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James Anderson on Bezos, Musk and Zola

James Anderson first came to Bologna as a postgraduate student at the European campus of Johns Hopkins University. Back then he was fresh out of Oxford university with a history degree and little idea of what he wanted to do.

Fast forward more than 40 years and Anderson has carved out a reputation as one of the world’s top fund managers. Through his big early bets on the likes of Amazon and Tesla, he has helped turn Edinburgh-based Baillie Gifford into an unlikely star of tech investing.

Bologna holds a special place in Anderson’s heart and he is now a trustee of the Johns Hopkins University. This is why he chose Ristorante Cesarina in the Italian city as the venue for our Lunch with the FT together last month. (That was fine by me — a whirlwind gastronomic pilgrimage to Italy sure beats early mornings covering company earnings.)

Anderson’s manner resembles that of a maverick professor rather than a swashbuckling fund manager. He will retire later this month as co-manager of the £16.7bn Scottish Mortgage Investment Trust, whose stellar long-term record has made him a cult figure among retail investors.

Over fritto misto and tagliatelle alla bolognese (when in Rome, after all) we talked about the search for “outliers”, the future for China’s entrepreneurs — and the comfort of 19th-century literature. (After the pandemic derailed his plan to live in Paris for a year, Anderson consoled himself by reading the novels of Émile Zola.)

As you all well know, timing is everything in fund management. If Anderson had retired last year, he would have stepped back just before the top of the tech market. Now the timing of his departure looks more equivocal. Scottish Mortgage is down around a fifth over the past 12 months, as expectations of rising interest rates have prompted a fall in technology stocks. Sceptics are wondering whether some of the themes that have made it so successful have run out of steam — and whether Anderson might have underestimated the political risk of investing in China.

A year ago, when Scottish Mortgage’s performance was flying high, Anderson was asked how he didn’t become complacent. He recalls his response:

“We don’t really think of it in terms of that, it’s on to deciding about the next investment. With hindsight, I should have added, there will always be the Ides of March out there . . . but I think that if you can bear it, and if you have clients and savers who can bear it, trying to find the extreme winners is the best way to invest.”

Read the full interview here.

Defence stocks and ‘irrational exuberance’

In the days after Russia invaded Ukraine and investors weighed up the repercussions for their portfolios, one sector charged ahead. Defence shares have outpaced the global market this year by the most in almost a decade. They’re roaring ahead on expectations of higher military spending by western governments and as ethically minded investors re-evaluate a once taboo sector.

The war has changed investors’ view of the defence industry, underscoring its role in facilitating international security, as my colleagues Sylvia Pfeifer and Adrienne Klasa explore in this analysis. In turn, shares of companies like Lockheed Martin and the UK’s BAE Systems have rallied, with the FTSE 100-listed contractor up more than a third so far this year.

Some think the bullishness is premature. While western allies have pledged military aid to Ukraine, most of the weapons so far have come from existing government stockpiles. “There seems to be the beginning of some irrational exuberance about the industry” said Bill Greenwalt, who served as deputy under-secretary of defence for industrial policy during the George W Bush administration and is now with the American Enterprise Institute.

“We have not yet seen an increase in orders and contracts or a recognition of the need to act quickly,” he added.

For long-term investors, the biggest question is whether western governments’ promises to spend more on defence will result in a permanent shift.

Before war broke out, some major investors including BlackRock, Citadel and Egerton Capital had built up short positions in major defence contractors — betting that their share prices would fall — before rapidly cutting those positions in the second half of February. Now, the mood among investors appears to be shifting.

“The big dilemma is that a lot of sustainable funds would have completely had exclusions on defence spending [including] government contracts,” said Gavin Rochussen, chief executive of Polar Capital.

Russia’s invasion of its neighbour has since muddied the waters, he added. “How do you treat protecting a country from a foreign invader? Is it right that you don’t actually support countries spending on defending themselves?”

Philip Saunders, fund manager at Ninety One, thinks all of this will herald change and investors will rethink excluding defence stocks from their portfolios.

“The pendulum is swinging. This is a moment where it looked like momentum was in one direction, and now we need to step back collectively, because the reality is the real world is a lot nastier than we thought before 24 February.”

How do you think the war in Ukraine muddied the water for ESG investing? Email me:

Chart of the week

Bad news for the big private investment wave over the past few years embodied by the likes of Chase Coleman’s Tiger Global. The first three months of the year was the worst quarter since at least 2002 for venture capital funds, according to this report by our friends over at FT Alphaville. This is not just a Tiger issue: pretty much every self-respecting hedge fund manager was struck with a severe case of VC-envy over the past couple of years and started dabbling with private markets. Meanwhile shares in start-ups are sinking in private trading as a sell-off in public technology companies and a pause in new listings send shockwaves through Silicon Valley. Watch this space.

10 unmissable stories this week

In the global war for talent across investment management, competition for those managing private assets is one of the fiercest fronts.

A large portion of private wealth is set to shift in the coming decade from the joint control of baby boomer couples into the sole charge of women, setting up a challenge for the historically male-oriented wealth management industry.

Robinhood has inked a deal to buy UK crypto company Ziglu, as the US meme stock broker steps up its expansion beyond share trading and makes a second attempt to push into Britain.

Senvest Management, which won big betting on meme stock GameStop, has turned its gaze to oil and gas stocks, as a sector shunned by ethically minded investors regains favour.

Meanwhile, Melvin Capital, the hedge fund that took big losses from being on the opposite side of the memestock phenomenon, is planning to return some capital to investors as it looks to kick-start lacklustre performance.

China has said it will launch an official private pension scheme that aims to push more of the country’s vast household savings into the market — part of a wider opening up that has attracted some of the world’s biggest investors to expand their presence in the country.

The popularity of Chinese government debt has slumped as rising US Treasury yields reduce the appeal of holding China’s bonds, prompting foreign investors to ditch a record $18bn worth of renminbi-denominated debt last month.

Hong Kong-based asset manager Anatole, which has focused on Chinese companies since 2016, has said it will “dramatically” reduce its exposure and reallocate funds to US businesses as it warned that the world’s second-largest economy had become a “deserted dry land” for investors.

BlackRock’s chief executive Larry Fink says an “investment boom” in sustainable infrastructure is under way as the war in Ukraine forces countries to re-evaluate their energy dependencies and accelerates the shift to greener sources of energy.

Red hot private markets have raised a lot of burning questions, FT Alphaville editor Robin Wigglesworth writes in two posts. The first on whether the “supercycle” has further to run; the second on how the US Securities and Exchange Commission can make sure the boom helps companies and doesn’t hurt investors.

And finally

Embrace spring with this glorious exhibition of works by British painter and printmaker Tom Hammick at Lyndsey Ingram’s gallery just off Berkeley Square. The exhibition, entitled My Sister’s Garden, was inspired by an extended period staying with his sister Koodge that saw the artist in the garden drawing daily.

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