Magellan hit by more outflows; fees ‘not meaningful’

Another $2.6bn in outflows, primarily by institutional investors, is more bad news for the funds manager that also recorded no meaningful performance fees.

Magellan chief executive David George, left, and chairman Hamish McLennan are driving a reset of the business. Picture: John Feder

Magellan Financial says funds under management fell almost $5bn in December to close the year at $45.3bn – putting the fall in assets since the departure of former chief executive Brett Cairns in late 2021 at more than $71bn.

The company said performance fees for the six months to December 31 were “not meaningful” – reflecting poor returns in the managed funds – noting that they “fluctuate significantly“.

Magellan recorded performance fee income of $11.4m in the previous corresponding period, and $12.4m in the one prior.

In a brief statement, the company told investors that Magellan had experienced net outflows of $2.6bn in December, including net retail outflows of $600m and net institutional outflows of $2bn. It currently has $26.4bn in institutional funds under management, it said. Magellan funds also paid distributions of some $300m in January, which is not reflected in the new figures.

The December figures represent the steepest decline since September, when Magellan’s funds under management fell from $57.6bn to $50.9bn. At the end of December 2021, the investment house had funds under management of $95.5bn.

Dr Cairns resigned abruptly in December 2021, while Magellan’s chairman, Hamish Douglass, went on leave in February after splitting from his wife Alexandra. Mr Douglass has returned to the company as a consultant, and isseparately advising businessman James Packer on his investments.

In a note sent in late December, Bell Potter’s director of institutional sales and trading, Richard Coppleson, noted Magellan had been the third worst performer on the ASX 200 in 2022 after posting a 60 per cent share price fall in 2021. “Even though it has had a shocker it’s still going to still take a lot longer before they will recover,” he wrote.

“The FUM outflows and performance numbers have been going the wrong way for too long and it’ll take time for them to recover on those fronts. The market will want to see a sustained period of outperformance before it re-rates this stock,” he added. “Only new institutional money will come in and at this stage most would be watching from afar ... while retail advisors – who once pushed Magellan funds hard to clients – are no longer doing that.”

Mr Douglass was replaced as chairman by Hamish McLennan, the chair of REA and Rugby Australia. Mr McLennan and the company’s new chief executive, David George, have spent the last six months repositioning the business in a bid to stem the outflows and diversify the team.

Mr George, previously at the Future Fund, made a number of changes in October, with Chris Wheldon and Michael Poulson departing as portfolio numbers, alongside Vihari Ross, who ran the Core International Fund.

Mr McLennan, in an interview with The Australian in December, said the company had “a strong balance sheet, we’ve got cash in the bank”, and flagged M&A would become a priority.

“We see ourselves as being the acquirer but if anyone stepped forward and wanted to offer a huge premium we’d have to look at it,” he said at the time.

Magellan had, sources said, been in discussions with Regal Partners about a possible combination, although conversations were very preliminary in nature.

Magellan shareholders voted in favour of increasing directors’ fees from $77,000 to $125,000 per year in December, with Mr McLennan warning the company would not attract “the right calibre of people” until they rose.

“We are moving from a founder-led organisation that was heavily reliant on the (share purchase plan) and basic salaries,” he said. “We’re in the 25th percentile for equivalent board in other financial institutions and we simply weren’t going to recruit the calibre of directors.”

Morningstar, Lonsec and Zenith all placed multiple Magellan funds on ratings watch last year, after the company said co-founder Chris Mackay would no longer run the global equities strategy and several investment staff also exited. All three ratings companies – the most used by investment advisers – had warned that Magellan required stability at an investment-team level.

Magellan’s Global Fund posted a negative 7.77 per cent return for the 12 months to November 30, while its Infrastructure Fund was up 4.49 per cent (or 7.7 per cent hedged). The High Conviction Fund rose 4.5 per cent in November, but was still down 22.15 per cent for the 12 month period.

Magellan shares fell 10.5 per cent, or $1.02, to $8.68 on Friday, leaving the company with a market capitalisation of $1.5bn. Shares have fallen 49 per cent in the last 12 months, down $8.47, amid the persistent fund outflows and poor returns in its key investments.