cent returns for shareholders since Anderson began running it in 2000, compared with 277 per cent for the FTSE All World benchmark. Anderson will retire from Edinburgh-based Baillie Gifford in April, when he will hand over Scottish Mortgage to Tom Slater, who has been its joint manager since 2015.

Anderson’s criticism comes after a government-backed review of the City in March called for an overhaul of listing rules, including the introduction of dual-class shares favoured by entrepreneurs, so that London could wrestle more tech companies away from Wall Street.

“Why is it that people are happy to take high pay for relatively undemanding things, but they don’t dream of creating these truly great companies?,” said Anderson, pointing to the lack of an entrepreneurial culture in the UK.

“I find that sort of depressing, and there must be so many different causes of it. Plenty of them are on my side of the fence. But something’s quite wrong, it seems to me.”

Britain needs “one or two individuals” who can blaze an entrepreneurial trail, added Anderson. “When will some of these people suddenly occur?”

He pointed to different entrepreneurial cultures in other European countries — “[Dutch chipmaker] ASML is not the same as [Swedish streaming company] Spotify” — “but neither exists in the UK. I do think there are not enough people who are supportive.”

In a wide-ranging interview, Anderson also said that domestic UK shareholders have failed to stand up for homegrown companies during takeover approaches, citing the £23.4bn takeover of smartphone chip designer Arm Holdings by Japan’s SoftBank in 2016.

Despite opposition to the deal by some shareholders, including Baillie Gifford, “we couldn’t find enough shareholders to back a serious effort to make Arm remain independent,” he said. 

Anderson contrasted Arm’s fate with that of US biotech company Illumina, currently Scottish Mortgage’s second-largest holding. Baillie Gifford and other shareholders helped Illumina fend off a $6.8bn hostile takeover attempt by Roche Holdings in 2012. 

He also warned that too many investment firms “are run as businesses and for businesses and themselves rather than being investment organisations. Such are the sums of money involved, that may be a huge temptation.” 

Anderson is retiring from Baillie Gifford as environmental, social and governance issues race up the corporate and fund management industry’s agenda, and he cautioned against the dangers of a box-ticking approach to ESG.

“Bad managers have a much easier time, because if they just obey what the combination of their bonus system and ESG tells them, they can survive . . . and get paid extremely well. It’s become more difficult for companies to really think about the task of building their competitive moats.”