Magellan Financial hit by fund outflows, as Airlie affected by mandate changes

Airlie Funds Management’s team of Matt Williams, Emma Fischer and co-founder John Sevior. Picture: Jane Dempster

Just when Magellan Financial Group thought it might have passed the worst, the firm is confronting a fresh blow as further mandates are pulled from the manager.

This column understands somewhere in the order of $2bn has been yanked from Magellan’s Airlie Funds Management recently and industry superannuation players are said to be behind the moves.

Industry fund behemoth HESTA is being pinpointed as one of the funds behind the mandate changes, which may be linked to a move by some players to shift more equities investment management in-house.

The other theory centres on a changing of the guard at Airlie after industry stalwart John Sevior announced his retirement early this month. He will hand the reins to lieutenant Matt Williams in June.

Magellan and HESTA were contacted for comment. Macquarie Group’s equities desk was managing the transition flows from the industry funds, and it will be interesting to see where they land.

The internalisation move by industry funds has proven relentless locally in the past three years as super funds seek to keep a lid on fees. It is a constant headache for fund managers that need scale to ensure their own business model is viable.

HESTA in late 2021 flagged that it wanted to see closer to 15 per cent of its funds management internally over the next few years – a trend that is gathering pace as the industry super sector expands through mandatory contributions and consolidation.

Industry fund giant AustralianSuper has led the charge on this front and now manages more than 50 per cent of member assets in-house.

The loss of mandates for Airlie is certainly a big deal, given the latest update showed the firm managed $9bn as at February 28. Magellan’s total funds under management amounted to $45.4bn in that update, inclusive of the Airlie balance.

Given Magellan’s outflows were well and truly moderating, this latest news will again rock the boat at the under-pressure firm.

On the performance front, the Airlie Australian Share Fund had underperformed its benchmark by 1.13 per cent over 12 months as at February 28, but outperformed by 4.32 per cent per annum over three years. The fund’s benchmark is the S&P/ASX 200 Accumulation Index.

Williams told The Australian this month the retail segment – about $400m – was the fastest-growing part of Airlie’s business and that the firm would in coming months launch a small cap strategy to sit alongside its Australian shares fund.

Magellan acquired Airlie in 2018 and kicked off the Australian share fund months later.

The past two years have marked a horror period for Magellan that included the exit of former chief executive Brett Cairns, and chairman and chief investment officer Hamish Douglass who also co-founded the company.

The management turmoil was accompanied by tens of billions of dollars in outflows, including a key $23bn St James’s Place mandate.

Magellan chief executive David George, who has been in the top job since July last year, certainly has a big task ahead. He has stuck to a strategy to get the company firing again and take funds under management back to $100bn by 2027.

If George was hoping for clear air, that won’t be happening any time soon.

In February, George talked up Magellan having “great existing opportunities” in its infrastructure fund and at Airlie, while also highlighting new product development.

“In terms of creating avenues for growth for Magellan, I think we’ve done all the right things from creating the conditions for better performance perspective and in global and we’re getting on with it,” he said.

Williams is alert to the challenges facing the funds management sector. Earlier this month he highlighted the firm’s performance as a differentiator.

“The product we’re selling is sensible outperformance of an index, and what we’ve been able to demonstrate over 30 years – John and myself – is that we’ve developed an investment process and a system of hiring people and developing a culture that gives us the best chance to actually achieve that aim of outperformance,” Williams said.

“So our focus hasn’t changed but yes, the pressures are increasing.”

Illion watch

After a period of relative stability, credit score and data firm illion has been subjected to an executive exit in recent weeks. The company’s chief operating officer and head of product solutioning, Kathrina Doran, has departed the firm after almost two years at illion.

Illion is now led by former head of BPAY John Banfield after the company parted ways with former chief Simon Bligh and two senior managers in 2021. That was followed by the head of human resources leaving last year.

The firm had been plagued by a string of cultural issues after a whistleblower came forward in 2021 and presented the illion board a scathing report of widespread allegations of bullying and intimidation, spanning a large group of staff over several years.

Illion has under Banfield refreshed its company values and purpose in an attempt to rule a line under the prior regime and improve engagement and culture. The new values on the firm’s website include “wonder what if, we’re good eggs, we all add up and human kind”.

Doran’s exit will likely lead to illion’s chief operating officer role being split between a head of sales and product chief role.

Investment and buyout types will be wondering how the business is faring and pondering when owners Archer Capital and Macquarie may start to start work on a potential sale.