St Andrew Square was once the beating heart of Edinburgh’s thriving financial services industry. Walk around today and you can still see the evidence. Wedged between Wagamama and TK Maxx stands the former headquarters of some of Scotland’s most prestigious financial institutions, such as Bank of Scotland and British Linen Bank (absorbed into Bank of Scotland in 1969). Resplendent buildings with columns and grand facades designed to impress customers and inspire confidence.
One by one most of these occupants have moved to more modern sites on the outskirts of the city, but in recent years St Andrew Square has been revived by a new set: Scotland’s thriving money management industry .
Now occupying the spot are investment giant Abrdn, along with Rathbone Investment Management and Stewart Investors. Minutes away is Edinburgh’s biggest investment success story, Baillie Gifford – founded in 1908 and now managing £362bn of investor cash.
Rising star: As well as being a popular tourist destination, Edinburgh has become a key financial center
On the road are Artemis, Aubrey Capital, Saracen Fund Managers and Aberforth – all successful Scottish investment houses. The Scottish capital is also home to a number of long-standing investment funds that date back over 100 years. Today, Edinburgh’s investment industry is booming.
The city was recently ranked fourth in Europe for the competitiveness of its financial community. Total assets under management in Scotland – mainly in Edinburgh – rose by £100bn last year to £690bn.
If you have money in a pension, an individual savings account or other investments, some will almost certainly be managed within a few minutes walk of St Andrew Square.
A few days ago, Wealth took to the thriving streets of Edinburgh to find out why the city is such a thriving center for investment and to find out what motivates some of the city’s top fund managers to deliver exceptional returns for investors. .
St. Andrew’s Square
I meet Bruce Stout, director of the Murray International investment fund, at 6 St Andrew Square. The address once housed the insurer Scottish Provident, founded in 1837. But no more. Scottish Provident was long taken over by mutual insurer Royal London and the building is now the sleek, glass-encased home of investment house Abrdn, the company that employs Stout.
We leave for coffee and Stout leads me past the swanky Ivy Brasserie to a ramshackle cafe where opportunistic pigeons peck at discarded sandwiches. Of course, there’s no proven link between a fund manager’s success and where they hold their meetings, but I always have a soft spot for those who handle the pennies.
Stout tells me he fears inflation is here to stay. As a result, he purchased real assets for the trust – tangible assets that can produce reliable income.
The trust’s largest holding is Mexican airport operator Grupo Aeroportuario. Not far behind is electronics giant Taiwan Semiconductor. Stout says, “When I first worked in the mid-1970s, inflation was 27%.
“Inflation is back, not at this level, but if central bankers think it will be temporary or transitory, they are dreaming.”
But it’s not just Stout’s experiences in investing that he can draw on to help lead Murray International through choppy waters. He also learns from the trust’s long 115-year history. As the markets harden, he turns to investment approaches similar to those of his predecessors.
He says, “At the turn of the 20th century, you could only get 2% annual interest on a bond. So the trust invested in infrastructure such as Mexico’s railways and Rio de Janeiro’s light rail system, where they could earn higher returns.
Murray International has turned £1,000 into £1,234 over the past three years.
Carlton Hill Steps
I head to the head office of Baillie Gifford, home to the FTSE100-listed Scottish Mortgage Trust, along with 11 other investment trusts and 33 funds.
Baillie Gifford was founded two years after Murray International – 1909 – and has also grown by investing in infrastructure around the world. Scottish Mortgage began investing in rubber plantations in what was called Malaysia, to benefit from a boom in tire demand. Today, Baillie Gifford’s investment managers gaze out from their gleaming offices towards magnificent views of historic Edinburgh – Carlton Hill and the Palace of Holyrood-house. But while their gaze is a reminder of the past, they look firmly to the future.
Kirsty Gibson is a director of Baillie Gifford US Growth Trust and spends her time imagining different futures, transformed by developments such as cryptocurrency, space exploration and driverless cars.
She says, “Our past experiences leave scar tissue in our minds that causes us to be biased or overly influenced by the past.
