Magellan cops a hit as another rock star stock picker lays down his guitar

To lose one rock star investor may be regarded as a misfortune; to lose two looks like carelessness. The former darling of funds management, Magellan, just can’t take a trick.

The beleaguered wealth manager farewelled high-profile, one-time guru Hamish Douglass last year and paid a heavy price for it. Now it has copped another hit after losing the head of its Australian equities business, John Sevior.

Shares in Magellan have plunged more than 83 per cent since the middle of 2022 and took another tumble on Wednesday after the company told the market it had lost an additional $3 billion in funds under management following Sevior’s decision to quit.

John Sevior (left) and Matt Williams of Airlie Funds Management.Credit: Louie Douvis

The trouble with having rock stars in business is that they retire (as Sevior has) or they put out a bad (performance) album and then leave – which is what happened in Douglass’ case, leaving fans disappointed.

In the corporate world, this reliance on high-flyers is called key man risk and Magellan has had it in spades. The wealth manager made the additional mistake of not grooming a successor for Douglass – in fact, he had no big back-up band at all.

The difference between Douglass and Sevior is performance and profile.

Douglass’ performance during the final years of his reign at Magellan was underwhelming, and the company lost institutional and retail clients on the back of it. Then, funds under management took another leg down when Douglass ultimately exited.

Sevior, however, largely managed to ring-fence his Australian division from the woes of Magellan international funds and grow its funds.

But a month after Sevior announced his decision to quit, the damage has become graphically clear. Mandates from institutional clients have taken a hit. The $9 billion of funds under management the Australian equities division boasted only last month has fallen to $6 billion, with superannuation fund HESTA and at least one other client yanking funds. There could be more damage down the track as institutional investors regularly review mandates.

The hit to the Australian division has dragged Magellan’s total funds under management down to $43.2 billion – a significant fall from its peak in fiscal 2021 of $118 billion.

Where Douglass used a more public stage with thousands of smaller investors and media appearances to preach his investment gospel, Sevior garnered support among the financial services industry. Where Douglass fed off the adulation of the masses, Sevior was always less conspicuous.

Sevior was particularly prominent in the funds management industry, having built relationships over 30 years.

After years running the highly successful Australian equities team at Perpetual, Sevior started his own funds management business called Airlie, which was subsequently acquired by Magellan in 2018.

But unlike Magellan’s larger global business, the Australian team had a textbook succession plan, with Sevior’s long-time colleague Matt Williams moving into the role. But relationships matter and some of these clients had been dealing with Sevior for more than 20 years.

David George was appointed chief executive of Magellan in May 2022.Credit: Magellan

Additionally, Sevior’s departure was probably a pivot point for some larger clients who are joining the wider industry trend of managing investment funds in-house and are de-risking their investment decisions by hugging the index rather than actively picking stocks.

Magellan is still working on the stabilisation of funds more than a year after Douglass’ spectacular departure while swimming against this broader industry tide.

It parachuted in Future Fund alumni David George to run the group last year. His low-key management style was designed to contrast that of Douglass.

While George is well respected in the industry, insiders suggest he has spent much of the past year putting out small fires and plugging holes.

Magellan is now attempting to pitch itself as a team player, not a one or two-man band. But it needs a couple of years of outperformance under its belt before client money will begin to flow back.

Until then, the best that can be hoped for is to tread water.

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