Short Briefings on Long Term Thinking - Baillie Gifford

Tokenisation represents an “operating system upgrade” for the investment industry, says Theo Golden, Baillie Gifford’s new head of digital assets. In this episode, they explain what it involves and how it should deliver a better experience, both by reducing the number of middlemen between you and your investments and making your holdings more “useful”. Background:In this conversation, Theo Golden tells Short Briefings… host Leo Kelion about how tokenisation can reduce costs and complexity – and pave the way for providing clients with new services that better fit their needs. Tokenisation means taking an asset – such as a fund – and turning it into a line of code. This lives on a blockchain: a shared digital record that no single party owns or controls. The investment itself doesn't change, but what does are the ways that ownership is recorded and transferred. Instead of a chain of intermediaries, each keeping their own set of books, everyone can work from one shared record. As Golden puts it, it's “the same but better” – the same investments, on faster, lower-cost, more flexible rails built for the internet age. It also paves the way to new capabilities. Among those Golden discusses are making it much easier for clients to use the funds they invest in as collateral for loans, and the development of “agentic wealth management” – AI bots that autonomously plan and, potentially, update an individual client’s portfolio based on their risk appetite and changing circumstances. Baillie Gifford’s first steps with tokenisation involve fixed income, but in time the ambition is to “build across our investment universe,” Golden says. “So be ready for Baillie Gifford on chain.” ResourcesBaillie Gifford digital assets hubDr Ian Hunt: Replicating Legacy is Squandering the Promise of Tokenisation: We Are Building a Faster HorseShort Briefings on Long Term Thinking podcast archive Timecodes:00:00 Introduction01:40 “A world with less friction”02:15 The lesson from losing it all04:50 From Bloomberg to bonds06:35 Defining tokenisation and the blockchain08:20 Same assets, better system09:35 One golden source of truth12:35 Making assets more useful16:10 Turning assets into “Lego bricks”19:20 Stablecoins, regulation and new decision-makers24:00 Managing crypto risks26:25 The ‘same but better’ rule28:00 Starting with fixed income29:20 Meeting clients where they are30:27 Book pick Glossary of terms (in order of mention): Trading volumes: The amount of buying and selling taking place in a market over a period of time. Blockchain-based tokenisation: The use of blockchain technology to create digital tokens that represent ownership of assets. Self-sovereign: Controlled directly by the owner, rather than depending entirely on a bank, platform or intermediary. Custody: The safekeeping of assets. Self-custody means holding and controlling the asset directly yourself. Counterparties: The other parties involved in a financial transaction or agreement. Multi Asset: An investment approach that can invest across several asset classes, such as shares, bonds, currencies and infrastructure. Catastrophe bonds: Bonds that transfer insurance-related risks, such as natural-disaster losses, from insurers to investors. FX rates: Foreign exchange rates. Smart contract: Computer code that automatically carries out agreed rules when certain conditions are met. Token: A digital representation of an asset or ownership right on a blockchain. Walled garden: A closed system where users can only operate within the rules and limits of one provider or platform. Fixed income fund: A fund that invests mainly in bonds or other debt instruments that typically pay interest. Growth equity fund: A fund that invests in companies expected to grow faster than the wider market. Vehicle for transfer: The system or method used to move ownership or value from one party to another. Rails: The underlying infrastructure that allows transactions or transfers to take place. Reconciliation: The process of checking that different records match each other. Shareholder registry: The official list of people or organisations that own shares or fund units. Transfer agency register: A fund-administration record that tracks investor ownership and transactions. Wallet: A digital tool used to hold and manage blockchain-based assets. Finality: The point at which a transaction is considered complete and cannot easily be reversed. Unitisation: The process of dividing a fund into units so investors can buy and sell a share of the fund. Inert: Hard to move, transfer or use in other financial activities. UK gilt: A UK government bond. Margin call: A demand for more cash or collateral when the value of an investment or position has fallen. Interoperability: The ability of different systems, assets or pieces of software to work together. Composability: The ability to combine digital assets or software components, like building blocks, to create new services. COBOL: Common Business-Oriented Language – an older computer programming language still used in some legacy financial systems. AI agents: Software that can act semi-independently to carry out tasks on behalf of a user. On-chain books and records: Official ownership and transaction records kept on a blockchain. Stablecoin: A digital asset designed to track the value of a traditional currency, such as the US dollar or pound. Fiat currency: Government-issued money, such as pounds, dollars or yen, that is not backed by a physical commodity such as gold. USDC: A stablecoin issued by Circle that is designed to track the value of the US dollar. FCA: The Financial Conduct Authority, the UK regulator for financial services firms and markets. Burn a token: Permanently cancel or destroy a digital token so it can no longer be used. Remit a token: Re-issue a token to a new wallet. Neobank: A digital-first bank, usually operating mainly through apps or online services.

