Public and private US growth companies in an uncertain world

As with any investment, your capital is at risk. Past performance is not a guide to future returns.

Jeremy Gordon (JG): Hello and welcome to this program from Baillie Gifford. The latest in a series of webinars where we talk to the managers of the business’ different investment trusts. Today, we’re talking to Gary Robinson, co-manager of the Baillie Gifford US Growth Trust. My name is Jeremy Gordon from Citywire and I will be talking to Gary about how he runs the trust for about 25 minutes. Gary, great to have you on the program today.

Gary Robinson (GR): It's great to be here, Jeremy.

JG: Thanks for joining us. Without further ado, I’ll start on my questions. The trust performed very strongly in 2024, after some tougher times in recent years. How would you sum up the year?

GR: It was a better year. In fact, we’ve had a couple of better years after what was quite a tough period immediately following on from Covid. The environment post-Covid, was almost a perfect storm for high growth investors, where you had lockdowns and stimulus driving inflation, which drove interest rates up and which impacted the valuations of long-duration assets. I think 2024 and 2023 as well, those years for me, represented us getting past that period. It’s felt like we’ve been in more of a true stock pickers market again, where rather than stock prices being driven mostly by the macro and what Jerome Powell was saying form week-to-week, stocks are being driven more by the underlying fundamental progress at the businesses.

That’s been great and then in terms of the performance in 2024, for us it was pretty broad-based actually. It’s difficult to call out specific trends. Nvidia was obviously a big positive contributor for us, but we had positive contributors in a whole host of different sectors. DoorDash in food delivery. Sweetgreen in restaurants. Meta in advertising. Duolingo, the language learning app. A real broad range of different names. On the negative side, it wasn’t all great news. We had some challenges with stocks in 2024 as well. Moderna was a negative contributor to performance where there’d been some execution issues with the go-to market. Then there were a couple of enterprise software stocks that were caught up in some fears around implications of AI. I put Workday and Snowflake into that category. Overall, a very good year for the trust.

JG: Back to something like business as usual. Until this year, in early 2025 we’ve seen a fairly dramatic correction in the US market centred on US tech names. That’s speaking about before the tariff announcements I’m sure everyone’s seen. 2025, what do you make of it so far?

GR: I don’t know what to make-, with regards to the tariffs-, one thing we agreed on as a team following the news of Trump’s election to president was that there was now a wider range of outcomes for the economy and the stock market. I don’t think anyone really knew what his policies were going to be and how those policies might impact the market. What we’ve had so far has been a lot of flipflopping on tariffs, in particular and measures of economic policy uncertainty are higher than they’ve been for a very long time. That’s starting to impact on consumer confidence and will impact on business confidence. The probability of a recession has increased, although it’s by no means a certainty, but it’s higher than it was prior to all of this policy uncertainty.

Then overnight, we had the reciprocal tariff plan. I’m quite reluctant to say too much in the immediate aftermath of a big announcement like this. I don’t think it’s very helpful. I think it’s better to take time to digest. To give you a bet on it though, I think on the face of it-, if you take it at face value, it’s not good, right. So, these tariffs, in aggregate would be higher than the tariffs that were in place in the US just ahead of the great depression. They’ll impact on inflation. They will impact on consumer’s purchasing power beyond that with the impact on the stock market. They just create a lot of uncertainty. The positive spin is-, and I don’t know whether-, the true state will be somewhere between the worst-case scenario which is that these are the tariffs and these are how they will be forever more.

The positive spin, which is that actually, this is just the starting point, it’s a negotiating position for Donald Trump to seek concessions from training partners because as much as we talk about free trade, there isn’t actually free trade between countries around the world. There are a lot of defensive measures in place in other countries, in terms of exchange rate manipulation, quasi pegs and tariffs to protect industries and countries in Southeast Asia, for example. It might be that he’s using these shock tactics to try and bring some of those countries to the negotiating table to extract concessions, which would be very good for America’s position in the long-term. I think we’re just at a point where there’s quite a lot of uncertainty with this right now.