“But we have to stay open-minded, because otherwise the openness of things we’re willing to consider from an investment perspective will narrow over time.”
The trust’s portfolio has electric car maker Tesla and Space Exploration Technologies among its top five holdings – companies owned by Elon Musk who just bought social media company Twitter. The trust has turned £1,000 into £1,538 over three years, although it’s down 21% so far this year.
Even Baillie Gifford’s income fund managers are looking to the future. Income funds aren’t known for being the most forward looking. They often fail to invest in old, well-established companies that pay a reliable dividend year after year, such as oil companies, utilities and telecommunications.
Steven Hay, Director of Baillie Gifford Multi Asset Income, said: “We believe that the best companies generating income today will not necessarily be the best tomorrow.
“That means you’re more likely to see higher-growth tech stocks like Microsoft in our portfolio than stocks like Shell or BP.”
The fund has turned £1,000 into £1,200 over the past three years.
A few minutes walk away are the offices of Artemis Fund Managers, where Ed Legget manages his UK Select fund.
From his desk, Legget can see the hills where he enjoys cycling and catching his breath.
His experience suggests there is something about the city’s landscape and geography that has contributed to the success of its money management industry. Legget says: “I’ve spent a small part of my working life in London, but I understand when my colleagues say there’s an advantage to working here – it’s easier to get away from the noise and have perspective.”
He adds: “I can be in the surrounding hills on my bike within 20 minutes of leaving the city center. I think this gives me the space to focus on longer term trends.
Artemis UK Select invests in a concentrated portfolio of UK companies such as Shell, Barclays and Tesco. He turned £1,000 into £1,306 over the past three years.
Aubrey Capital Management
A stone’s throw away is Coates Crescent, an elegant row of townhouses that is home to Aubrey Capital Management. It is one of Edinburgh’s many successful boutique fund managers – others include Aberforth, Saracen and Revera.
Aubrey is a world away from the shrewd corporate operations of Abrdn and Baillie Gifford. Although newer than the two, it has more of an older feel to it. When I arrive, I’m led into a meeting room that looks more like a living room from the TV series Downton Abbey, furnished with elegantly upholstered chairs, beautiful rugs and a heavy wooden dining table.
Aubrey’s global and European funds have earned a reputation for delivering excellent returns. Sharon Bentley-Hamlyn, director of Aubrey European Conviction, tells me the company uses its small size to its advantage.
She says, “I think one of the reasons our investment performance has outpaced so many of our competitors is that we can make timely decisions. We don’t have to produce a ten-page report, submit it to an investment committee and wait another two weeks for a decision. We simply act.
I can imagine Edinburgh’s pioneering fund managers at the turn of the 20th century saying exactly the same thing – spying on an opportunity in American railways or an Australian bank – and then pounced.
Aubrey European Conviction has turned £1,000 into £1,269 over the past three years. It invests in companies listed on European stock markets with strong earnings growth potential, such as Swiss gas compressor maker Burckhardt Compression and Dutch semiconductor equipment maker ASML.
St. Andrew’s Square
Before returning to London by train, I return to Abdrn’s offices in St Andrew Square to meet Kirsty Desson, fund manager of ASI Global Smaller Companies.
No coffee this time. She takes me to a nearby fifth-floor cafe where we have one of the best views in the square. Desson, like the many managers before her who have worked in St Andrew Square, soaks up the bustle of the city while constantly scanning the world for investment opportunities. His investment team, however, uses a sophisticated analytical tool that his predecessors could only have dreamed of – what they call the “matrix”.
She explains, “It takes the universe of 6,000 small global companies that we could potentially invest in and filters it down to the best ideas. We then get to work analyzing the rest, talking to the management teams behind the companies and evaluating the case for an investment.
But Desson says not all investment decisions are determined by the matrix. She says, “We bought shares of Fevertree early in the company’s journey. You could see in the many bars around Edinburgh that there was a growing trend for premium gins. It makes perfect sense to buy stock in a company whose products you use yourself and believe in. If you like something or find it interesting, chances are other people will too.
ASI Global Smaller Companies has turned £1,000 into £1,141 over the past three years.
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