‘We made so much money’: Investor banks $15m from shorting Magellan

A Sydney investment firm has made $15 million from short-selling shares in troubled fund manager Magellan, after its share price and funds under management have been sent into freefall amid ongoing leadership instability.

Tribeca Investment Partners senior portfolio manager Jun Bei Liu started short-selling Magellan shares, an investment tactic that profits when shares fall in value, in the middle of year when the ASX-listed company was valued at about $50 per share.

Fund manager Jun Bei Liu of Tribeca has made $15m from shorting Magellan. Credit: Jessica Hromas

Ms Liu’s team, which holds long and short positions on Australian equities, had noticed the relative underperformance in Magellan’s flagship global equities fund and predicted this would lead to lower fees and higher outflows, which would trigger an investor sell-off.

Ms Liu said she had heard rumours of leadership instability within Magellan, but the short position was made on the perspective the company’s stock value was over-priced relative to its earnings.

“We felt the performance is turning, the flows are not that strong, it’s too expensive – any surprises are going to be definitively on the downside,” Ms Liu told The Age and Sydney Morning Herald. “Then when the events started to unfold, then you really gather further evidence that the share price will struggle.”

Magellan’s share price has fallen to about $14 per share, its lowest point since late 2014, after a series of surprise announcements spooked investors and clients. “It’s quite stark,” Ms Liu said. “We made so much money from that short.”

Ms Liu said it will take years before Magellan can turn things around and predicted the stock had not yet reached its bottom as the company had failed to rebuild trust in the market.

“In funds management, it’s a trust business. If you don’t have that trust, it’s very hard to maintain business momentum,” she said. “They will still have some followers however quite a lot of them have lost faith. Even though outflow is slowing down, it is still a lot of money flying out the door every week.”

Magellan’s troubles started last December with the abrupt resignation of longstanding chief executive Brett Cairns, which was followed by a forced disclosure of founder Hamish Douglass’ marriage breakdown and the loss of Magellan’s largest investment mandate with UK-based St James’s Place worth around $23 billion.

Mr Douglass has been on medical leave since early February and on Monday the company announced he would resign from his board position yet failed to explain when he would return or in what capacity.

Magellan disclosed earlier this month that it had lost another $10 billion in assets in two weeks from institutional and retail investors. Some of these clients have mandates tied to Mr Douglass remaining as chief investment officer, while others were concerned about under-performance.

Magellan’s latest funds under management update put its total assets at around $69.1 billion, a significant reduction from last March when funds exceeded $106 billion. Magellan’s share price has also tumbled since December, falling another 3 per cent on Tuesday to $14.60 per share, down from more than $44 per share last March.

Longstanding Magellan shareholder ECP Asset Management divested its shareholding in Magellan earlier this year, blaming uncertainty around management. Chairman Manny Pohl said abrupt and widespread changes to Magellan’s leadership team showed a lack of succession planning.

Magellan declined to comment.

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