For us, we remain focused on the things which we always focus on, which is we’re trying to find companies that have the potential to be much bigger in the future than they are today. Whilst in the fog of way like now, it can feel quite bleak. I think one of the important things to bear in mind is that the types of exceptional growth companies that we invest in, I think they’re the sorts of companies that are very resilient and adaptable and they tend to do well regardless of the economic backdrop.

What’s more important for them than the economic backdrop is their ability to execute on the large growth opportunities ahead of them. I suspect even if you were to take the last 20 years and you reversed who was in the White House in any four-year term, we would have still seen significant upside from names in the portfolio like Tesla, like Amazon, like Nvidia.
I think we can, at times like this, get overfocused on what’s going on with regards to economic policy, with regards to macro, with regards to geopolitics. Actually, given our style and given our bias for high-growth companies, I don’t think it matters as much for us as the stock picking itself.

JG: Chinese AI company, DeepSeek rapidly came onto everyone’s radar earlier in the year. When did you first hear about it and how has its emergence affected your portfolio of companies?

GR: We heard about DeepSeek-, we’ve been following AI pretty closely and we heard about DeepSeek maybe a month or so before the market reacted to the news of the R1 model. DeepSeek had released a non-reasoning model called DeepSeek V3 ahead of that R1 model and a lot of the innovations that were key to driving efficiency in that reasoning model were already present in that precursor model that they released. If felt to us, like a bit of a delayed reaction from the market. Actually, I think it was probably a little bit of an overreaction. I think the most notable thing about DeepSeek is that it came from China. I don’t think the fact that it was cheap was particularly notable.

The cost of AI models has been falling dramatically for years. The cost per token just keeps coming down and DeepSeek was just a continuation of that trend. There were other models that came out around about the same time that were even cheaper from Google. I think all of the handwringing over the efficiency gains was misplaced, but I think the main takeaway for me was, actually, China is going to be a serious player in AI.

JG: It means China will be a serious player. It doesn’t mean a paradigm shift.

GR: No.

JG: The move to sell down your Tesla stake which has been covered a bit more widely recently, seems like quite a momentous moment for Baillie Gifford’s US strategies and the wider firm really. How do you reflect on that and what’s the position size in the US Growth Trust today?

GR: Tesla’s one of 40-odd public holdings that we hold in the US growth trust and the American fund. I think, given the personality of its founder, it probably gets a lot more attention than its importance to our portfolio warrants. Shopify has been a bigger holding for us for a long time in the US Growth Trust and I barely ever talk about that one, but Tesla for obvious reasons comes up a lot. We’ve reduced it. It’s now 1.6 per cent of the portfolio. A year ago, just to give you some context-, sorry, six months ago it was about 2.8 per cent of the fund. The reason we reduced it is in the immediate aftermath of the election the shares had performed very strongly. I think they were up about 50 per cent or 60 per cent.

From our perspective, there wasn’t any real new news on Tesla at that point. There was a lot of handwaving around this might clear the path for them to rollout their self-driving technology, but it didn’t feel significant enough to us to warrant that massive rise in the share price. So, we used that as an opportunity to take a little bit of money off the table. We still own it. We’re still happy shareholders and I wouldn’t rule out us adding back to it at some point in the future.

JG: That makes sense. You mentioned Tesla’s founder, which does lead on to my next question. At the same time, your top holding, Space X seems to be going from strength to strength. I suppose, can you summarise the bull case, but also the bear case for that investment? Whether people could be too excited and I suppose, how you’re thinking about Elon Musk and companies connected to him more generally today?

GR: Space X is the biggest holding in the US Growth Trust and I’m happy about that because I don’t think there’s another company in our portfolio that’s got a stronger competitive position than Space X. It is dominant within the Space industry and I don’t use that word lightly. It is responsible for over 90 per cent of the mass that’s been put into orbit. That’s because Space X can do something that other companies can’t do. It can reuse its rockets. That’s just made the industry so much more economical and efficient. Space X has leveraged that efficiency to make its way into a massive market in the form of its Starlink business. What Starlink does is, it runs a constellation of about 7,000 low-earth orbit satellites which are designed to deliver high-speed broadband just about anywhere on Earth.

