Baron Partners Fund (BPTRX) N-CSRCertified annual shareholder report (management investment company)

As of December 31, 2021, 50.1% of the Fund’s net assets are invested in Tesla stock. Therefore, the Fund is exposed to the risk that were Tesla stock to lose significant value, which could happen rapidly, the Fund’s performance would be adversely affected. Before investing in the Fund, investors should carefully consider publicly available information about Tesla. There can be no assurances that the Fund will maintain its investment in Tesla, as the Adviser maintains discretion to actively manage the Fund’s portfolio, including by decreasing or liquidating the Fund’s investment in Tesla at any time. However, for so long as the Fund maintains a substantial investment in Tesla, the Fund’s performance will be significantly affected by the performance of Tesla stock and any decline in the price of Tesla stock would materially and adversely affect your investment in the Fund.

While equity markets continued their upward climb through 2021, several rotations took place beneath the surface. The “recovery play” dominated at first, with stocks hit hard during the pandemic along with cyclical, more speculative stocks peaking as pent-up demand met massive stimulus, effective vaccines, and the reopening of the economy. Secular growth stocks then came back in favor, led by large-cap technology stocks, in part on the strength of robust corporate earnings and economic growth. In mid-November, however, the markets shifted again as uncertainty around inflation, rising interest rates, the Omicron variant, and geopolitical unrest spurred a flight to safety and faster growing, smaller, and higher-multiple stocks declined, while pro-cyclical, larger-capitalization, and lower-multiple stocks outperformed.

At the sector level, Consumer Discretionary, Financials, and Industrials contributed the most to performance. Communication Services, Real Estate, and Materials detracted.

Electric vehicle company Tesla, Inc. was the top contributor. The stock rose on strong deliveries growth and a meaningful improvement in profitability despite a complex supply-chain environment. Demand remains robust, new localized manufacturing capacity is expected to support more efficient growth, and the autonomous program is accelerating. We expect Tesla’s growing vehicle offering, battery technology, and energy businesses to offer meaningful growth opportunities in the future.

Zillow Group, Inc., which operates leading U.S. real estate sites, was the top detractor. Shares were down following the announced closure of its home-buying business, along with hundreds of millions of dollars in write-downs in the segment as a result of overpaying for homes. This was a rapid change in narrative, and we still do not have a good answer as to what went wrong. We lost a significant amount of trust in management and their ability to execute. We chose to exit our position.

While we are certainly aware of current events that move the markets, we do not invest based on our insights into short-term macroeconomic, political, or public health issues. We adhere to our time-tested approach, investing for the long term in businesses that we believe will benefit from secular growth trends, durable competitive advantages, and best-in-class management. We remain optimistic that this approach will generate strong long-term performance regardless of the economic climate.

As of December 31, 2021, 25.9% of the Fund’s net assets are invested in Tesla stock. Therefore, the Fund is exposed to the risk that were Tesla stock to lose significant value, which could happen rapidly, the Fund’s performance would be adversely affected. Before investing in the Fund, investors should carefully consider publicly available information about Tesla. There can be no assurances that the Fund will maintain its investment in Tesla, as the Adviser maintains discretion to actively manage the Fund’s portfolio, including by decreasing or liquidating the Fund’s investment in Tesla at any time. However, for so long as the Fund maintains a substantial investment in Tesla, the Fund’s performance will be significantly affected by the performance of Tesla stock and any decline in the price of Tesla stock would materially and adversely affect your investment in the Fund.

While equity markets continued their upward climb through 2021, several rotations took place beneath the surface. The “recovery play” dominated at first, with stocks hit hard during the pandemic along with cyclical, more speculative stocks peaking as pent-up demand met massive stimulus, effective vaccines, and the reopening of the economy. Secular growth stocks then came back in favor, led by large-cap technology stocks, in part on the strength of robust corporate earnings and economic growth. In mid-November, however, the markets shifted again as uncertainty around inflation, rising interest rates, the Omicron variant, and geopolitical unrest spurred a flight to safety and faster growing, smaller, and higher-multiple stocks declined, while pro-cyclical, larger-capitalization, and lower-multiple stocks outperformed.

