New buy, Horizon Robotics, informed by insights from private markets.
As with any investment your capital is at risk
As bottom-up stock pickers, we target outsized returns for our clients by identifying a dislocation between a company's long-term value and its price. For this reason, all of our investment research reports culminate with Question 10 of our framework: “Why doesn’t the market realise this?”
The world of investment has never been better connected, and the flow of information has never been faster. So much so, that a common refrain about stock markets is the idea that there is no such thing as an informational advantage, and according to the Efficient Market Hypothesis, all is priced in. We aren’t entirely convinced.
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Answering Question 10 requires understanding how much weight is being ascribed to a particular piece of information and establishing which scenarios consensus is anchoring off. Where appropriate, we try to counter this by pushing ourselves to think imaginatively on the upside, which often demands drawing on differentiated inputs and looking where others have not looked.
We have long appreciated the merits of building strong relationships with the management teams in our investment universe. It has become increasingly valuable to start doing so while companies are still private. Baillie Gifford made its first investment in an unlisted business in 2012—former Long Term Global Growth holding Alibaba. As of today, the firm has invested approximately $9bn in nearly 150 companies.
We believe this has made us better public market investors. On the one hand, we learn of emerging technologies sooner and can assess how they might impact the investment theses of existing holdings. For example, by holding Roblox and Epic Games, Adyen and Stripe, or CATL and Redwood Materials. On the other, we have the opportunity and time to closely review the business models, financials, and corporate culture of future outliers. Come the IPO, the LTGG team is in a better position to make a decision on whether to invest on behalf of our clients, one that is informed by years of analysis and not simply a roadshow and prospectus.
The portfolio’s newest holding, Horizon Robotics, is a recent example of this network in action. Horizon specialises in developing artificial intelligence solutions for the automotive industry, particularly in advanced driver assistance (ADAS) and autonomous driving (AD).
We have been following the company with interest since 2016, when its founder, Dr Kai Yu, left Baidu (another former LTGG holding), where he was leading their R&D team and initiated the company’s own autonomous driving project. Dr Yu’s résumé is packed full of impressive accolades, from a Ph.D. in Computer Science and founding China’s first artificial intelligence lab, to now serving on the National Council of Next-Generation AI Strategy in China, a leading figure in the industry.
By 2020, Baillie Gifford had gained sufficient conviction in the opportunity set and technology to participate in a private funding round. Our investment thesis was enhanced by insights that we garnered from LTGG’s experience investing in Tesla, NVIDIA, and former holding NIO, as well as private investments in Nuro, a US-based robotics company that also develops technology for autonomous vehicles.
Our conversations with Nuro validated Horizons' reputation for excellent engineering support and responsiveness to its customers. This includes providing ample training and close collaboration with local OEMs when developing their software capabilities. Attention to customer service is particularly important when wanting to grow in China. We were somewhat surprised that a US company would provide such positive feedback, seeing as NVIDIA and Mobileye dominate on their side of the Pacific.
Equally, at the time of writing our first research report, William Li, the founder of EV manufacturer NIO, provided his view on the competitive dynamics in the Chinese ADAS market. We agreed with his assessment that Horizon would likely become the most cost-effective provider for price-sensitive OEMs that are unable to pursue their own capabilities in this complex task.
Horizon’s solutions have now been adopted by 27 OEMs, across 42 brands, featuring in over 290 car models, amounting to approximately 4,000,000 cars. This includes key customer relationships with BYD, Li Auto, and Volkswagen. This breadth of adoption will be critical in continuing to improve its artificial intelligence models. We also expect that the company will benefit from China’s ambition to have domestic champions in artificial intelligence, which should provide a favourable regulatory backdrop for Horizon’s growth ambitions.
Over the last four years, we have formed the view that the company possesses one of the most talented and ambitious teams globally. This, combined with the fact that Horizon operates in a compelling growth area, with potential applications beyond automotive, led us to take a small initial position for our clients at IPO.
Horizon Robotics joins current portfolio holdings Meituan, Spotify, and Joby Aviation as companies that Baillie Gifford first held privately. At its core, LTGG is about futureproofing, and keeping an eye on private markets helps us achieve this by providing a rich source of new ideas and differentiated insight.
Private companies are not currently held in the LTGG fund products.
| 2020 | 2021 | 2022 | 2023 | 2024 | |
| LTGG Composite | 102.9 | 25.9 | -48.8 | 19.9 | 39.1 |
| MSCI ACWI | 11.0 | 28.0 | -20.3 | 21.4 | 32.4 |
| 1 year | 5 years | 10 years | Since inception* | |
| LTGG Composite | 39.1 | 16.9 | 15.0 | 12.2 |
| MSCI ACWI | 32.3 | 12.7 | 9.9 | 8.6 |
*Inception date 29 February 2004.
Source: Baillie Gifford & Co and MSCI. US Dollars.
Past performance is not a guide to future results. Changes in the investment strategies, contributions or withdrawals may materially alter the performance and results of the portfolio. Net of fees returns have been calculated by reducing the gross return by the highest annual management fee for the composite. All investment strategies have the potential for profit and loss.
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This communication was produced and approved in December 2024 and has not been updated subsequently. It represents views held at the time of writing and may not reflect current thinking.
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