The pain at Magellan continues as $3.9bn and John Sevior walk out the door

Chief executive David George appeared defensive and talked up new hires in a staff email as Magellan outflows hit $3.9bn andfounder John Sevior departs.

John Sevior with Hamish Douglass and Matt Williams. Picture: Nic Long

Magellan Financial Group has posted yet another dramatic drop in funds under management of $3.9bn for March after two key institutional clients withdrew their money from its Airlie Funds Management after founder John Sevior announced he was leaving the firm.

It’s just the latest in the steady stream of bad news from Magellan, which has lost $57bn - or 63 per cent of its funds under management in less than three years - and posted a 60 per cent drop in half year profit just two months ago.

The Australian revealed on March 23 that sizeable funds has been yanked from Magellan’s Airlie Funds Management with industry superannuation players said to be behind the moves.

It was only a few years ago that Magellan co-founder Hamish Douglass was revered in Australia with almost Warren Buffett-level enthusiasm, which kept Magellan funds awash with money.

That came to a shuddering halt with several bad investments in tech stocks and the controversial departure of Mr Douglass and then-CEO Brett Cairns.

Fellow founder Chris Mackay briefly stepped in to try stem the outflows before stepping back, and now Sevior, whose fund ran Australian equities, has walked out the door.

Chief executive David George appeared defensive in an email to staff after the latest outflow announcement, and talked up the capabilities of new Australian head of equities Matt Williams, and new deputy head Emma Fisher.

Magellan chief executive David George says it must respect that clients can change their investment approaches. Picture: John Feder

“We felt the well-planned succession offered a compelling case for clients to transition to Airlie’s new leadership and portfolio management structure,” Mr George wrote to staff.

“Ultimately, the transition put a decision point in front of a group of clients, and while some have stayed, others have moved on,” Mr George added. “We must respect that clients can change their investment approaches.”

Rival fund managers said the outflows - which came even in a rising market - more likely reflect a market fed-up with the revolving door of key investment staff at the company.

Nevertheless, active managers have never had it tougher than now. More people are moving their money to index-tracking funds, which frequently outperform active managers and have lower fees; and superannuation funds are increasingly bringing investment responsibilities in-house.

Magellan shares slumped more than 8 per cent on the news, to $7.80 per share. Magellan shares have lost 88 per cent of their value since peaking in 2020.

Airlie had seemed like one of Magellan’s better performing funds. The outflows came from two institutional clients withdrawing their money, with Hesta being one and Hostplus believed to be the other.

“While global markets and performance were strong, this was more than offset by two of Airlie’s institutional clients ending their mandates following the recent leadership change announcement for Airlie,” Mr George wrote.

“The conclusion of these mandates is part of the journey for Airlie from having a concentrated institutional client base to one which over time will have a greater and healthy balance of retail and institutional FUM.”

Australian equities account for about 20 per cent of Magellan’s FUM, with global equities on 45 per cent and infrastructure on about 35 per cent.

Mr George has faced a difficult job trying to turnaround Magellan, having only just come on board from the Future Fund eight months ago.

When asked at the results in February about Mr Sevior’s future as part of the Magellan family, he said he expected the relationship to “continue for a long time”.

The prominent fund manager had just come out of his lockup period tied to Magellan buying his fund for $100m just over four years earlier.

Mr Sevior announced he was leaving just one month later.

Ratings house Morningstar called out the issues Magellan has been having with key man risk in their latest report in February.

“For Magellan to regain new money in an enduring manner, it would need to outperform; continue diversifying portfolio management responsibilities to show that key person risk is being addressed; add further differentiated products; reclaim its position in model portfolios; and recover its once-pristine fund ratings and reputation,” said Morningstar in its report.