Fund manager Baillie Gifford has hit out at the active fund management industry for failing to put capital into the hands of the companies that deserve it.
Baillie has launched a campaign for “actual” investing, where managers target tangible, sustainable activities to generate long term growth as well as positive shareholder returns.
The firm says that instead of this purpose, active management “has been hijacked by many fund managers who think active means ‘activity’ and simply being different from an index” and that “activity has more to do with trying to outsmart other fund managers, rather than with the creative deployment of capital.”
Baillie acknowledges that while passive delivers better post-fee performance than active managers on average, it fails to allocate capital to innovative companies.
Baillie Gifford partner Stuart Dunbar says: “Passive investing has its benefits. Allocating capital with no reference to the underlying uses of that capital is certainly a low-cost way to gain market exposure, but it is not investing, in the purest sense. Similarly, defining active management as being different from an index is to start in the wrong place. This is why most active investors fail to deliver returns that outperform passive investment strategies over the long term.”