We’re pretty spoilt in the west. Most of us have got access to fast broadband, but there are, actually, a lot of places and a lot of situations where it’s still difficult to get access to fast broadband. Even in America, for example, there are rural areas and the Biden administration has committed $40bn to try to connect rural areas to broadband. There are rural areas that don’t have fast internet and then there are a lot of situations where we don’t have fast internet. Like, if you’re on a boat or if you’re on a plane. There’s a massive opportunity here for Starlink to fill an unmet need in the medium-term. Then in the longer-term I could see this business potentially even competing with the legacy broadband companies and that’s one of the biggest market opportunities globally.

This is a big business. It’s a profitable business. It’s a fast-growing business and it’s one with an incredibly strong competitive position and differentiated technology and that enables it to do things that others can’t do. What could go wrong here? Like with any stock that we invest in, there are lots of different ways it could go wrong. I think there’s always risk around-, there’s technology risk, the company’s developing a new version of its rocket called the Starship, where it’s innovating in public and we’ve all seen the spectacular explosions of those rockets as it iterates on them and tries to perfect them. That’s the way that Space X works. There’s a chance that that might not work ultimately. I think we have confidence in the company, given their track record.

There’re risks in terms of the very long-term opportunity for Starlink, it’s competing in regulated industries and there’s a risk that you could see particularly where national champions are at threat, some of these countries acting in order to protect their incumbents from this new entrant.

JG: How you’re thinking about Elon Musk’s companies in general or is it you think on a company-by- company basis?

GR: I’ve always been a little bit worried that Elon Musk had too much on his plate. We’ve been invested in Tesla for over ten years now. Even back then we were worried that he had too much on his plate and he’s just continued to add more and more to his plate. He’s an individual who has a unique ability to juggle multiple balls. The execution at Space X has been fantastic and I think Gwynne Shotwell’s been a big piece of that, his second in command there. With Tesla there’s a lot of debate right now, about the weakness that they’re seeing in car sales, particularly in Europe and how much of what Musk has been doing with regards to his role in the US government is having an impact on the brand.

I think it’s probably a bit too early to tell what the long-term branding impact will be, even if it’s having an impact on demand in the short-term. What we also have to remember with Tesla is that they’re-, and we knew this. We’ve known this for a while, is that they’re in between a couple of major growth waves at the moment. They had the mainstream products in the form of the Model Y and the Model 3. Those products are reasonably mature now. They’ve updated them, but they’re relatively mature mass-market products. Then they’re going to go into volume production with their next product, the Robotaxi next year. We’re in that in between moment right now where they haven’t actually had a mainstream-, the launch of Cybertruck, but that’s a pretty niche product.
They haven’t had a mainstream product release in a long time. Maybe there are some impacts on the demand from what’s been happening with DOGE, but maybe also, there’s an element of product cycle in that as well. The refresh will be helpful on that front.

JG: On to another very well-known company, Nvidia is a top-ten holding for the trust, but by no means a huge position after you took profits last year. What’s your view on it today?

GR: Nvidia’s sitting at about 2 per cent of the trust, at least at the end of February. We’re still optimistic on Nvidia, but we think the upside case is just more challenging from here. That’s partly just maths. Look, the company’s a lot bigger now, than it was a few years ago. A lot bigger than when we first invested back in-, we’ve owned in the team’s portfolios since before the trust even existed. Today, the market-cap is $2.7tn. We’re looking for significant upside. That’s a key part of our philosophy. It’s just a lot harder to see significant upside from a $2.7tn market-cap than from a $100m market-cap. That’s one factor that’s playing into position sizing here. A second factor is just, I think there are some subtle changes underway in the AI industry that I think are at the margin, opening up Nvidia to a little bit more competition.

When the market was mainly about training AI models, that’s a use case where Nvidia has a virtual monopoly. Its chips are very, very good for training. We’re now shifting to a world where actually, the inference part-, its training is use of computation to make the models at the start and then it inferences the computer that you use to run the models after they’re launched. Increasingly, that’s being used also to help the models think in response to queries. There, Nvidia’s stranglehold is not as great and we’re starting to see some of the hyperscalers and some of the leading labs look to alternatives like Amazon’s Trainium2, Custom ASIC or Google’s Tensor Processing Unit for some of those inference workloads. There’s a little bit of competition at the margin. I still think Nvidia is going to grow from here. There’s insatiable demand for compute, but the case isn’t as clearcut as it was a couple of years ago.

