Magellan investor dumps stock amid leadership instability

A Sydney investor has divested a longstanding shareholding in Magellan after months of turmoil and leadership instability caused the fund manager’s share price and assets to plummet to fresh lows.

ECP Asset Management chairman Manny Pohl said his firm was an early investor in Magellan and the stock had made up between 2 and 6 per cent of the $2.8 billion portfolio over the past five years.

Dr Manny Pohl’s ECP Asset Management has sold its longstanding shares in Magellan. Credit: Paul Harris

However, Dr Pohl said the sudden departure of chief executive Brett Cairns last December prompted a review of the holding. The team ultimately decided to sell out entirely because of uncertainty around the fund’s performance under the new leadership team.

“If two or three key guys are gone, we can’t bank on anything in the past going forward,” he said. “We want to be comfortable the management team are able to produce results.”

Dr Pohl said he would consider reinvesting in Magellan once there was a three-year performance record under the new management team. He said all funds management businesses faced a degree of ‘key man risk’ and that is why succession planning is so important.

“Clearly Hamish [Douglass] was a really very visible figure. And that is always a problem with fund managers ... You can have a rock star in the front but you need back-up people who can step up whenever you need. Unfortunately, in Magellan’s case he was quite a strong character and I don’t think he allowed others to come through.”

Magellan launched a share buyback on Wednesday in what chair Hamish McLennan said was an “effective way to enhance value for shareholders”.

Magellan said it would buy up to 10 million shares, or 5.4 per cent, on issue. A buyback would enhance shareholder value by shrinking the share register to concentrate value.

“The buyback is consistent with our aim to deliver capital efficiency, solid dividends and attractive returns for shareholders with a focus on our core funds management business,” Mr McLennan said.

The news prompted Magellan’s shares to jump by 3.17 per cent to $14.31 but the stock value remains at its lowest point since late 2014.

The potential for a buyback was first flagged during Magellan’s interim results in February, when management fielded questions from analysts over the departure of star investor Mr Douglass, who is taking medical leave for an unspecified period.

Magellan’s funds under management have continued to slide to new lows after the firm lost its largest investment mandate, St James’s Place, which was worth about $23 billion.

Magellan disclosed earlier this week that it had lost another $10 billion in assets in two weeks after institutional and retail clients ripped money from the firm. Some of these clients have mandates tied to Mr Douglass remaining as chief investment officer, while others were concerned about under-performance of Magellan’s flagship global equities fund.

Dr Pohl said he was not concerned about Magellan’s performance because its investment strategy is designed to outperform in bear cycles and underperform in bull cycles. He said it was the abrupt management change that was most concerning. “It’s always a shame when you have an iconic business with people who are respected in the industry to see it unfold the way it has.”

Magellan co-founder Chris Mackay is travelling to Europe to meet with institutional clients this month to answer questions about the business and ease investor concerns.

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