At the sector level, Consumer Discretionary, Health Care, and Financials contributed the most to performance. Information Technology, Communication Services, and Real Estate detracted.

Tesla, Inc. was the top contributor. Shares of this electric car manufacturer increased as the company demonstrated its superior strategic approach, navigating a complex supply-chain environment better than many competitors. Strong demand and higher production volumes generated a record revenue and profitability year for the company. 2022 is expected to be another record year with new and improved manufacturing capacity in all key regions and a growing product line including internal battery capacity and new vehicle programs. Tesla remains well positioned to benefit from strong secular trends in the automotive market.

Penn National Gaming, Inc. was the top detractor. Shares of this regional casino company declined due to market share losses and increased marketing costs related to its stake in online sports betting company Barstool Sportsbook. Penn’s increased exposure in this highly competitive business with its $2 billion acquisition of sports betting App theScore also pressured shares. We think Penn will have a solid foothold in the U.S. and Canada with these two purchases. Penn has a strong balance sheet to fund its digital losses, and we expect it to be profitable by 2023.

While we are certainly aware of current events that move the markets, we do not invest based on our insights into short-term macroeconomic, political, or public health issues. We adhere to our time-tested approach, investing for the long term in businesses that we believe will benefit from secular growth trends, durable competitive advantages, and best-in-class management. We remain optimistic that this approach will generate strong long-term performance regardless of the economic climate.

Baron International Growth Fund is a diversified fund that invests for the long term primarily in securities of non-U.S. growth companies. The Fund expects to diversify among developed and developing countries throughout the world, although total exposure to developing countries will not exceed 35%. The Fund may purchase securities of companies of any size. Of course, there can be no guarantee that we will be successful in achieving the Fund’s investment goals.

While the markets continued their upward climb in 2021, beneath the surface, a major rotation took place. The “recovery play” dominated the start of the year, with speculative and higher growth stocks peaking as risk aversion, low expectations, and pent-up demand met massive policy stimulus, positive vaccine developments, economic reopening, and normalization. However, that trend reversed as concerns over COVID variants and rising conviction that the Federal Reserve would not fall too far behind the curve coalesced to cool global growth expectations and spiraling commodity prices. As a result, international equities lagged U.S. equities amid mixed signals, though we remain optimistic regarding their relative appeal, particularly on a multi-year basis.

On a country basis, the U.K., France, and Russia were the top contributors. China, Brazil, and Germany were the top detractors.

On a sector basis, Financials, Communication Services, and Information Technology contributed the most. Consumer Discretionary holdings detracted slightly.

Future plc was the top contributor. Future publishes digital content, magazines, and events with a brand portfolio including TechRadar, PC Gamer, and Gizmodo. Shares were up on tailwinds to e-commerce in Future’s largest categories — tech, gaming, music, sports, home, and lifestyle — as well as strength in the broader advertising environment. We believe Future can grow organically and through M&A, with potential to compete meaningfully in the $150 billion global B2B market with lead generation and business intelligence offerings.

TeamViewer AG, a global software connectivity platform, was the top detractor. Shares fell sharply on disappointing fourth quarter earnings and lowered 2021 guidance. Management underestimated many of the headwinds impacting the business coming out of COVID. Due to the string of negative news flow and ongoing uncertainty, we sold our position.

Notwithstanding the dominance of U.S. equities in recent years, we encourage investors not to overlook international equities, particularly at current valuations. We would suggest the global economy, corporate earnings, and asset prices are influenced by two major axes of macroeconomic activity and liquidity: China and its ecosystem, which tends to correlate more closely to international economies and equities; and the U.S., which tends to be more insular. We believe China’s regulatory and credit tightening cycle is nearing its trough while the U.S. is passing through a near-term peak. While the recent correction may have to run a bit further to correct imbalances, we are increasingly confident that international equities are poised for a period of outperformance.