JG: A third of your portfolio is in private companies roughly. Other than Space X, can you summarise some of the major recent developments there?

GR: Space X is a big part of that private allocation.

JG: About a third of that third roughly.

GR: About a third of it, yes. It’s our biggest holding, it’s 11 per cent now. Partly because it’s just done so well. Then the next biggest-, two of our top-ten companies are private companies. Space X is one and that’s the biggest holding and then the other one is Stripe, which is 5 per cent of the fund or thereabouts. Between the two of those, you’re getting on for at least a third, maybe closer to half of the private allocation. There are limits to what I can say publicly about private companies because we’re under NDA with a lot of them. Stripe helpfully published a public annual report recently and gave some stats on it. That’s a business that just continues to go from strength-to-strength. Stripe is a payments platform that’s used to make payments online. It’s very widely used.

They’ve created a super-easy to use platform where you just plug in with a few lines of code and then you’re able to seamlessly move money around the world, which was a very difficult thing to do going back ten, 15 years. Then they’ve also built out a series of SAS modules on top of the payments’ platform in areas like, for example, billing, fraud, marketplace. One of the things I wanted to highlight with Stripe is just how massive a business this is in economic terms. I don’t think that’s widely appreciated. In 2024, Stripe processed $1.4tn of payments. That was up about 38 per cent year-over-year. Stripe now accounts for 1.3 per cent of global GDP. The company, like Space X, was profitable in 2024. This is something that you have to bear in mind when you’re thinking about a private company allocation for US Growth Trust.

Some of the companies that we own are quite early stage. We own a quantum computing company, we own a drone company. But we also have big holdings in big companies that if they were public, they’d be some of the biggest companies in the world, but they just happen to be private because these are companies that have chosen to stay private for longer. One of the challenges that investors face today, with investing in America’s innovative growth companies is, a lot of the most innovative growth companies have chosen to stay private and it’s really hard to gain access. It’s fine if you’re a wealthy individual or a venture capitalist that’s networked into the innovation ecosystem. For the average investor, it’s really hard to gain access to these companies. Particularly cost effectively. I think that’s something that you get with the US Growth Trust that makes it special. It’s cost-effective access to exceptional US private companies like Space X and Stripe.

JG: Your trust was, of course, a target of the US activist firm Saba Capital. How was that experience and what do other shareholders need to know about the situation today?

GR: Saba requisitioned a meeting to replace the board and ultimately replace the manager. That requisition was voted down by shareholders. I think something like 98.5 per cent of non-Saba shareholders voted against Saba’s proposal. I think what we can conclude from that is that there isn’t a huge amount of support for what Saba proposed and certainly, the feedback that we’ve heard from many shareholders in the trust is that they are committed to this mandate. That they bought this trust for a reason. The reason that I just mentioned with regards to the private company access and they want to see the trust continue in its existing form. I think one thing to say, we’ve a difficult balance to strike with this vehicle because on the one hand we want to ensure that it’s trading as close to NAV as possible. In an ideal world the trust would trade at NAV.

On the other hand, we have a very significant allocation to private companies here. 35 per cent-plus of the portfolio. When we buyback that is a capital allocation decision that impacts on our private weighting, all other things equal. As I say, we’re over 35 per cent now. When we buyback to defend a discount or for any other purpose, we’re driving up that private weighting and some of our shareholders have expressed concern with that private weighting going significantly higher than where it is today. We’re always keen to hear feedback on that and if any shareholders on the call today have a strong view on that, we’d love to hear your views. 

JG: Back to tariffs potentially, how much of an issue is potential boycotting of US Global brands by consumers around the world? To what extent would you pre-empt that possibility by reducing positions in US consumer brands?

GR: Boycotting them in response to the tariffs.

