06 Jul Magellan fails to arrest outflows with outperformance

Source: Financial Review

By: Vesna Poljak

Activist shareholder Sandon Capital argued further outflows from Magellan last month underline the need to recalibrate the business for managing a smaller pool of capital, one of the key planks of its campaign to unlock value.

Investors withdrew $2.1 billion from Magellan’s funds in June, reducing its assets to below $40 billion for the first time since April 2016.

Shares of the activist target sank 6.8 per cent to $9.07, despite the investment manager disclosing that it earned $10.9 million in performance fees for the June half. Of the reported outflows, $1.7 billion was pulled by institutional investors.

“As evidenced by the generation of performance fees, the investment team have done a solid job of turning around Magellan’s investment performance over the past 12-18 months,” Sandon Capital said.

“However, the continued outflow of funds show that it is critical that Magellan focuses on its existing investors and right-sizes its cost base for the current level of funds under management.”

The flagship Magellan Global Fund outperformed its benchmark by 0.93 of a percentage point for the six months to May 31, returning 8.47 per cent, according to the latest portfolio update. However, it’s unclear which specific strategy contributed to the performance fee windfall.

Last month, Sandon went public with a strategy to extract more value from Magellan, which it argues is worth more than $15 a share.

Sandon disputes that Magellan should retain its target of returning to $100 billion in funds under management, having peaked at $116 billion in November 2021, and instead return $300 million to investors in passive capital and surplus cash. Former Future Fund executive David George joined the group as chief executive last July, but the activist thinks his five-year target is fraught with risk.

If Sandon is correct that the primary driver of funds under management growth has been investment performance, rather than inflows, Magellan’s performance fee turnaround from just $0.1 million in the December half vindicates the investor’s thinking.

Magellan has yet to publicly comment on whether it is persuaded by Sandon’s thesis.