Baron Real Estate Fund is a diversified fund that under normal circumstances, invests 80% of its net assets in real estate and real estate-related companies of all sizes, and in companies which, in the opinion of the Adviser, own significant real estate assets at the time of investment. The Fund seeks to invest in well-managed companies that we believe have significant long-term growth opportunities. The Fund’s investment universe extends beyond real estate investment trusts (“REITs”) to include hotels, senior housing operators, casino and gaming operators, tower operators, infrastructure-related companies and master limited partnerships, data centers, building products companies, real estate service companies, and real estate operating companies. Of course, there can be no guarantee that we will be successful in achieving the Fund’s investment goals.

The pandemic continued to have unusually divergent impacts on different categories of real estate in 2021, with some, such as industrial real estate and residential real estate, benefiting from tailwinds, and others, such as office real estate, facing tailwinds. REITs in general benefited broadly from investor expectations of economic growth driven by the successful rollout of vaccines, pent-up demand from consumers and businesses, the ongoing recovery in employment, and federal stimulus payments.

REITs, casinos & gaming operators, and building products/services were the top contributing categories. Data centers detracted.

Shares of top contributor Red Rock Resorts, Inc., a casino operator in the Las Vegas locals market, rose on reported EBITDA significantly above pre-pandemic levels and a complete recovery in revenue. Management has said it thinks the margin expansion is sustainable given revenue levels and a reimagined cost structure. Robust free cash flow combined with the $650 million sale of its Palms casino should help improve the balance sheet.

The top detractor was Zillow Group, Inc., which operates leading U.S. real estate sites. Shares were down following the announced closure of its home-buying business, along with hundreds of millions of dollars in write-downs in the segment as a result of overpaying for homes. This was a rapid change in narrative, and we still do not have a good answer as to what went wrong. We lost a significant amount of trust in management and their ability to execute. We chose to exit our position.

As the impact of the pandemic slowly recedes, we believe this is an opportune time for active managers in real estate who have the flexibility to shift into growth areas while avoiding others facing a longer and more uncertain recovery. We believe our philosophy of structuring a more inclusive and unique real estate fund — one that includes REITs but is more expansive, balanced, and diversified than a typical “REIT only” fund — is a compelling long-term strategy.

Baron Emerging Markets Fund is a diversified fund that invests for the long term primarily in companies of any size with their principal business activities or trading markets in developing countries. The Fund may invest up to 20% of its net assets in developed and frontier countries. The Fund seeks to invest in companies with significant long-term growth prospects and purchase them at prices we believe to be favorable. Of course, there can be no guarantee that we will be successful in achieving the Fund’s investment goals.

While the global markets continued their upward climb in 2021, beneath the surface, a major rotation took place. The year started off with the “recovery play,” with speculative and higher growth stocks peaking on the strength of massive policy stimulus, positive vaccine developments, and reopening economies. That trend, however, reversed as a slowdown in Chinese credit growth, concerns over COVID variants, and rising conviction that the Federal Reserve would not fall too far behind the curve coalesced to cool growth expectations and commodity prices. As a result, emerging market equities lagged significantly, although we remain optimistic regarding their relative appeal, particularly on a multi-year basis.

On a country basis, India, the U.K., and Taiwan contributed the most. China, Brazil, and Korea were the biggest detractors.

On a sector basis, Materials, Energy, and Financials contributed the most. Consumer Discretionary, Information Technology, and Health Care detracted the most.

Glencore PLC was the top contributor. Among other metals, mining, and commodities, it is a major producer of key metals for batteries enabling the electrification of transportation and energy storage, including copper and cobalt. Shares increased in 2021 due to a rise in copper prices. We expect a multi-year supply deficit for copper driven by an increase in demand as electric vehicles and wind/solar power plants require four to five times more copper than their conventional counterparts.

Alibaba Group Holding Limited, the largest retailer and e-commerce company in China, was the top detractor. Shares were down given regulatory crackdowns on digital technology and consumerism in an attempt to refocus investment in China. We retain conviction that Alibaba will benefit from rapid growth in cloud services, logistics, and retail.