JG: Yes. Tariffs and all of the above in terms of the new Trump administration.

GR: Or the Tesla one.

JG: They haven’t specified that I’m afraid.

GR: I think in the short-term that sort of thing can drive volatility and headlines, but I think in the longer- term consumers have a tendency to buy the products that add the most value for them. I’d struggle to see that representing a major headwind for companies that are producing valuable differentiated products. I think if you are in the business of producing commodity products, where there are readily available substitutes, then that sort of thing is a very real risk because there’s no differentiation and consumers are not actually faced with any switching cost or pain for going to the alternatives. For companies that have a different-, and that’s what we’re trying to invest in. We’re trying to invest in companies that have differentiated products, rather than companies that have commoditised products. I think over the very long-term I don’t see boycotes having a major impact on those types of businesses.

JG: Might Space X ever IPO and then someone else asks, they’ve heard something about Starlink potentially being spun-off and listed as a standalone business. Can you comment on that possibility as well?

GR: I don’t have any insight into the timeline to either a Space X or Starlink IPO beyond what’s been said publicly. They’re not under any pressure to IPO. The company doesn’t need vast quantities of capital. Elon Musk has said in the past, that he would think about taking Starlink to market when it was profitable, but we haven’t heard anything on that for a while. It would be great because we’d love to own Space X for a wider range of our clients. As things stand, we can only own Space X for the clients that invest in our vehicles that can invest in private companies, which is a very small percentage of Baillie Gifford’s assets. As I mentioned earlier, I think this is one of the most attractive growth companies in the world. If I was to speculate on it, I’d say-, and this is pure speculation, it’s not based on any inside knowledge or insights. I think it’s quite unlikely in the next year, but a spinout of Starlink is quite likely on a five-year view.

JG: When you have such big companies like this, is a public flotation inevitable at some point or could we really be entering a new world where companies become giant and stay private?

GR: Yes. It’s interesting. It’s a big issue that some of these companies have run into is tax. Stripe has had that, where their employee share options are maturing and crystalising significant tax liabilities for employees. So, they need to create liquidity for employees so they’re able to pay those tax liabilities. Stripe has managed to do that through multi-billion-dollar tender offers in private markets. For as long as they continue to be able to do that, then there’ve been no signs that their ability is waning, then they can stay private for as long as they like. The frustrating thing from a public market investor standpoint would be that it’s the best companies that get to stay private for longer because there’s tons of demand for the shares from private investors, so they don’t need to worry about going public. There’s also, those companies are the ones that don’t need as much capital because they’re great businesses.

Stripe mentioned in its annual report, it’s profitable. It’s free capital positive. It doesn’t need the money anymore. I think Stripe would like to be a public company at some point. It’s probably helpful at the margin, from the perspective of Stripe is-, I’m answering on Stripe rather than Space X, but Stripe is moving in its payments business, upmarket and signing bigger and bigger enterprise contracts. I think the danger when you’re starting to go-, Stripe’s core customer initially was the Silicon Valley startups and then tech companies and they all know who Stripe is. Once you’re getting into the territory of providing payments to legacy enterprise scale businesses and you turn up as Stripe, they might not know who you are. A public offering can help with that and give a little bit more comfort because there’s visibility into the financials. I think there’s some pressure, but it’s not a great pressure.

JG: Some interesting thoughts there. One question here is, you said over the long-term you expect the companies in the portfolio to do well irrespective of economic conditions. You also said that in 2022, early 2023 interest rate rises dealt a big blow to your companies. Can you explain that a bit more?

GR: If you look at the data and we put this in our presentation materials. Over periods of five years and longer, there’s a very strong correlation between sales growth and share price performance and earnings growth and share price performance. The bottom quintile on earnings growth and the bottom quintile on sales growth over a five-year view, the bottom quintile on share price returns and the top quintile sales, top quintile earnings are the top quintile on share returns. Yes, during the Covid period there was a lot of volatility and you’ve got to remember that there was a lot of strength and then a lot of weakness through that Covid period in a short space of time. When you look over five-year periods, there’s a very strong correlation between underlying fundamental progress of the businesses that we invest in and the share price outcomes for these companies.

