When Hamish Douglass took medical leave from the business back in early February it was unclear if he would return. Well the news out a week ago is Douglass is coming back, albeit in an advisory, not in a stock selection or market facing role.

This may not be a bad thing, especially if he spends his time on leveraging his connections. Seeing how this will work is still to be determined.

The business has also seen Magellan appoint David George, as the new CEO where he was previously Future Fund deputy chief investment officer. To encourage him into the business George will receive a $600k sign on bonus and a $1.8M base salary.

Current chief financial officer, Kirsten Morton, will perform a dual role as CFO and chief operating officer once George steps into the seat in August.

Businesses everywhere are experiencing difficulties retaining staff. An unemployment rate of 4% will do that. 

Last week I was speaking to one of our HR business partners and he quoted a stat’ that 70% of our team, if they were offered another role, would accept. He’d be correct as the very next day one of my team resigned. He had been offered a new role after a single interview which shows it’s not just a retention problem, but also a recruitment issue. 

Magellan is having the same problem and have announced a staff retention plan that includes issuing 10 million options with a strike price of $35 to ensure it does not lose talent. That is more than double the current share price so I am not sure how much retaining that part of the the plan will do.

They will also offer two retention bonus payments in September 2024 and 2025.

When things go bad, they really go bad.

The latest funds under management (FUM) report released this morning shows as of 11 March 2022, Magellan had FUM of approximately $69.1 billion.

This means nothing without context.

Magellan has experienced net outflows of approximately 5B in just over a month, but since the end of last year the figure has dropped by over 26B and a quarter before that 44B.

Decreasing FUM by 40% has a significant impact on fees which will likely see further downward pressure on the share price.

Unfortunately, I doubt the rush in redemptions is over.  

This one is nearly down 50%, not a pretty place for some bag holders. What is going on?

There is a separate straw about the outflows of funds under management, however, this is a new announcement and most of the fall in share price has happened before now. 

Magellan has 4 earnings paths:

• Funds under management which we know from above has seen considerable outflows
• Management fee 
• Performance fees
• Magellan Capital Partners investment returns

Funds under management is in decline in the short term, but over in the last financial year increased around 10%. This is one for the highlighter, something to watch if it continues. 

Management fees are also off, down in the last 5 years, probably on the back of investor questions, or competition in the market from other managers. Possibly from lower fee ETF’s of which there seems to be another one every second day. For all the ETF creation there must be investor appetite which adds to the fee competition.

Like other funds, Magellan also operates return hurdles, in this case the need to outperform 10-year bonds to claim the performance fees. With bond rates basically zip, they are in the money unless they trip over their shoelaces, and I know they all wear slide on shoes. 

Not unusually, they also get to claim excess returns, if well, they do well. You do well, they do well, or so the story runs.

Why have fees fallen away? Some of the investments didn’t play out – state the obvious. Perfectly understandably they went conservative last year, which is part of the downside protection policy, and missed some of the growth recovery. 

Magellan Capital Partners investments are big stakes in fast food, texmex chain GyG, Finclear and investment bank Barrenjoey. The latter is the one to be most focussed on - they are up against proven, established players. Acknowleding Barrenjoey have hit some goals, but Magellan themselves has said this current loss maker is going to take a couple of years to play out.

Where are we now? This is a question of your own faith in outflows continuing, lowing management fees further. There is also the risk of increased competition to further lower the management fee percentage. There is also the risk of returns from Magellan Capital Partners. 

Or the other side of the coin. This is a highly experienced team, and their value portfolio could reasonably be expected to see positive returns depending on your value view.