We believe the global economy, corporate earnings, and asset prices are influenced by two major axes of macroeconomic activity and liquidity: China and the U.S. While China’s regulatory and credit tightening cycle seems to be nearing its trough, the U.S. seems to be passing through a near-term peak with a phase of moderation or tightening increasingly inevitable. We also believe Omicron may represent the transition of COVID from pandemic to endemic and, subsequently, full economic normalization. While we suspect the recent correction may have further to run, we are increasingly confident emerging market equities are poised for a period of mean-reverting outperformance.

The Fund is a diversified fund that, under normal circumstances, invests primarily in equity securities of companies throughout the world, with capitalizations within the range of companies included in the MSCI ACWI Index. At all times, the Fund will have investments in equity securities of companies in at least three countries outside the U.S. Under normal conditions, at least 40% of net assets will be invested in stocks of companies outside the U.S. (at least 30% if foreign market conditions are not favorable). The Adviser seeks to invest in businesses it believes have significant opportunities for growth, durable competitive advantages, exceptional management, and an attractive valuation. Of course, there can be no guarantee that we will be successful in achieving the Fund’s investment goals.

While equity markets continued their upward climb through 2021, several rotations took place beneath the surface. The “recovery play” dominated at first, with stocks hit hard during the pandemic along with cyclical, more speculative stocks peaking as pent-up demand met massive stimulus, effective vaccines, and the reopening of the economy. Secular growth stocks then came back in favor, driven in part by robust corporate earnings and economic growth. In mid-November, however, the markets shifted again as uncertainty around inflation, rising interest rates, the Omicron variant, and geopolitical unrest spurred a flight to safety and faster growing, smaller, higher-multiple, and emerging markets stocks declined, while pro-cyclical, larger-capitalization, lower-multiple, and developed markets stocks outperformed.

On a country basis, the U.S., U.K., and Netherlands contributed the most while China, Brazil, and Israel detracted the most.

On a sector basis, Information Technology and Communication Services contributed while Consumer Discretionary, Health Care, and Real Estate detracted the most.

The top contributor was Alphabet Inc., the parent company of Google. Shares climbed on continued recovery in ad spend, strong cloud revenue growth, and improved cost controls. We remain highly convinced of Alphabet’s merits as it continues to benefit from growth in mobile and online video advertising, which accrues to its core assets of search, YouTube, and the Google ad network.

TAL Education Group is a leading K-12 after-school tutoring company in China with over 1,000 learning centers in 110 cities. Shares declined sharply following continued rumors regarding the severity of the upcoming regulatory changes that investors fear will adversely impact the after-school tutoring industry in China. We exited our position.

Every day we live and invest in an uncertain world. The constant challenges we face are real and serious, with clearly uncertain outcomes. History would suggest that most will prove passing or manageable. The business of capital allocation (or investing) is the business of taking risk, managing the uncertainty, and taking advantage of the long-term opportunities that those risks and uncertainties create. We are confident our process is the right one, and we believe it will enable us to make good investment decisions over time.

estate income-producing securities, and any other real estate-related yield securities. The Fund is likely to maintain a significant portion of its assets in real estate investment trusts (“REITs”). REITs pool money to invest in properties (“equity REITs”) or mortgages (“mortgage REITs”), and their revenue primarily consists of rent derived from owned, income producing real estate properties, and capital gains from the sale of such properties. The Fund generally invests in equity REITs. Of course, there can be no guarantee that we will be successful in achieving the Fund’s investment goals.

The pandemic continued to have unusually divergent impacts on different categories of real estate in 2021, with some, such as industrial real estate and residential real estate, benefiting from it, and others, such as office real estate, hurt by it. REITs in general outperformed the broader market as they benefited broadly from investor expectations of economic growth driven by the successful rollout of vaccines, pent-up demand from consumers and businesses, the ongoing recovery in employment, and federal stimulus payments.

Investments in industrial REITs, non-REIT real estate companies, single-family rental REITs, and multi-family REITs contributed the most. There were no significant detracting categories for the year.