So long as the profit growth comes through over the long-term, then we’re confident that share prices will ultimately follow. What I’m trying to say with this is that the economy can matter at the margin. It can impact on the pace of sales and earnings growth. For the high growth companies that we invest in, the structural growth often overwhelms that. The shift, in Amazon’s case, from offline retail to online retail. The tailwind that that provides is much stronger than any potential economic headwind so long as you stretch your time horizon out far enough. There’re going to be periods of two or three years where share price performance and fundamentals become detached from one another. Covid was the most extreme example of that I’ve seen.

JG: In your favour, perhaps.

GR: So far, yes, exactly. Over long periods these things tend to line up and that’s what we’re trying to do here. Not predict share prices, but predict fundamentals and trust share prices will follow.

JG: What downside protections do you try to build into the portfolio?

GR: The downside protection in terms of?

JG: Trying to protect from significant drawdowns in portfolio value.

GR: Let me just say that the volatility that we saw during and after Covid was higher than we expected. We would prefer for this portfolio to not deliver those levels of volatility again in the future. As I mentioned, it was almost a perfect storm for growth investing in the sense that we had a very rapid change in real interest rates and a broad-based sell-off in high-duration assets like growth stocks. It would have been hard for us to protect against that completely without changing our style. 

The main issue we had in the post-Covid period was that we were high growth and we’re committed to remaining high growth. I think it was very difficult to predict what was about to happen at that point. No one thought that inflation-, certainly, none of the macroeconomic forecasters thought that this was going to happen and we’re not macroeconomists.
Very difficult to predict. Having said that, I think we made a mistake in allowing the portfolio to become too imbalanced. We allowed the portfolio to shift too far towards early-stage companies. That was partly due to some of the early-stage companies that we owned in the portfolio performing very well very fast. It was also partly due to us compounding that error during that period and adding some new early-stage companies to the portfolio and funding those out of reductions to more enduring type businesses like Alphabet and Mastercard. 

In terms of going forward, the unlisted piece of US Growth Trust is illiquid, which makes it difficult to manage actively because we can’t just go out and sell positions very easily. Particularly when we’re in volatile market conditions because we wouldn’t realise good prices and it wouldn’t meet shareholders’ interests.

We’re able to manage the listed part of the portfolio more actively and with the listed part of the portfolio, we closely mirror what we do with the American fund. What we’re doing on the listed side now, is we’re being much more proactive in monitoring the percentage of the portfolio in early-stage businesses versus the percentage of the portfolio that we have in the enduring growth businesses. We’re ensuring that we strike a balance between those on an ongoing basis. We have a five-year time horizon. We tend to react quite slowly and that’s by design. We’re trying to capture upside and I think in that scenario it’s better to be too late to sell then too early to sell given our philosophy and what we’re trying to do. We do recognise that during that Covid period things just moved so quickly and we should have reacted faster and we need to be a bit nimbler.

We’ve put in place a new process step, whereby if any stock moves two and a half times from our last review, if the share price goes up two and a half times, it’s an automatic rereview. We introduced this about six months ago and we’ve already put a number of different stocks through this process. Nvidia was one and we actually reduced on the back of that process. Sweetgreen went through that process, we decided not to do anything. Cloudflare went thought that process and decided to add. It’s not always a guarantee that we’re going to reduce when something goes up two and a half times, but we are being more cognisant of these short, sharp share price moves and nimbler in response to them.

JG: That’s very interesting to hear. Were you offered or did you take part in the recent funding round into private company, OpenAI?

GR: We’re very interested in OpenAI. We’re following it closely. We’ve spoken to the management team. It’s a very complicated business. It has a very unusual organisational structure. Not for profit at the top. It’s a limited liability company. There are some complexities with that one, which the company is trying to resolve and if they were to resolve those complexities, that would make life a lot easier for us.

JG: Which are some of the small public companies in your portfolio that have the highest potential?

GR: Small in terms of percentage holding or small in terms of market-cap?

JG: I took it to be small in terms of market-cap.