Emerging markets are reshaping the global economy, and a convergence of powerful, long-term trends is accelerating this shift. These include surging demand for commodities, exploding middle-class spending power and booming inter-regional trade. Investment specialist Andrew Keiller reveals some of the standout growth companies positioned to capitalise on this transformation and why now might be the perfect time to take advantage. Background:Andrew Keiller is a partner in Baillie Gifford and an investment specialist in our Emerging Markets Clients Team.In this episode, he discusses how some of the fastest-growing developing economies are driving change in the world and the forces that could further hasten that trend. The discussion builds on his recent paper, Emerging markets in 2050: growth in a changing world, which identifies long-term structural shifts tilting the odds in favour of standout companies in Asia, Latin America and eastern Europe. In the podcast, he expands on this by identifying some of the companies that could be big winners, including:the lithium miner SQM (Sociedad Química y Minera de Chile), which is set to benefit from a mismatch in supply and demand for the critical ingredient to electric car batteries and other energy storage systems the South Korean high bandwidth memory chipmaker, SK Hynix, whose products are critical to training artificial intelligence systems at speedthe ‘super-app’ operator Kaspi.kz, which provides everything from bill payments, banking and travel bookings to shopping, maps and messaging the Singaporean ecommerce, fintech and gaming conglomerate Sea, whose chief executive has ambitions to extend into further sectorsChina’s biggest coffee chain, Luckin Coffee, which is giving the country’s 1.4 billion citizens a passion for the beverage with its ever-changing menu of inventive recipes In addition, Keiller discusses the implications of President Trump’s tariffs and why many Chinese companies still offer an exciting investment opportunity. Resources: Emerging markets in 2050: growth in a changing worldEmerging markets: our philosophyEmerging markets: rethinking the opportunityFinding high-calibre growth companies in emerging markets (podcast)Luckin Coffee: looking forwardKaspi's super-appSouth-east Asia’s rising export stars (podcast)SQM: powering the futureThe Time-Travelling Economist by Charlie Robertson Companies mentioned include:Kaspi.kzLuckin CoffeeSeaSK HynixSQMTimecodes:00:00 Introduction01:35 Baillie Gifford beginnings and a trip to Hong Kong03:15 Transformational trends playing out to 2050 and beyond05:05 US exceptionalism and multiple spheres of influence07:25 Rising trade between emerging market nations08:35 Redesigning Chinese e-scooters for Vietnam and the Philippines10:15 The possibility of reduced reliance on the US dollar11:40 Increasing demand for raw materials and semiconductors12:35 Digital-first companies and underserved communities 14:45 Four types of firms capitalising on long-term growth factors16:25 SQM’s lithium mines in Chile’s Atacama Desert17:55 Lithium’s long-term commodity cycle opportunity18:45 SK Hynix’s high bandwith memory and its role in AI20:40 Kaspi.kz’s Kazakh super-app21:40 Kaspi’s expansion plans in Uzbekistan and beyond23:00 Sea’s founder Forrest Li and importance of culture24:30 Luckin Coffee’s huge domestic opportunity25:25 Luckin’s taste for invention26:40 Investing in China amid a trade clash28:50 The risk of underexposure29:40 Book choice30:55 Investing in Africa

Are European stocks coming back into favour? After years of underperformance, many of the continent’s companies appear undervalued when compared to their historical prices and US counterparts. Investment manager Stephen Paice suggests that a group of growth-focused stocks could be among the biggest winners if sentiment shifts, and he identifies a handful of places they are thriving.

