Magellan shares tumble as Hamish Douglass takes a leave of absence

Magellan founder Hamish Douglass will step down from his duties and take medical leave after a period of “intense pressure and focus” on both his personal and professional life, causing the Sydney fund manager’s share price to plummet to new lows after months of turmoil.

Magellan reported on Monday that Mr Douglass would take a leave of absence as Magellan’s chair and chief investment officer, with co-founder Chris Mackay taking responsibility for his investment duties and director Hamish McLennan becoming chair in the interim.

Magellan co-founder Hamish Douglass is taking medical leave after a period of “intense pressure and focus” on both his personal and professional life.Credit: Janie Barrett

The leadership reshuffle, alongside the re-appointment of portfolio manager Nikki Thomas to the group, comes as Magellan reported ongoing outflows had contributed to the group’s total funds under management falling again to $93.5 billion from $95.5 billion between December and January this year.

The news prompted Magellan’s share price to tank by more than 11 per cent to close at $16.43 per share, its lowest point in more than six years.

In a statement filed with the ASX on Monday, Magellan’s board announced Mr Douglass had requested a period of medical leave “to prioritise his health” after a period of “intense pressure and focus on both his professional and personal life”.

“The Magellan board wholeheartedly supports Hamish taking the time that he requires to focus on his health and looks forward to welcoming Hamish back.

“At the request of the board, Mr Chris Mackay will oversee the portfolio management of Magellan’s global equity retail funds and global equity institutional mandates.”

Mr Mackay was Magellan’s chief investment officer from 2006 to 2012 and the company said he is a “highly experienced and respected global equity portfolio manager, with a very strong long-term record of managing global equities”.

Magellan non-executive director turned interim chair Mr McLennan said the board “wholeheartedly supports Hamish’s decision to prioritise his health and Magellan is committed to providing him the time and support he requires”.

“I am grateful that Chris Mackay has agreed to oversee the portfolio management of Magellan’s global equity retail funds and global equity institutional mandates, alongside Magellan’s excellent existing global portfolio managers,” Mr McLennan said.

Mr Douglass was forced to disclose last year that he had separated from his wife, after mounting concerns divorce proceedings could trigger a liquidity event if the couple sold their jointly owned stake in the company.

The personal problems came at a tumultuous time for Magellan, after Brett Cairns abruptly stood down as chief executive and the fund manager lost its largest client, St James’s Place, following ongoing underperformance in Magellan’s flagship global equities fund.

“Some people could view this as a sign of instability, as a sign of weakening capabilities. I’m not sure. It is anyone’s guess at the moment.

Morningstar analyst Shaun Ler

Magellan’s share price has fallen by more than 65 per cent over the past 12 months. Last week, Mr Douglass appeared at a Morningstar event where he pleaded with investors to overlook short-term downturns in stock markets but was met with an angry response from viewers.

Morningstar analyst Shaun Ler said Mr Douglass’ leave was “disappointing news” that could cause further investor panic and fund outflows in the short term, as analysts and investors scramble to price the material impact of the star investor’s absence.

“Some people could view this as a sign of instability, as a sign of weakening capabilities. I’m not sure. It is anyone’s guess at the moment,” he said. “It has never happened before in Magellan’s history.”

Magellan co-founder Chris Mackay (left) will assume responsibility for Douglass’s investment duties in the interim with director Hamish McLennan becoming chair.Credit: Tamara Voninski

However, Mr Ler believes Magellan’s stock value remains under-priced. “This business is still a super profitable, cash generating, funds management business that holds a portfolio of very high-quality stocks that we expect to outperform in the long term.”

The length of Mr Douglass’ medical leave is unclear, but Mr Ler said Mr Douglass could afford to take time off because his portfolio is long-term, and many of the stock positions had already been made.

“This is a buy and hold portfolio. It’s not a hedge fund where the portfolio manager needs to sit there 24 hours per day and try and time the market. In fundamental terms, if Hamish goes for leave, the portfolio’s performance will not be affected.”

JPMorgan issued a research note last week forecasting Magellan’s “flow challenges to remain rough” for “a couple of years” following ongoing leadership instability and underperformance.

“We think it also makes it difficult for financial advisers to meet their best interest duties to their clients by recommending an underperforming fund.”

JPMorgan said Magellan has among the lowest cost to income ratio for staff remuneration at comparable companies, which “has potential to be a risk around staff retention and attrition if employees aren’t remunerated appropriately”.

“While Hamish Douglass, through his ownerships stake, would be appropriately incentivised – he remains a key person risk. Any key change in personnel could risk seeing an increase in costs when equity incentivisation of existing owners like Mr Douglass needs to be replaced,” JPMorgan said.

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