GR: Small in terms of market-cap, gosh. I’ll have a look at the list and see which ones jump off the page. Some of our biggest holdings are pretty big. Amazon and Meta and Shopify. Cloudflare is tens of billions of dollars of market-cap. I don’t know if that would count as small.

JG: In US that counts as a mid-cap, doesn’t it?

GR: I’m very excited about Cloudflare. Cloudflare runs a network of around about 200 local datacentres that were built originally to provide security for websites. It has this unique distributed global IT infrastructure at the edge. The company’s been really smart in continuing to build new products on top of that infrastructure and get the most leverage out of that infrastructure. One of the very new products that’s gaining real traction is that they’re now offering the ability to run inference AI workloads on its edge network. That’s something that I think is really exciting because there are certain what I describe as quite chatty AI workloads like self-driving, for example. Internet of Things where it makes a lot of sense to actually run your AI models on the edge, but where the ultimate edge, the device, the car or the mobile phone is just too small to do that.

The two extremes are on the device or in the datacentre. Cloudflare offers an intermediate solution where you can actually run the model in these edge locations, much closer to the end device and it’s much more efficient. There are other reasons why it makes sense to do inference commute. I think inferencing compute is going to be absolutely massive. This is something that’s become more apparent post the release of some of the newer AI models. The reasoning models. The old AI models. Most of the compute went in at the point of training and then the models were launched and you queried them and they would give this next word in sequence response. Now, the newest models, these reasoning models, like R1 with DeepSeek or O1 from OpenAI, they think post query.

They’re actually, instead of just giving you an intuitive answer based on their training, they will actually explore different chains of thought and then pick the best answer after exploring different chains of thought. That’s highly computationally intensive, that process. The demand for inference compute is exploding right now, on the back of these reasoning models. I think there’s going to be an insatiable demand for compute over the next five to ten years as these models continue to rollout.

JG: Can you say anything more on the options to deal with Saba or how the board is approaching the Saba situation?

GR: All of the options are on the table. All of the different options are being considered. Our board are very focused on making sure whatever they do is in the best interest of all shareholders. It has to be right for everyone and they’ve been speaking to some of our larger shareholders to get feedback on how they’re thinking about the trust at this juncture. That’s all I can say on that at the moment.

JG: Can you discuss buybacks a bit and the viewer says, “I know you have the private company exposure, but why can’t you set buybacks to defend the discount at a certain level?”

GR: The unlisted is above 35 per cent right now, of the fund. We have a limit of 50 per cent at time of purchase. The feedback that we’ve had from shareholders is that they don’t want to see the-, some shareholders, not all, but some shareholders said they don’t want to see the percentage in unlisted go much higher than it is today. When you buyback, you need to find cash to fund the buyback. We don’t hold a big cash balance in the US Growth Trust. In order to buy back shares we need to sell securities. We have public securities and we have private securities. It’s hard for us to sell the private securities. A lot of the private companies that we invest in come with transfer restrictions on sale. The straightforward option for us to fund a buyback is to do it by selling down the public companies.

When we sell public companies to buy back stock, what you do is you reduce the amount of public companies. The amount of private companies stays the same and your private percentage goes up. As that private percentage goes up, it reduces our ability to do private company deals in future. That’s a capital allocation decision that the board has to think about. Do we want to be spending our capital on buybacks or private companies? You cannot do both indefinitely. What would be really helpful would be for the IPO market to come to life. One of the challenges we’ve had with the unlisted weighting is just the IPO market’s been dead for three years. In a more normal environment, you would have turnover of new private companies coming into the portfolio and then some of our private companies maturing and become public companies. That was the situation for the first three years of the trust’s existence.

We had inflow and outflow from the private company bucket. Now, we’ve had no outflow apart from one ODDITY, the cosmetics company that we own is a public company now. I don’t have a strong sense for the timing of that. A lot of people were saying this was the year, second half, that we were going to start to see more activity in the IPO market, but given what’s going on right now with economic policy and the uncertainty that’s being created on the back of that, that could delay that. Yes, we can do buybacks. Yes, we have been doing buybacks. We bought back a significant percentage of the company last year, but we have to think about the balance between capital allocation to buybacks and private company allocation and how much headroom we want to retain for supporting out existing companies when they need cash and also, for investing in new opportunities as those arise.

