Hamish Douglass to be replaced as chair of Magellan Financial by REA chair Hamish McLennan

Hamish McLennan, the incoming chairman of Magellan Financial, says the funds manager’s investment approach won’t change with the exit of his predecessor Hamish Douglass.

Magellan founder Hamish Douglass has requested a period of medical leave with co-founder Chris Mackay returning to oversee the company’s retail and institutional funds. Picture: Britta Campion

Hamish McLennan, the incoming chairman of Magellan Financial, says the funds manager’s investment approach won’t change with the exit of his predecessor Hamish Douglass – but new stockpicker Chris Mackay will “pressure-test” the strategy.

Mr Douglass has taken leave to focus on his health after a bruising two months. Since December, the ASX-listed Magellan has lost its chief executive and its largest investment mandate.

Mr Douglass has also faced difficult personal circumstances, and in December confirmed he had split from his wife Alexandra.

On Monday Magellan said it would bring back highly respected investor Chris Mackay, who co-founded Magellan with Mr Douglass in 2006, to oversee its retail and institutional funds.

Since 2013 Mr Mackay has run the ASX-listed MFF Capital, sharing an office with Magellan.

Mr McKay will be joined by Nikki Thomas, a former Magellan portfolio manager who until last months had been overseeing the global equities team at Alphinity Investment Management.

“The overarching investment strategy which was originally set up by Chris Mackay and Hamish won’t change,” said Mr McLennan, who is also chairman of REA Group and Rugby Australia.

“We’ll focus on high-quality companies that represent value, with good downside protection.

“As Chris has stepped in, he’ll pressure-test all assumptions and ensure that he’s satisfied with the execution of that strategy.

“Chris has a different style but he’s a world-class investor in his own right and very committed to the company. He will assess what needs to be done in his own way.

“Magellan has a deep front bench and, with the recent rejoining of Nikki Thomas, assures me of the high calibre of executives at the company,” Mr McLennan told The Australian on Monday.

But investors remain wary of the tumult at Magellan. Shares in the company dropped 11.2 per cent on Monday, closing at $16.43. The stock has fallen more than 66 per cent in the last 12 months.

Morningstar equities analyst Shaun Ler said Monday’s developments “could add to the list of reasons for investors to consider redeeming their money”. “When combined with Magellan’s recent events, it inevitably makes investors nervous,” he said.

In late December, Magellan lost its largest mandate – worth around $23bn – with shares falling 33 per cent in one day.

REA Group chairman Hamish McLennan. Picture: John Feder

Equities analysts had warned that the loss of the St James’s Place mandate would put additional pressure on other institutional investors and on fees being charged to retail investors.

Despite the instability, Morningstar’s Mr Ler said there was no indication that Magellan’s investing capability was “deteriorating”.

“The global equities strategy remains in good hands,” he said.

“Chris Mackay currently runs MFF Capital, which has a similar style to Magellan … Nikki managed global equities at Alphinity and has a strong track record. During her tenure, the global equity strategy delivered consistent top quartile performance.

“This allows Magellan to showcase its broader investment talent, which runs deep beyond the team and is beyond just Hamish.”

Mr Ler said that longer term, this alleviated key person risk.

“The share price weakness is mainly sentiment-driven rather than a deterioration of its ­fundamentals,” he said.

“Brett Cairns’ departure and Hamish’s family issues have zero bearing on Magellan’s investment capabilities.

“What’s transpired thus far is a self-reinforcing negative feedback loop. Fears of interest rate rises and the hit to tech stocks coincided with some issues within Magellan, which created the perfect storm that hit them at the wrong time.”

The reshuffle of the board and the investment team came as the latest funds under management update showed a 2 per cent fall for January. In a note late on Monday, Bell Potter’s director of institutional sales Richard Coppleson said that what stood out was the slide in retail funds.

“The retail exodus that always takes time to turn – has turned … now the big question is when will it stop – or will it keep going,” Mr Coppleson wrote. “The big problem is that once the tap opens right up it’s very hard to stop.

“I continue to believe that the stock is going nowhere for 2022, (and) will trade in range as so many issues will play out before stock sees any real (institutional) support. “But in reality, to get the share price moving, they need the instos back on side and that will need 2022 performance to improve big time,” he added.

MFF Capital has fared better than Magellan on the ASX in recent months, with shares up 6 per cent in the last year. It has several large holdings in common with Magellan’s global fund, including Visa, Meta Platforms, Microsoft and Alphabet.

Magellan said Mr Mackay and Ms Thomas would work with deputy chief investment officer Dom Guiliano and portfolio managers Chris Wheldon and Arvid Streimann in managing the company’s global equities mandates. Magellan did not say whether acting chief executive Kirsten Morton would remain in the role. It is also unclear when Mr Douglass will return from leave.

The Australian has previously reported that Airlie Funds Management co-founder David Cooper had been approached by Magellan as it continued the search for a permanent replacement. Mr Cooper – who founded Airlie with John Sevior in 2012 – was not enthusiastic about the approach, several sources said.

The chief executive search has cast a wide net, with former Wallabies captain John Eales heavily involved in the process.

Mr Cairns’ exit from the company for “personal reasons” on December 6 came as a surprise to the market and led to significant market speculation about a possible rift with Mr Douglass.

The following day, a Magellan spokesman told The Australian that there had been “no falling out between” the two men and “Brett Cairns’ departure was in no way related” to Mr Douglass.

A subsequent disclosure that Mr Douglass and his wife had separated – though they remain close – led to further concerns that any split in the family’s assets could create a liquidity event for Magellan. A family vehicle – Midas Touch Investments – is the company’s second largest holder.

Magellan’s global equities fund over the year to September underperformed its benchmark by 18.8 per cent.

It underperformed by 1.1 per cent over five years – second only to a similar ­Platinum fund.

Mr McLennan was previously a Network Ten executive and held senior positions at News Corporation, publisher of The Australian. Magellan reports its first-half earnings on February 17.