Magellan CEO’s abrupt resignation spooks investors

The sudden departure of Magellan’s chief executive has raised investor concerns about the future sustainability of the fund manager’s earnings, after years of underperformance in its flagship investment product and the rise of cheaper alternatives.

Magellan announced on Monday evening that Brett Cairns would resign as CEO and leave the company effective immediately after joining it at inception in 2007, spending three years as executive chairman and two years in the top role.

In an ASX statement, Magellan said Mr Cairns’ abrupt departure was for “personal reasons” but provided no further details. Efforts to contact Mr Cairns and Magellan chief investment officer Hamish Douglass on Tuesday were unsuccessful.

Magellan CEO Brett Cairns has resigned.Credit: Janie Barrett

Mr Douglass released a statement in which he described Mr Cairns as a long-standing and key member of the Magellan team and praised his “extensive contribution” to the company, including work launching Magellan’s exchange traded and retirement products.

“On behalf of the company, I would like to thank Brett for his extensive contribution to Magellan since 2007 and wish him all the very best in his future endeavours,” Mr Douglass said.

The abrupt resignation caused Magellan’s share price to fall over 6 per cent on Tuesday to $29.10 as investors dealt with the lack of information and questioned the future trajectory of the company under interim CEO and former chief financial officer Kirsten Morton.

Magellan’s flagship global equities fund has underperformed the benchmark by around 15 per cent over the past 12 months and the company’s share price has almost halved during the same period. Mr Douglass was forced to apologise to investors while reporting the company’s full-year results in August, but pledged a turnaround was imminent.

ECP chief investment officer Manny Pohl, who has owned Magellan shares for a long time, said Magellan’s counter-cyclical investment strategy had “really hurt them quite dramatically in the last quarter” as markets had risen over the past 18 months. Dr Pohl said he was concerned about Mr Douglass’ decision to move into broking, with Magellan taking a 40 per cent stake in new outfit Barrenjoey.

“The jury is out [on Barrenjoey],” Dr Pohl said. “We will watch what he does – if there is anything outside of Barrenjoey that is abnormal to a fund manager. We are still holding, but there are a couple of little concerns that we have that we are watching.”

Dr Pohl added he is “always concerned” when an executive’s departure is unexpected. “However, less so when there is a succession plan in place or in the case of a fund manager when it is not the chief investment officer but someone who really could be seen as a chief operating officer.”

Argo Investments senior investment officer Andy Forster, who does not hold stock in Magellan but watches the company closely, said investors were likely spooked by longer-term trends that could undermine Magellan’s future earnings.

Mr Forster said he did not wish to downplay Mr Cairns’ contribution to the firm, but his departure would not significantly change the group’s fundamentals as it was Mr Douglass who called the shots. “If Hamish were to leave, that would be a far bigger concern to the business,” he said. “Hamish is the main game. He’s considered a bit of a doyen of the market.”

Mr Forster said investors would be increasingly concerned by Magellan’s outlook which could be marred by ongoing underperformance, flatlining funds under management growth and greater competition from lower cost investment managers. “Generally they [Magellan] have been a relatively expensive manager. People are questioning whether that’s sustainable.”

Atlas Funds Management founder Hugh Dive, who also does not own shares in Magellan, said investors deserve more information about Mr Cairns’ resignation. “Whenever someone who’s been there for a very long time leaves, it’s always a bit of a concern. Particularly as we’ve seen the share price has been under extreme pressure.”

Mr Dive said he was unconvinced by the explanation provided, as typically vague responses indicate other problems within senior management.

“Obviously Cairns has been there for a very long time, he’s been there since day dot. And he’s been very heavily involved in the business.

“We’ve all been in the market a long time and those ‘personal reasons’ or ‘more time among family’ [statements] can often be very different to what they’ve said ... It’s not like the company is powering ahead.”

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