Magellan still reeling from horror year
Embattled funds management group Magellan has seen its funds under management stumble by more than 25 per cent to $45.3 billion in December, as the company works to win back clients’ trust and stem outflows that have plagued the business for months.
In an update to the ASX on Thursday, Magellan reported net profit from funds management, its core business, plummeted 61 per cent to $120 million.
A net outflow in its funds under management of nearly $15 billion was made up of $3.3 billion in retail outflows and $12.7 billion in institutional outflows. Last year, the company had $61.4 billion in funds under management in June and $115 billion mid-2021.
Shares in Magellan were up 7.4 per cent to $10.20 at the close, but are down 37.7 per cent over the year.
Magellan posted investment losses of $700 million, as it tries to recover from a troubled year in which senior management, including high-profile stock picker and founder Hamish Douglass, left.
Last February, Douglass announced he was taking medical leave after “intense focus” on his personal and professional life, sparking a mass exodus of investors. David George was appointed chief executive in May 2022 and as chief investment officer in October.
George said Douglass’ return as a consultant on macroeconomic and geopolitical issues was still in its early days, having come into force in October, and it would be reviewed before its expiry in June.
“The purpose of the contract is for Magellan and clients to benefit from those insights and continuity that it was put in place for,” George said. “We’re always looking at what value we’re getting.”
In October, George revealed the group would retain its cornerstone stake in star-studded investment bank Barrenjoey, despite its renewed focus on its core business of funds management. Magellan’s 36 per cent stake in the business and 16 per cent stake in technology and infrastructure provider FinClear Holdings delivered an $8.1 million loss in the first half. But Magellan expects the initial build out of Barrenjoey to be completed this financial year.
In the lead-up to Douglass’ departure, Magellan’s flagship global equities fund had been underperforming, and its chief executive Brett Cairns had suddenly resigned after 15 years with the company.
George said in December that Magellan aimed to return funds under management to $100 billion in five years. On Thursday, he said it remained a very achievable target.
“We’ve got a product development pipeline which we’ve made very deep progress on and opportunity to add complementary skills, teams and even businesses to the platform,” he said.
The former Future Fund deputy also said the investment team was refocusing on areas directly adjacent to their skills, after straying in the past.
“We’re always looking at new strategies, but we had let that expansion happen too broadly,” he said. “We’re focusing the team back towards the baseline global strategy and infrastructure strategy.”
George noted last year that his role would not be one of a stock picker but as overseer of areas where performance has wavered. On Thursday, he attributed part of the fund’s weakness to the way the team interacted.
“We’re changing the way we interact as a team, building more opportunities for collaboration and being a bit more nimble to improve our decisions,” he said. “We’ve changed how we have our meetings, how quickly we discuss new ideas, and how frequently everyone’s in the same room or having conversations at the desks, creating a more dynamic interaction environment.”
Morningstar equity analyst Shaun Ler said it was unlikely the company would achieve its $100 billion target in five years, but that its strategic adjustments and cost management put it in good stead.
“Achieving its target would be immensely difficult without making acquisitions,” he said. “But we think the stock is ultimately undervalued. Net outflows are moderating, and I was surprised they maintained their cost level.”
But as macroeconomic uncertainties including inflation prevail, Ler said Magellan still had a robust foundation to build on.
“Magellan used to hold all of these highly inflated stocks and hold them for long periods of time,” he said. “When interest rates rose, they didn’t rebalance the portfolio, but they’ve been trying to institute some processes to make them more reactive. Magellan’s performance hasn’t been outstanding but in aggregate, it has improved over the past 12 months.”
Despite facing hostile questions from shareholders, a vote to increase the pay of non-executive directors from $750,000 to $1.75 million was passed with 95 per cent support in December, as the company worked to renew and expand its board.
On Thursday, George said the recruitment process was still ongoing for new board members, after the company appointed one in December.
Magellan declared an interim dividend of 46.9 cents a share, down from 68.9 cents a share in the previous half.
The Business Briefing newsletter delivers major stories, exclusive coverage and expert opinion. Sign up to get it every weekday morning.
Most Viewed in Business
Source: Thanks smh.com