Relief for Hamish Douglass as Magellan wins support from Zenith

After a fortnight from hell, Hamish Douglass has had a win. Zenith Investment Partners, an influential researcher for ­financial advisers, says it has confidence in Magellan Financial.

Magellan Financial chairman and co-founder Hamish Douglass. Picture: Britta Campion

After a fortnight from hell, Hamish Douglass has had a win. Zenith Investment Partners, an influential investment researcher for ­financial advisers, says it has confidence in Magellan Financial even as Mr Douglass’s funds management group is mired in crisis.

In a note to clients, Zenith said it was confident Mr Douglass would “remain focused on investments”, with the appointment of an interim chief executive as Magellan searches for a permanent replacement “alleviating our concerns regarding focus risk”.

“However, we will reassess the situation once a CEO is formally appointed,” it added.

Magellan’s former chief executive, Brett Cairns, abruptly quit on December 6 after 13 years at the funds management group, one of the largest in the country.

Magellan did not explain his departure except to say it was for “personal reasons”. Since then, Mr Douglass has disclosed that he has separated from his wife – although the pair say there will be no sale of Magellan shares – and the company has lost its biggest mandate, managing $23bn for British wealth giant St James’s Place. While the loss of the St James’s Place mandate was a disappointing outcome for Magellan, “the business remains highly profitable and maintains a diversified client base,” Zenith wrote in its note to clients.

“Management is sensitive to the recent decline in the share price and impact on employee shareholders and is exploring other structures and retention strategies to alleviate this issue and ensure key staff remain incentivised and retained.”

The Australian on Tuesday reported that Magellan’s board had raised concerns about Mr Cairns’s management style with the then chief executive before his departure. This is despite the fact that there were no formal complaints.

Magellan has appointed Kirsten Morton as chief executive while a search for Mr Cairns’s replacement is under way. Zenith said it had met with Mr Douglass and Ms Morton.

Magellan’s main fund, its global equities strategy, has underperformed its benchmark by 3.2 per cent in the three months to November and by more than 14 per cent over the year.

Zenith, in its note, said it ­retained “confidence that Magellan’s investment strategies, invest­ment process and team are well placed to meet their investment objectives going forward and are highly motivated to address recent weaker performance, noting that the flagship Magellan Global Fund and its variants have an absolute investment objective of 9 per cent per annum (after fees), which continues to be met.”

The Australian this month reported that Magellan had begun to quietly offer significantly lower fees to wealth managers after resisting those demands for years.

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

“Almost 70 per cent of the remaining (funds under management) is from (institutional) clients, largely from outside Australia, and is at risk of lumpy outflows in our view,” wrote Morgan Stanley analyst Andrei Stadnik in a note to clients this week.

“We also think this puts pressure on Magellan’s retail base fees, which are some of the highest among peers.”