JG: That brings me on to the last question. Another feature of the investment trust structure. Gearing. Gearing stands at about 4 per cent or 5 per cent today, how should we interpret that?

GR: Again, this is something, just like buybacks. Buybacks are for the board. Gearing is another matter for the board. To give you some thoughts on it, we never want this investment trust to be put into a position where its being forced to sell. We’ve managed the gearing quite conservatively historically. It’s currently low. One of the things that we look at quite carefully when we’re thinking about gearing I just what are the covenants that we’re being asked to sign up to when we’re taking on additional debt. Those covenants will have triggers associated with minimum net asset value and that sort of thing. When we first took on debt for the trust, those covenants were fairly-, they gave us a lot of flexibility. When we’ve looked more recently, the covenants have been a bit more stringent.

So, we’re just trying to find the right balance. In a long-term orientated equity portfolio, it makes sense to have some gearing. We expect your equities to do better than the cost of debt financing. You never want to put the Trust into a position where it’s going to be forced to do something that it doesn’t want to do at the wrong time.

JG: Well that was our last question. Thank you, Gary. 

GR: Thank you very much, Jeremy.

JG: That’s all we’ve got time for today. Thank you again, Gary, for your time and insights and thanks to you for watching and for your questions. We’ve got more sessions like this coming up, so do keep an eye for those if you found today useful. 

US Growth Trust plc

Annual past performance to 31 December each year (net%)

Source: Morningstar, S&P, total return in sterling. 

The index data referenced herein is the property of one or more third party index provider(s) and is used under license. Such index providers accept no liability in connection with this document. For full details, see www.bailliegifford.com/legal

Important information and risk factors

This communication should not be considered as advice or a recommendation to buy, sell or hold a particular investment. This communication contains information on investments which does not constitute independent investment research. Accordingly, it is not subject to the protections afforded to independent research and Baillie Gifford and its staff may have dealt in the investments concerned. 

The investment trusts managed by Baillie Gifford & Co Limited are listed UK companies and are not authorised or regulated by the Financial Conduct Authority. The value of their shares, and any income from them, can fall as well as rise and investors may not get back the amount invested.

Baillie Gifford & Co and Baillie Gifford & Co Limited is authorised and regulated by the Financial Conduct Authority (FCA).

The specific risks associated with the Trust include:

• The US Growth Trust invests in overseas securities. Changes in the rates of exchange may also cause the value of your investment (and any income it may pay) to go down or up.
• The Trust can borrow money to make further investments (sometimes known as “gearing” or “leverage”). The risk is that when this money is repaid by the Trust, the value of the investments may not be enough to cover the borrowing and interest costs, and the Trust will make a loss. If the Trust's investments fall in value, any invested borrowings will increase the amount of this loss.
• The Trust has a significant investment in private companies. The Trust’s risk could be increased as these assets may be more difficult to sell, so changes in their prices may be greater.
• The Trust can buy back its own shares. The risks from borrowing, referred to above, are increased when a trust buys back its own shares.
• Market values for securities which have become difficult to trade may not be readily available and there can be no assurance that any value assigned to such securities will accurately reflect the price the Trust might receive upon their sale.
• Investment in smaller companies is generally considered higher risk as changes in their share prices may be greater and the shares may be harder to sell. Smaller companies may do less well in periods of unfavourable economic conditions.
• The Trust can make use of derivatives which may impact on its performance.
• The Trust’s exposure to a single market and currency may increase risk.
• Share prices may either be below (at a discount) or above (at a premium) the net asset value (NAV). The Company may issue new shares when the price is at a premium which may reduce the share price. Shares bought at a premium may have a greater risk of loss than those bought at a discount.
• Charges are deducted from income. Where income is low, the expenses may be greater than the total income received, and the capital value would be reduced.

Further details of the risks associated with investing in the Trust, including a Key Information Document and how charges are applied, can be found in the Trust specific pages at www.bailliegifford.com, or by calling Baillie Gifford on 0800 917 2113.

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