From smarter robots to intelligently designed drugs, Baillie Gifford partner Stuart Dunbar discusses some of the transformations that will define the years ahead.

Many of the world’s most exciting, high-growth and disruptive companies are private. Moreover, the entrepreneurs running them are typically keeping them private for longer before trading their shares on public stock exchanges – and in some cases have no plans to do so. Baillie Gifford’s Private Companies Team seeks out exciting businesses and founders in this space to give our clients access to an increasingly important source of long-term growth. Taking a highly selective approach, it has invested more than $9bn across over 140 firms over the past 12 years. In this podcast, Alexander Nicolier explains how it does so and discusses some of our notable holdings. Background: Alexander Nicolier is an investment manager in our Private Companies Team. In this Disruption Week briefing, he reveals the scale of the opportunity and the increasing impact that the sector’s restless founders and their exceptional companies are delivering.From SpaceX to Bending Spoons, Epic Games to ByteDance, one of the distinguishing features of these pioneering firms is that they’ve been able to choose their shareholders. Nicolier reveals why Baillie Gifford’s patient approach and reputation have helped make us a favoured partner.He also reveals how deep research helps him and his colleagues embrace the uncertainty that can be involved with backing companies at an earlier stage of growth than many public market stocks. And he introduces some of his team’s most recent investments, including the immersive experience specialist Cosm and the next-generation computing company Tenstorrent. Resources: Alexander Nicolier profileArmand Spitz: seller of starsBaillie Gifford Private Companies hubDisruption WeekPrivate companies: investing in trailblazers The hidden cost of software Companies mentioned include: Bending SpoonsByteDanceCosmDisneyEpic GamesLoftMercadoLibreMetaNuBankOdditySpaceXStarlinkTempusTencentTenstorrentTesla Timecodes: 0:00 Introduction1:30 What’s often misunderstood about private companies2:40 Relationship building in Brazil and Colombia3:40 Why reputation matters5:35 “Look out for a gringo”6:30 Private markets’ scale7:00 Our clients’ advantage9:25 SpaceX and uncertainty12:40 Dealing with setbacks13:45 Bending Spoons’ business model16:50 Cosm’s ‘shared reality’ experience18:50 Tenstorrent and Jim Keller’s talent magnetism20:20 The state of the IPO market21:55 Why Epic Games has stayed private25:00 Disney’s $1.5bn stake in Epic Games26:40 “Too big to ignore”

Upheaval can create opportunity. Baillie Gifford’s Japan Team seeks out companies that will derive the greatest long-term benefit from transformational forces impacting business and broader society. In this podcast, investment manager Matthew Brett identifies four ‘structural growth’ drivers and the portfolio companies taking advantage of them. Background:Matthew Brett is the investment manager of The Baillie Gifford Japan Trust and our Japanese Fund, as well as co-manager of the Japanese Income Growth Fund. In this episode of Short Briefings on Long Term Thinking he discusses four forces creating long-term growth opportunities: - Japan’s late embrace of digitalisation- the rising spending power of its Asian neighbours- the accelerated adoption of industrial automation- the unmet health needs of an ageing populationBrett also names some of the Japanese companies driving these changes or otherwise gaining advantage, including ecommerce conglomerate Rakuten, skincare beauty firm Shiseido, machine vision specialist Keyence and Alzheimer’s drug developer Eisai. Resources:Japan: the n ext opportunityKohei Saito: Slow Down – How Degrowth Communism Can Save The Earth Companies mentioned include:CalbeeDMG MoriEisaiKeyenceKOSÉPeptiDreamRakutenShiseidoSoftBank Timecodes:00:00 Introduction1:45 From psychology to investment2:25 Changing Japan3:15 Japan’s distinguishing market characteristics4:15 Visiting companies and other equities research6:00 Performance versus the TOPIX8:00 Defining digitalisation8:30 Leaving paper behind10:15 Rakuten’s online enterprise10:50 The advantage of QR barcode payments11:30 Rakuten’s loyalty points scheme12:25 Accelerating automation and industrial robots13:30 DMG Mori’s precision machines14:40 Keyence and robotic vision16:40 China’s chance of catch-up17:40 Rising wealth of Japan’s Asian neighbours19:00 Shiseido’s skincare advantage20:10 Unmet healthcare needs of an ageing population21:30 Testing further uses for Eisai’s Alzheimer’s drug 23:30 PeptiDream’s synthetic peptides24:00 Using AI to put peptides to use25:10 Calbee’s continued innovation26:00 Book choice28:50 Conclusion

