Magellan trade suspended pending contract loss with eyes on St James’s Place

Less than a fortnight after the unexpected departure of its chief executive, Magellan Financial Group is poised to lose a major funds source – expected to be St James’s Place.

Hamish Douglass, Magellan chairman and co-founder. Picture: Britta Campion / The Australian

Less than a fortnight after the unexpected departure of its chief executive, Magellan Financial Group is poised to lose a major mandate – widely expected to be that with St James’s Place.

The funds-management giant has been in deep turmoil since the unexplained exit of Brett Cairns and the public dissolution of chairman Hamish Douglass’ marriage.

In a Friday afternoon statement, Magellan said it had requested the ASX halt the trading of the company’s shares “pending an announcement (relating) to the termination of a material contract”. The halt is expected to remain in place until Monday.

Until the halt, Magellan shares had risen 51c – or 1.77 per cent – and last traded at $29.36. Since the start of the year, however, shares have fallen more than 45 per cent.

The company did not immediately clarify which mandate the termination related to.

But its most material mandate is with St James’s Place, a British wealth management and financial planning adviser. Equities analysts at Jarden Australia suggest the mandate is worth £10bn ($18.6bn), representing 25 per cent of Magellan’s institutional managed funds. It would also represent some 18 per cent of all funds under management at the company.

St James’s Place flagged Magellan as a mandate “subject to closer ongoing monitoring”.

The Australian on December 8 reported that Magellan was quietly offering significantly lower fees to some domestic wealth managers despite having resisted those demands for several years.

The new product for managed accounts operators had fees 50 basis points lower than the regular global equities fund – Magellan’s main investment vehicle.

Magellan said the new offering is not at a discount, and is only offered once managed account operators reach a $20m threshold.

Magellan’s global equities fund over the year to September had underperformed its benchmark by 18.8 per cent. It underperformed by 1.1 per cent over five years. Analysis published by UBS earlier this month estimates the fund had seen $560m in outflows in October and November – although this was offset by inflows of $780m.

Jarden Australia equities analysts Elizabeth Miliatis and Kieren Chidgey wrote in September that they would be surprised if St James’s Place dropped Magellan.

However, this was before the departure of Mr Cairns and public ruminations over Mr Douglass’ marriage.

“Though 25 per cent of (St James’s Place)’s managers were flagged as ‘amber’ or ‘red/watchlist’ in both 2020 and 2021, none were replaced – perhaps suggesting more prolonged periods of underperformance are required before (St James’s Place) reallocates mandates to alternate managers,” they wrote to clients.

“Though, we suspect poor reviews could provide SJP with a springboard to renegotiate fees.”

Persistent speculation that Mr Cairns’s departure was related to Mr Douglass’s family situation led the company to issue a second statement earlier in December confirming he and his wife had separated “some months ago”.

“There has been unfounded speculation in the media regarding our shareholding in Magellan … we can confirm we have no intention to sell any of our shares,” the statement read.

Any split in the assets could create a liquidity event for Magellan. Judith Nielsen in October sold about $300m in Platinum Asset Management shares only a fortnight after she took control of the stake in the company run by her former husband Kerr Nielsen.

Originally published as Magellan trade suspended pending contract loss with eyes on St James’s Place