Magellan Financial Group held its first fury-free annual general meeting

For the first time in many years Magellan shareholders appear to have found a management team they can back, as the company announces its first short fund and declares the ship to be steady.

Magellan chairman Andrew Formica. Picture: Britta Campion

Magellan Financial Group held its first fury-free annual general meeting for several years on Tuesday, with shareholders appearing willing to give chairman Andrew Formica and his recently installed chief executive Sophia Rahmani time to turn the business around.

Mr Formica has chaired the former funds management darling for just over a year and has moved quickly since joining Magellan to try to stem its outflow of funds which shrank to $38bn by last month, from $100bn three years previously.

Active funds management firms have been consolidating to survive as investor dollars have flowed instead to cheaper exchanged traded products.

“So we’re now approaching three years since those leadership changes in investment teams ... a lot of it is just about people wanting to see these investment teams running the money, to see how they do through different periods and cycles,” said Mr Formica. “It’s starting to resonate, but it just takes time.”

Magellan also lost the founder of its Airlie Funds management unit John Sevior six months ago through retirement, which triggered an outflow of FUM but this unit has quickly recovered.

“Thankfully the team and the processes in place have been very solid and continue to deliver exceptional results for clients, and we’ve been able to return, restore that, grow those assets, and they have a very strong path forward,” Mr Formica said

The company’s “strong path forward” also includes inorganic growth. In Australia many investors have become particularly cautious of growth through acquisitions after iconic brand Perpetual delivered itself a series of potentially fatal blows through bad takeover decisions.

Mr Formica agreed that there were “significant examples” where mergers and acquisitions in asset management were value destructive and it was not “the only forward path for growth”.

Magellan will outline details of its capital management approach in February and Mr Formica said Ms Rahmani had been identifying potential acquisition opportunities to the board, given the firm has $350m allocated to “strategic capital and a buffer”.

“That work is still very much at an early stage,” he said, adding the target fund firms would be ones “where we feel they have a significant opportunity for forward growth”.

Two months ago Magellan paid $138.5m for a 29.5 per cent stake in quantitative investor Vinva Holdings and announced at the AGM it had started two new funds, the Vinva Global Equity Fund and the Vinva Australian Equity Fund, and said it has plans to launch its first ever long-short fund, to be called Vinva Australian Alpha Extension Fund, next month.

Vinva specialises in systematic long-short products and has increased its FUM by $1.6bn to $23.1bn since the deal with Magellan was announced.

Ms Rahmani said the new funds would allow Magellan to offer more “innovative” products to investors.

“We are bringing Vinva’s investment expertise and track record of performance to more clients through these innovative and high-quality investment products, which are complementary to Magellan’s existing offering,” she said.

Magellan has refused to disclose the multiple of earnings it paid to buy almost a third of Vinva from a former university friend of Mr Formica, Morry Waked, citing confidentiality around the deal.

There were only about 50 shareholders in the room for the AGM held in Pitt St, Sydney, and unlike last year, there were no strikes against the company’s remuneration report, although there were questions about the performance testing for its new long-term incentive plan.

Michael Jackson from The Australian Shareholders Association asked the board to consider adding long-term FUM as a test for the company’s LTI program.

“We see funds under management as a key health indicator for the business,” Mr Jackson said, adding he would like to see it added as a test over four years for performance payouts.

The chairman was quizzed about why there was almost double the amount of FUM coming from offshore than local.

“The Australian institutional market is a much more difficult market, particularly over the last few years given the predominance of the large super funds to both consolidation as well as a lot of insourcing,” Mr Formica said. However, “Vinva has seen significant strength in that market, so it will be a component of our growth, continuing to work with the large superannuation funds here”.

The chairman was also quizzed on Magellan’s decision to spend $75m buying up options in its Magellan Global Fund. The move netted Keybridge capital, run by controversial investor Nick Bolton, a $17.6m payday after the investment house raised the spectre of voting to get rid of Magellan as the manager and responsible entity of the fund. The agreement could have cost an additional $25m if other unit holders had sold.

Mr Formica said it paid 10 cents per unit, whereas if any holders had converted their units it would have cost 15 cents.

“By buying them back at a discount to that full liability we were able to save shareholders money,” he said. “The situation was quite fraught because of the large number of what I would call ‘active participants’ on the register who were probably acting against the interests of the long-term shareholders.”

Since finalising that deal, Keybridge has been suspended from trading following complaints by veteran shareholder Geoff Wilson (who is frequently involved in tit-for-tat fights with Mr Bolton), who has questioned where the funds from that win against Magellan have gone.