Zenith warns on Magellan, puts products under ‘review’

The ratings house says there have been ‘material’ personnel changes at the company after several portfolio managers were dumped.

Ratings house Zenith has placed about 20 Magellan Financial Group asset management products under review, citing “material” personnel changes and dealing another blow to the investment firm.

The move comes after Magellan on Monday said chief executive David George would formally also take on the role of chief investment officer, as part of a string of other staff changes as he puts his stamp on the firm. Gerald Stack, portfolio manager of the Magellan Infrastructure Fund, was appointed deputy CIO.

As part of the sweeping changes, Magellan co-founder Chris Mackay is moving away from an oversight role of Magellan’s global equities strategy, which will continue to be managed by Arvid Streimann and Nikki Thomas.

In a note to clients, obtained by The Australian, Zenith said: “Zenith believes the executive and investment personnel changes are material, noting that Magellan’s entire product suite is affected by the changes.

“As such, Zenith has placed the following products Under Review until we meet with the relevant personnel, following which we will provide an update.”

Of the products and funds Zenith said were now “under review”, three had previously been rated “highly recommended” while the remainder were rated “recommended”.

The ratings move may have negative implications for Magellan’s fund flows. Financial advisers belong to dealer groups and if a fund’s rating drops below a certain level, investment requires additional sign-off.

Zenith isn’t the only house to adjust its ratings on Magellan. This month, Morningstar downgraded three Magellan infrastructure funds to a silver rating, from gold. That followed Morningstar downgrading the Magellan Global Fund to a bronze rating in February.

Magellan’s staff changes this week saw the firm make 10 of its employees redundant, including senior portfolio managers and investment-related employees.

The personnel changes saw Elisa Di Marco appointed portfolio manager of the Magellan Core International strategy, replacing Vihari Ross.

Ms Thomas and Alan Pullen were appointed as co-portfolio managers of the Magellan High Conviction strategy, replacing Chris Wheldon and Michael Poulson.

Gerald Stack will continue to lead the infrastructure team with support from David Costello, Jowell Amores, Ben McVicar and Ofer Karliner.

On the Magellan Global Infrastructure Fund, Morningstar’s report said: “The team largely operates as a silo, meaning it’s somewhat isolated from broader business issues Magellan has encountered recently. While comforting from a functioning perspective, we see heightened risk of Stack and the infrastructure team leaving the firm, both as individuals or as a collective.

“That said, retention incentives have been enhanced, and they remain one of the most insightful within the infrastructure sector with consistently strong analysis. Magellan’s process is more conservative than some peers, applying a strict definition of infrastructure.”

The ratings house also highlighted Magellan’s “above-average annual base fee of 1.05 per cent plus performance fee” across the three infrastructure funds as a potential negative for investors.

Mr George is seeking to stem the Magellan damage, given its prolonged underperformance and the exit of executive chairman and former CIO Hamish Douglass earlier this year. That followed the departure of former CEO Brett Cairns in late 2021.

Mr Douglass has, however, returned to Magellan this month as a consultant.

Magellan has been bleeding funds, with the manager’s latest update showing funds under management tumbled to $50.9bn in September, down from $57.6bn at the end of August. Of the $6.7bn decline, outflows accounted for $3.6bn.

Magellan has lost, in the past 12 months, $62.4bn in funds under management.

Its shares closed 4 per cent higher at $11.18, giving it a market value of $2.05bn, in a sharply higher market.

Originally published as Zenith warns on Magellan, puts products under ‘review’