Former Scottish Mortgage manager James Anderson: Borrowing £10bn to invest could boost Scotland globally

Business Editor

SCOTLAND could succeed in tackling its lack of scale in industries of the future by borrowing £10 billion and gearing this up to a £20bn investment pot with backing from private sector financiers, says a top global fund manager.

James Anderson told The Herald in an exclusive interview that there would have to be an “absolute acceptance” that much would fail in such investment.

He contrasted this required environment for such large-scale investment with the “current state of politics and society”, at a time when there has been intense political and wider debate over the Scottish Government’s financial backing of the Ferguson Marine shipyard at Port Glasgow. The Ferguson yard, which was awarded a major contract to build two ferries for state-owned operator Caledonian MacBrayne in 2015, is now in Scottish Government ownership, after the business fell into administration in 2019.

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Mr Anderson mulled why Scotland and the UK as a whole lacked major, highly successful, home-grown technology businesses such as ASML, founded in Eindhoven in the Netherlands. ASML has developed lithography technology which it describes as “fundamental to mass producing semiconductor chips”, with the Dutch company noting that “with it, the world’s top chipmakers are creating microchips that are more powerful, faster, and energy efficient”.

Mr Anderson, who retired from Edinburgh fund management partnership Baillie Gifford and stepped down as joint manager of Scottish Mortgage Investment Trust on April 30, highlighted his view that the UK continued to lack companies of scale in industries of the future. He lamented again the loss of microchip designer ARM Holdings’ independence with its sale to Softbank of Japan in 2016, given the UK company’s potential.

He said: “I probably worry about it even more in a Scottish context, if I am blunt about it. I don’t see where our place in most of the industries of the future actually is, from renewable energy to whatever happened to Silicon Glen to even what happened in pharmaceuticals... [Pharmaceuticals] could be one of the areas of hope.

“Those links between academia and companies happen more in pharmaceuticals than anything else. Dundee plus Glasgow are probably better than Edinburgh on that score.”

Mr Anderson, who was in April last year elected as non-executive chairman of Swedish investment company Kinnevik AB, added: “I know it is a difficult thing to do in the current state of devolution...It is the only way to get it done – if Scotland was in a position to [borrow]…serious amounts of money and make the investment into the types of industries I have mentioned before [as industries of the future]. I think you would have to do so with the absolute acceptance much would fail... I think that is a very different thing, with the current state of politics and society.

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“You could get matching finance from the likes of Baillie Gifford…to do that stuff.”

He declared: “I would be an advocate of [Scotland] borrowing £10bn at 1% [per annum interest] or whatever.”

Highlighting a need to take a long-term view of such investment, and to free it from undue oversight, Mr Anderson added: “Look at it at the end of 10 years to see if that had worked. That would be something that would have a reasonable chance of success – £10 billion geared up to £20 billion with private finance backing it.”

Mr Anderson, who gifted millions of pounds to Scottish football clubs to help them through the coronavirus crisis, believes “not much has come out of” the Scottish financial sector in terms of financial technology companies.

He said: “We don’t possess a major fintech company.”

Mr Anderson noted that, when he asked colleagues to name UK companies with major potential, they said “what about x or y?”, and he observed the market capitalisations of such companies tended to be in the £1bn to £5bn range. While acknowledging the potential of such businesses, Mr Anderson declared: “It is really the scaling this huge problem exists in.”

He flagged the achievements of Elon Musk at both US-based electric vehicle and battery systems pioneer Tesla and SpaceX. Giving his view of general attitudes in the UK, Mr Anderson said: “We don’t like people who don’t fit in.”

In the context of the UK’s lack of companies of scale in key sectors of the future, he added: “I have not yet really met an extraordinary person in Britain, in British companies. I think that is a lot of why it could be.”

Mr Anderson asked: “Is it also about the lack of backing in a dedicated venture capital sense?”

He talked about “what the level of ambition actually is”.

Mr Anderson highlighted the very large amounts of money being put into companies in key sectors of the future by the likes of US investors Sequoia Capital and Tiger Global, and added: “I don’t think it is going away.”

He added: “Is there anything in Scotland or arguably in Britain that is of a similar scale? I don’t see it. I think therefore the gap is getting bigger rather than smaller.”