Shares of top contributor Red Rock Resorts, Inc., an operator of casinos in the Las Vegas locals market, rose on reported EBITDA significantly above pre-pandemic levels and a complete recovery in revenue. Management has said that it thinks the margin expansion is sustainable given revenue levels and a reimagined cost structure. Robust free cash flow combined with the $650 million sale of its Palms casino should help improve the balance sheet.

GDS Holdings Ltd., a leading Chinese data center operator within Tier 1 cities, detracted the most. Shares fell due to the overall sell-off in Chinese technology-related companies given tightening government regulations, market concerns regarding supply and competition, and escalation of geopolitical tensions. We exited our position.

The increasing pace of vaccinations, strong corporate earnings, favorable monetary policy and fiscal stimulus, and record cash levels held by both consumers and companies bode well for economic growth. While interest rates have increased, they remain low on a historic basis, and we expect investors to continue to search for yield, which should aid REITs, other dividend-yielding real estate companies, and real estate companies broadly. We believe this is an opportune time for active managers in real estate who have the flexibility to shift into growth areas while avoiding others facing a longer and more uncertain recovery.

products and services related to the health care industry. The Fund’s allocation among the different subsectors of the health care industry will vary depending upon the relative potential the Fund sees within each area. The Adviser seeks to invest in businesses it believes have significant growth opportunities, durable competitive advantages, exceptional management, and attractive valuations. The Fund may purchase securities of companies of any market capitalization and may invest in foreign stocks. Of course, there can be no guarantee that we will be successful in achieving the Fund’s investment goals.

Following the worst of the COVID crisis, elective care resumed, high expenses related to COVID patient care subsided, and medical equipment and pharmaceutical stocks followed the market higher in 2021. In addition, in June, the Supreme Court again ruled that the individual mandate provision of the Affordable Care Act (“ACA”) was constitutional, thwarting efforts to repeal the entire ACA and avoiding potential sector upheaval.

Life sciences tools & services, health care equipment, and pharmaceuticals contributed the most. Health care technology detracted.

ICON Plc was the largest contributor. Shares of this leading global contract research organization providing drug development support to the biopharmaceutical industry ended 2021 strongly after reporting a solid first quarter post-merger with PRA Health Sciences. There was no evidence of disruptions, and both revenue and cost synergies appear achievable if not beatable. Biopharmaceutical funding remains robust, and the added breadth and depth provided by the merger ensures ICON’s seat at the RFP table.

Natera, Inc. was the largest detractor. Shares of this leader in non-invasive prenatal testing fell as the broader genomics space sold off. Natera has also applied its proprietary blood testing technology for organ transplant rejection testing and cancer detection, and we maintain conviction that Natera is in the early innings of changing the standard of care within cancer recurrence monitoring.

The Health Care sector has many favorable long-term attributes, such as cost-saving and care-improving advances in medical technologies and an aging population who will demand more extensive drug treatments and medical care over time. Valuations are relatively attractive, and balance sheets are generally in good shape. We also believe we are in the beginning of a transformational period in health care with major advances in science, medicine, and technology. Funding for research remains robust and regulatory approvals of novel drugs continue at high levels. We focus on identifying high-quality, competitively advantaged growth companies with great management teams that we believe will benefit the most from the secular trends we have identified.

Baron FinTech Fund is a non-diversified fund that invests in companies of any market capitalization that develop or use innovative technologies related in a significant way to financial services. The Fund invests principally in U.S. securities but may invest up to 25% in non-U.S. securities. Of course, there can be no guarantee that we will be successful in achieving the Fund’s investment goals.

FinTech was uncharacteristically weak in 2021 due to a number of factors, including: 1) competition between “legacy” and increasing numbers of FinTech start-ups built on modern technology; 2) cryptocurrency disintermediation risk; 3) disruption from Buy-Now Pay-Later providers; 4) headwinds for card networks and merchant acquirers due to the slow recovery of cross-border travel; 5) a rotation into traditional financials and other cyclicals driven by rising interest rates; and 6) competition for capital from new issuances given a record-high 39 FinTech IPOs and a similar surge of SPAC activity.

