Magellan unveils $2.5bn float with a ‘loyalty reward’

Magellan’s listed investment trust could become one of the nation’s biggest IPOs when it starts trading in October.

Magellan chief executive Hamish Douglass. Picture: Hollie Adams

A listed investment trust offered by Magellan Financial Group could end up being one of the nation’s biggest IPOs when it starts trading on the ASX in October.

Up to 300,000 existing Magellan shareholders and investors in its retail strategies will be eligible for a “loyalty reward” of additional units worth 6.25 per cent of the value of units in the new investment vehicle, Magellan Global Trust, allotted to them under a “priority offer” occurring alongside a general public offer.

Eligible applicants will be invited to subscribe for units equivalent to 10 per cent of the value of their investment up to $30,000.

Together with the public via joint lead managers CBA, NAB, Ord Minnett and Taylor Collinson, the priority offer could boost the overall size of the float above the $2.5 billion mark, making it one Australia’s five biggest IPOs.

If there is a strong uptake of the offer, Magellan Global Trust could also become Australia’s biggest listed investment trust.

Mirroring the portfolio of the $US9.2bn ($11.6bn) Magellan Global Fund, the listed investment trust will invest in 15-35 global companies with a mandate that allows it to manage its currency exposure and hold up to 50 per cent of the portfolio in cash.

In comes after a rough patch for the highly regarded fund manager in which its flagship Magellan Global Fund has failed to match its impressive five-year average return of 18.3 per cent.

Surging share prices in some of Magellan’s biggest shareholdings such as Apple, Microsoft, Alphabet, Facebook, Visa and Oracle — have been the driving force behind a 10 per cent rise in the S&P 500 this year. But the global fund has returned just 5.3 per cent on an unhedged basis as the Australian dollar has jumped almost 10 per cent. Analysts have downgraded ratings on

Magellan Financial as retail inflows into its global fund slowed and institutional investments have remained patchy.

“We deeply value the support we have received from our many investors and shareholders,” Magellan chief executive Hamish Douglass said yesterday. “As a sign of our appreciation we are delighted to offer our supporters a valuable loyalty reward. The full amount of the loyalty reward will be paid for by Magellan.”

Magellan will target a semi-annual distribution of 4 per cent per annum, a feature that is sure to tempt self-managed super funds that now control more than $650bn of assets.

“We believe that the Magellan Global Trust will be an attractive vehicle for investors making an investment in global equities,” Mr Douglass said. “We believe retail investors value regular cash distributions and this has been missing in many global equity products. The target 4 per cent cash distribution yield differentiates this offering from many other global equity products.”

Magellan will pay for all of the costs of the offer so that the opening cash net asset value per unit will be equal to the application price of $1.50 per unit. And it will offer a dividend reinvestment plan that will allow unit holders to reinvest distributions into the trust at a 5 per cent discount to the prevailing next asset value, which will be reported daily.

To ensure the dividend reinvestment plan is fair to nonparticipating unit holders, Magellan agreed to reimburse the Magellan Global Trust for the value of the discount on units issued under the plan. “We have sought to align the interests of investors with those of Magellan,” Mr Douglass said.

Indeed, the directors of Magellan intend to apply for units under the offer. Their participation under the priority offer, where eligible, will be capped at $100,000 per director. Additionally, Douglass himself intends to subscribe for $20m of units via a personal investment company.

While the US sharemarket continues to hit record highs after an eight-year bull market, the Magellan Global Trust IPO is occurring during a period of strength in the Australian dollar.

“In the absence of sort of a nuclear war on the Korean Peninsula, I can’t see a triggering event for a pullback in global markets,” Mr Douglass said. “Certainly the world’s financial system is in better shape than it’s been in decades and China seems to have stabilised somewhat dramatically.

“We aren’t anticipating a major market event. We are investing in a very focused portfolio and we still see substantial opportunities for investments.”