Emerging markets have sometimes promised more than they have delivered, but circumstances may be tipping in growth investors’ favour. Will Sutcliffe, head of our Emerging Markets Team, explains why it’s an opportune time to invest in the asset class. Background: Will Sutcliffe is the head of Baillie Gifford’s Emerging Markets Team and co-manager of our Emerging Markets Leading Companies Fund. In this episode of Short Briefings on Long Term Thinking, he brings his 23 years of experience in the field to explain what makes the specialism different from other types of growth investing. He makes the case that finding exceptional growth companies at attractive valuations is only part of the equation. Investors must be mindful of the broader macroeconomic environment, he explains, to avoid getting caught out by currency swings or spiralling debt costs. This leads him to conclude that recent resilience in emerging market economies could point to a favourable outlook for the asset class’s growth stocks. All this only matters to our portfolios if there are exceptional businesses to invest in, and Sutcliffe argues that the emerging markets are home to an increasing number of world-class companies. They range from the Taiwanese chip maker TSMC to the energy, retail and telecoms conglomerate Reliance Industries. Resources: Emerging markets: why bother?Stock story: PinduoduoSouth-east Asia’s rising export starsJio Financial ServicesNaturaPDD HoldingsPinduoduoReliance IndustriesTemuTSMCGabriel Garcia Marquez: Until August Timecodes:00:00 Introduction01:45 Joining the Emerging Markets Team03:15 A ‘terrifying’ baptism of fire05:00 Emerging markets’ ‘dirty little secret’05:45 Qualifying for emerging markets status06:45 Higher-calibre companies08:00 Macroeconomic resilience09:30 US-China tensions and Russia’s invasion of Ukraine12:00 Investing in China13:45 PDD Holding’s Pinduoduo and Temu

What distinguishes companies that will thrive from those that will perish? In this episode, we explore three traits that mark out the companies set to surge ahead from those more likely to struggle: 1. They solve real-world problems2. They are financially strong and disciplined3. They are highly adaptable Baillie Gifford partner Tim Garratt discusses these characteristics, gives examples of companies that exhibit them and explains why this feels like a once-in-a-generation opportunity to be a long-term growth investor. BackgroundTim Garratt is an investment specialist, overseeing the institutional clients who invest in our Long Term Global Growth strategy and leading our broader client specialist network. He recently co-authored the paper Why growth, why now?, which reaffirms our beliefs about how growth investing can generate attractive returns.In this episode of Short Briefings on Long Term Thinking, he discusses how interest rate rises, restricted amounts of capital and geopolitical tensions are causing a stock market shake-out. And he explains why this plays to the advantage of patient investors who focus on the fundamentals when picking growth stocks. Garratt gives examples of how companies, including Netflix, Roblox, Shopify and Amazon, fulfil the criteria we seek. And he explains how Baillie Gifford itself is adapting to the times, exploring the use of machine learning and other tools to hone our investment process.Resources:Why growth, why now?We’re all climate hypocrites nowSee & SprayNetflix engagement report Timecodes:00:00 Introduction1:30 From abundance to limitation03:45 Implications for investors05:20 Real world problems: supply chains07:30 Deere and hi-tech farming09:00 Financial strength and discipline09:50 Netflix and pricing power12:00 Keeping watch on margins14:15 China’s electric vehicle makers16:15 Adaptability and new business models16:50 Roblox adds AI19:30 Microsoft, Amazon and environmental costs21:45 Sea and the importance of culture23:00 How Baillie Gifford is adapting25:05 ‘Why now?’ for growth investing26:55 Book choice