At the sector level, Information Technology, Financials, and Industrials contributed the most to performance. Consumer Discretionary and Communication Services detracted.

Endava plc was the top contributor. Shares of this provider of consulting and outsourced software development performed well as revenue and earnings growth accelerated throughout the year, reaching 55% and 89%, respectively, in the most recent quarter. Demand was strong as software modernization, cloud computing, and digital transformation remain top priorities for businesses. Management expects organic revenue growth to exceed 30% this fiscal year and 20% over the long term with upside from accretive acquisitions.

Block, Inc., which provides point-of-sale technology to small businesses and operates the Cash App ecosystem of financial services for individuals, declined on a moderation in Cash App growth from elevated levels as the benefits of government stimulus payments wore off as well as investor concerns about the earnings prospects for the pending acquisition of Afterpay, a provider of Buy-Now Pay-Later services. We remain investors given Block’s long runway for growth, competitive advantages, and unique corporate culture.

Despite the recent pullback, we feel positive about the growth prospects for our holdings. While we pay close attention to the factors outlined above, we consider them only in the context of how they may impact the fundamentals and long-term growth opportunities of our holdings. Volatility often presents opportunities to upgrade the portfolio at more attractive valuations. Longer term, we expect FinTech companies to benefit from secular growth trends such as the shift to electronic payments, the rise of e-commerce, the need for data and analytics to inform decision-making, the electronification of the capital markets, and the need for more modern technology and digital transformation in all areas of commerce.

Baron New Asia Fund is a diversified fund that invests primarily in companies of all sizes with significant growth potential located in Asia. The Fund emphasizes securities in developing Asian markets, including frontier markets. Under normal circumstances, the Fund invests 80% of its net assets in companies located in Asia. The Fund seeks to invest in companies with significant long-term growth prospects and purchase them at prices we believe to be favorable. Of course, there can be no guarantee that we will be successful in achieving the Fund’s investment goals.

While the global markets continued their upward climb in 2021, beneath the surface, a major rotation took place. The year started off with the “recovery play,” with speculative and higher growth stocks peaking on the strength of massive policy stimulus, positive vaccine developments, and reopening economies. That trend, however, reversed as a slowdown in Chinese credit growth, concerns over COVID variants, and rising conviction that the Federal Reserve would not fall too far behind the curve coalesced to cool growth expectations and commodity prices. As a result, Asian emerging market equities lagged significantly, although we remain optimistic regarding their relative appeal, particularly on a multi-year basis.

On a country basis, India, Taiwan, and Japan contributed the most. China, Indonesia, and the U.S. detracted.

On a sector basis, Industrials, Materials, and Communication Services contributed the most. Consumer Discretionary and Health Care detracted.

Neogen Chemicals Limited was the top contributor. Neogen Chemicals is an emerging leader in India’s specialty chemical industry with a focus on bromine-based derivatives and lithium salts. Strong performance was driven by above-consensus earnings results and a robust long-term outlook. The company is a key beneficiary of supply chains diversifying outside of China and import substitution occurring within India. We expect earnings to sustain 20% to 25% CAGR over the next three to five years.

Zai Lab Limited was the top detractor. Zai Lab is a Chinese biotechnology company dedicated to bringing Western medicines to greater China and transitioning to a fully integrated company with internal drug development capabilities. Shares declined due to concerns related to investing in China given government actions to curb profitability. We are reviewing our position.

We believe the global economy, corporate earnings, and asset prices are influenced by two major axes of macroeconomic activity and liquidity: China and the U.S. While China’s regulatory and credit tightening cycle seems to be nearing its trough, the U.S. seems to be passing through a near-term peak with a phase of moderation or tightening increasingly inevitable. We also believe Omicron may represent the transition of COVID from pandemic to endemic and, subsequently, full economic normalization. While we suspect the recent correction may have further to run, we are increasingly confident that Asian emerging market equities are poised for a period of mean-reverting outperformance.