To spot the next Tesla or Nvidia in time, Baillie Gifford is increasingly seeking growth opportunities outside the stock market. Tomorrow’s biggest winners are staying private longer, meaning most of the value creation now happens before the IPO.
The 117-year-old Baillie Gifford built its reputation by investing early in public-market champions such as Amazon and Nvidia. But those opportunities are becoming rarer. During a media conference in late October, the Edinburgh-based investor highlighted its focus on the so-called growth-equity segment—the stage between venture capital and public listing.
“The number of high-quality listed companies is declining,” said Rachael Callaghan, investment specialist for private markets. “Private markets offer access to growth companies in sectors such as AI, space, defense, and fintech. Public markets, by contrast, are becoming narrower and increasingly dominated by mega-caps focused mainly on buying back their own shares.”
Stuart Dunbar, partner at Baillie Gifford, believes investors still underestimate the “private for longer” trend. “Innovative companies choose to stay private longer so they’re not subject to the short-term mindset of public markets. That gives them room to reinvest in R&D instead of meeting analysts’ quarterly expectations.”
Unicorns not so unique anymore
Baillie Gifford, which says it spotted the trend early, has invested more than 10 billion dollar since 2012 in over 160 private growth companies. Some of those firms have since gone public. Current holdings in private companies now amount to roughly 9 billion dollar, with another 17 billion dollar invested in listed companies Baillie Gifford backed before their IPO.
In thirteen years, Baillie Gifford’s exposure to private and formerly private investments has grown to a combined value of about 26 billion dollar—nearly 9 percent of its total assets under management of more than 300 billion dollar.
The asset manager has little choice, as the balance between public and private markets is shifting. In the mid-1990s, the United States had 7,300 listed companies; today there are only about 4,300. Public markets are shrinking, while private markets are expanding rapidly.
Private companies now outnumber listed ones in the US by a factor of 2.7
Callaghan also points out that many of the highest-revenue firms are now privately held. “More than 90 percent of companies in the US and Asia with annual revenue above 100 million dollar are privately owned,” she said. “In Europe, that figure is as high as 96 percent.”
The term “unicorn”—used for private companies valued at over 1 billion dollar—has long lost its rarity, according to Callaghan. In 2013, there were only 39 unicorns worldwide. Today there are more than 1,600, collectively worth about 6,000 billion dollar.
Magnificent Seven 2.0
Companies going public today often do so at valuations once considered unimaginable. When Baillie Gifford bought Nvidia in 2016, the stock cost less than 2 dollar (it now trades around 180 dollar). Opportunities like that have become increasingly rare.
Callaghan also notes how Amazon went public in 1997 with a valuation of 438 million dollar, and Alibaba debuted in 2014 at 168 billion dollar. Today, companies raise such sums in private rounds alone—OpenAI, for example, raised 40 billion dollar in private capital last year without taking a single step toward an IPO.
“The nature of capital raising has fundamentally changed,” said Callaghan. “These companies are far less risky than traditional venture capital investments—they have revenue, customers, and proven business models. But they stay private because founders want to retain control.” She cites Stripe, which processes 1,400 thousand billion dollar in annual payments, and SpaceX, which launched 134 rockets last year—nearly twice as many as China.
According to Callaghan, the private markets now have their own “Magnificent Seven”: SpaceX, OpenAI, xAI, Anthropic, Stripe, Databricks, and Anduril. What unites them is their direct or indirect role in artificial intelligence. The technology, Dunbar believes, will reshape the global economy. He even predicts that in the near future, there could be companies valued at 1,000 billion dollar with only a handful of employees.
Valuations of “Magnificent Seven” companies in private markets (in billion)
Illiquidity risk
The asset manager, however, warns of the downside to this shift. “Many companies choose to stay private partly because public-equity managers can’t engage constructively while under heavy fee pressure,” Dunbar said. “As more of the best growth companies do so, investors will ultimately pay more—not less—to access them. That suppresses net returns.”
“In the end, everyone acts rationally in their own interest by minimizing the cost of public-equity management, but the collective result may still turn out to be irrational,” he added.
Dunbar also referred to the push toward private markets in which governments play a role. In the United Kingdom, for example, the government encourages pension funds to invest more in private markets—a trend that, according to Baillie Gifford, is now visible in the Netherlands as well, following the introduction of the Future Pensions Act. “That pushes capital toward illiquid investments that don’t always match their liabilities,” said Dunbar. “People will be surprised to learn just how illiquid illiquid markets can truly become.”