As businesses stay private for longer, an increasing share of value creation now happens away from public exchanges, forcing investors to rethink where they access growth opportunities. For asset managers such as Baillie Gifford, however, private investing is not simply about gaining access to these companies. The firm’s private growth business sits alongside a large global public equity platform, allowing it not only to support businesses through their private growth stages but also throughout their eventual transition into public markets.

“The shape of companies and where value creation happens has changed dramatically,” says Rachael Callaghan, Investment Specialist within Growth Equity at Baillie Gifford. “Private growth equity as an asset class is simply impossible to ignore from a scale perspective.” The private growth equity market is estimated to be worth approximately $9 trillion, roughly equivalent to the combined market capitalization of the London Stock Exchange, Swiss stock market, and Deutsche Börse.

“The shape of companies and where value creation happens has changed dramatically. Private growth equity as an asset class is simply impossible to ignore from a scale perspective.”

Rachael Callaghan, Investment Specialist within Growth Equity at Baillie Gifford.

Beyond its sheer scale, however, Callaghan argues that the increasing economic importance of private companies and the role they play in driving innovation has fundamentally altered how investors should think about equity exposure. There is still an enormous amount of growth to be had in public markets, however today your growth portfolio is incomplete without both public and private exposure. As with any investment, the value can fall as well as rise, and investors may not get back the amount originally invested.

Where Value Creation Has Shifted

Historically, companies generated most of their value creation after listing. “Many of the largest businesses historically started in private markets, but most of the growth happened in public markets,” explains Callaghan. That dynamic, however, has shifted materially in recent years, with companies staying private for longer and building significant scale before reaching public markets. The clearest comparison comes from two companies founded by Elon Musk.

Tesla listed in 2010 with a valuation of around $1 billion, allowing public market investors to participate in virtually all of its subsequent growth into a company worth more than $1 trillion. “All of that value accrual happened in public markets,” says Callaghan. SpaceX, however, represents the opposite dynamic. Founded in 2002 and still private, the company is now estimated to be worth between $1.5 trillion and $2 trillion before a public listing has even occurred. “All of that value has accrued to private shareholders.” 

While investors such as Baillie Gifford managed to capture that value creation through private investments in SpaceX, traditional public market investors largely missed one of the most significant growth stories of recent decades.

Why Businesses Stay Private Longer

Callaghan points to several structural reasons companies remain private longer. Regulation has played a role, with the JOBS Act making it easier to remain private through broader employee ownership programs, while Sarbanes-Oxley simultaneously increased the burden of operating as a public company. “You effectively had two developments happening simultaneously: one making it easier to stay private and the other making public markets more burdensome,” she says. Together, these forces have reinforced the broader trend of companies remaining private for longer.

At the same time, businesses have become less capital intensive. Software, cloud computing, and digital business models allow companies to scale with lower funding requirements, while the low-rate environment created unprecedented flows of private capital. “You need less capital to build better businesses, but at the same time you have more capital available,” explains Callaghan. “That created a very supportive environment for this asset class to grow.”

“You need less capital to build better businesses, but at the same time you have more capital available. That created a very supportive environment for this asset class to grow.”

Rachael Callaghan, Investment Specialist within Growth Equity at Baillie Gifford.

There is also a more human element. Public companies operate under quarterly reporting cycles, requiring management teams to continuously communicate progress to shareholders, analysts, and competitors alike. While this transparency serves an important governance function, it also creates challenges. “You’re telling competitors exactly how things are going. Either things are going great or they’re not going great, and you have to tell everybody that,” explains Callaghan. 

Private companies, by contrast, can navigate temporary setbacks or invest heavily for future growth with less scrutiny and fewer immediate market reactions. This, according to Callaghan, allows founders and management teams to think more strategically. “You can make longer-term decisions by remaining private because you don’t face immediate share price corrections if the market doesn’t approve.”

Access Is Increasingly Becoming the Competitive Advantage

As value creation moves deeper into private markets, access itself becomes increasingly important. “Private markets are undemocratic in nature. Founders hold all the power. They choose who their shareholders are and, quite rightly, they are very selective about that,” she explains. Founders increasingly prioritize long-term shareholders capable of supporting companies across multiple growth phases.

Baillie Gifford believes its reputation as a long-term public equity investor has become a meaningful advantage when competing for access. “Reputation is a huge factor in that choice,” she argues. “We are fortunate to stand on the shoulders of our public equity colleagues who, over more than a century, have demonstrated that we are the type of shareholder we say we are.”

“We are fortunate to stand on the shoulders of our public equity colleagues who, over more than a century, have demonstrated that we are the type of shareholder we say we are.”

Rachael Callaghan, Investment Specialist within Growth Equity at Baillie Gifford.

Importantly, Baillie Gifford argues that its integrated public and private approach  differentiates it from many competitors. “A lot of early-stage venture investors do a great job helping businesses reach growth stage and maybe through an IPO. You also have crossover investors looking for IPO arbitrage,” says Callaghan. “But there are relatively few shareholders willing to own that business for the long term in both the private and public markets.” This continuity of capital can be valuable for founders.

For Callaghan, this integrated approach represents Baillie Gifford’s key competitive advantage. “Our unfair advantage is that we are fully integrated across public and private markets,” she argues. “That makes us better across every part of the private equity process.”

AI: Waiting for Business Models Rather Than Headlines

Anthropic represents one example of how Baillie Gifford applies this philosophy in practice. Despite excitement surrounding artificial intelligence, Callaghan explains the firm remained patient initially because it was unclear where competitive advantage and value might accrue across the AI landscape. “While they were large businesses in terms of valuation, they were still early stage in terms of product development and their evolution as businesses.” According to Callaghan, Baillie Gifford prefers investing when a strong product begins transitioning into a scalable business model. This is ultimately what attracted the firm to Anthropic last year. 

The rapid appreciation in AI valuations naturally raises questions about whether investors are arriving too late. Callaghan argues that transformational businesses rarely appear inexpensive when viewed through traditional valuation frameworks. “Transformational businesses, whether that was Tesla in the 2010s, Nvidia over the past few years or even today, or high growth private businesses like Stripe, never really feel cheap on a spot multiple basis,” she says. Focusing excessively on current multiples risks missing the bigger picture, according to Callaghan.

“Some of the next generation of growth companies that we will own probably don’t exist yet, or they are still in the idea phase somewhere in Silicon Valley, Berlin, London, Paris, Stockholm, Helsinki, or elsewhere. “Our job is to be ready when those businesses reach product-market fit.”

Rachael Callaghan, Investment Specialist within Growth Equity at Baillie Gifford.

While Baillie Gifford applies rigorous underwriting standards and remains disciplined with client capital, Callaghan argues that investors must also recognize when traditional valuation approaches may underappreciate the scale of future opportunities. “If you obsess about spot multiples, you will probably miss these opportunities and miss them every time,” she says. “We try to understand when to lean into transformational companies because they can become intergenerational businesses.”

Even as artificial intelligence dominates headlines and investor attention, Callaghan argues investors should avoid becoming too narrowly focused on today’s winners. “Growth can come from anywhere,” she says. While AI remains an important technological shift, she believes many future winners have yet to emerge. “Some of the next generation of growth companies that we will own probably don’t exist yet, or they are still in the idea phase somewhere in Silicon Valley, Berlin, London, Paris, Stockholm, Helsinki, or elsewhere,” concludes Callaghan. “Our job is to be ready when those businesses reach product-market fit.”