Magellan ‘more than just Hamish’, says new chair

Magellan’s new chairman says the embattled fund manager can survive without its star founder and stock picker, Hamish Douglass, as the company works to stem outflows from clients.

Magellan’s shares rose by more than 18 per cent on Friday after the group reported market-beating half-year profits of $251.6 million and delivered shareholders a hiked interim dividend of $1.10 per share.

Hamish McLennan, who has taken over from Mr Douglass as permanent chair, acknowledged Magellan faced ‘key man risk’ in Mr Douglass but said the remaining team was strong.

Magellan Financial Group chairman Hamish McLennan.Credit: Oscar Coleman

“The reality is there are a lot of people running this business. And it wasn’t all Hamish,” Mr McLennan said. “The company is more than just Hamish.”

Magellan lost $5.5 billion in client funds in the first six weeks of this year and is now bracing for further outflows as clients respond to Mr Douglass’ decision to take medical leave from his duties as chair and chief investment officer.

The decision to stand down followed a tumultuous period for the company, in which chief executive Brett Cairns abruptly resigned, Magellan lost its largest investment mandate worth $23 billion and Mr Douglass was forced to disclose a marriage separation.

Magellan co-founder Chris Mackay said the outflows were driven by Mr Douglass’ absence, with some client mandates tied to Mr Douglass remaining in the role, but also the flagship global equities fund’s underperformance and “sheep-like behaviour” from consultants.

Magellan’s senior management will travel to the US and UK in March to meet with clients to communicate the strength of the fund’s investment team and strategy.

Mr Mackay said Mr Douglass’s role when he returns had not been finalised, and neither had the timeline, but it would be investment and client-facing in an indication he may not remain on the board.

“It’s good news so far that Hamish appears to be recovering, we’re already working on thoughtful structures for him to come back safely,” he said. “The outpouring of feelings from professionals all around the world... has simply been heartwarming.”

Mr Mackay emphatically ruled out any fee reductions before taking aim at lower cost competitors. “The crap has risen to the top of the water ... If you are in crappy products and index funds when the market downturns, as it will inevitably in time, or if you are in cash when there is a lot of inflation, you will not be helping your retirement savings.”

Morningstar analyst Shaun Ler welcomed the permanent appointment of Mr McLennan and said there had been ongoing criticism around Mr Douglass’ dual role of chief investment officer and chair because of the lack of accountability.

“You want the board of directors to be independent from the company so they can assess how well the management team is performing,” he said. “If the management team is not performing well, then the board has grounds to replace them somewhat.”

Magellan’s 24 per cent increase in half-year profits was driven by a 12 per cent increase in average funds under management (FUM) over the six months to December 31, which resulted in a 13 per cent increase in fees.

Investment firm Barrenjoey Capital, in which Magellan owns 40 percent, delivered a $3 million profit swing which also beat market forecasts.

Tribeca Investment Partners senior portfolio manager Jun Bei Liu said the results were strong but did not capture the recent leadership turmoil and fund outflows.

“That result is in the past. Since that result, they have lost a significant amount of FUM. For fund managers, you have to have FUM growth momentum otherwise it is a downward spiral.”

Alongside the results, Magellan unveiled a number of shareholder initiatives including a bonus issue of options and possible share buyback. Ms Liu said this was a clear attempt to “sweeten the deal” for retail investors but warned this approach also came with negatives.

“To me, I don’t know why they’re doing it. It is dilutive for the company, once the share price starts moving,” she said. “All of that has been put in place to try to arrest the share price decline, I don’t know if it will be enough.”

Magellan said it would make no new investments in Magellan Capital Partners, which holds stakes in restaurant chain Guzman and Gomez among others. Instead, the group’s priorities would focus on improving asset management, retaining staff, lifting governance and engaging with customers.

Ms Liu said it was important to fix the core strategy. “They need to get the investments right, get the people right.”

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