A cashed-up Magellan has flagged acquisitions as part of a five-year plan to reclaim the A$100 billion plus heights it last scaled in 2021.
Since hitting about A$116 billion in December 2021, Magellan saw funds under management (FUM) plummet to just over A$46 billion by the end of 2022, according to the ASX-listed group’s half-year results posted last week, as both retail and institutional investors outflows combined with difficult markets to derail the once unstoppable juggernaut.
However, in the half-year report, new Magellan chief, David George, says the business has rebuilt on “strong foundations” following a series of senior staff departures over 2022, including co-founder and investment figurehead, Hamish Douglass.
As well as rationalising the product range, George says Magellan has retained key staff to shore-up its existing global, infrastructure and Australian equities strategies.
But the five-year path back above A$100 billion will also likely require the addition of “new and complementary capabilities through inorganic growth”, he says.
“In deciding where to invest, we will look to leading indicators, market trends, industry tailwinds and client demand to invest in growth areas where there are increasing allocations in client portfolios,” George says. “This will include exploring opportunities to invest in experienced quality teams and capabilities in equities where we can replicate the success of [Australian shares manager] Airlie. We will also look towards areas such as private markets where allocations to this segment are growing in clients’ portfolios.”
The half-year accounts show Magellan has almost A$840 million in net tangible assets including over A$350 million in cash as at the end of last year.
Despite six-month revenue halving year-on-year to about A$182 million as both FUM-based and performance fees drooped, the manager reported net profit after tax of more than A$98 million for the period compared to almost A$250 million in the first half of 2022.
Over the six months to the end of December, Magellan reported net outflows of close to A$15 billion, mostly from the flagship global equities strategy that bled A$13.3 billion.
The fund outflows also altered the investor mix further towards retail clients as institutions dominated the exodus: retail investors represented 42 per cent of Magellan FUM as at the end of last year compared to 36 per cent six months previously.
Retail investors now provide 70 per cent of Magellan fee revenue, the half-year report shows.
Costs rose slightly year-on-year for the December 2022 half to A$62.4 million from A$61.7 million, largely to accommodate staff retention payments.
Employee expenses for the six-month period reached A$45.5 million, up 9 per cent compared to the last half of 2021, even as total staff numbers fell to 120 from 135 at the end of June 2022.
George pledges to keep Magellan annual costs in a tight range of A$125 million to A$130 million for the 2023 year to balance “discipline in our cost management with the ability to invest where necessary to support investment excellence and client outcomes”.
Magellan net outflows eased a little in first month of this year to A$500 million, split between A$300 million from retail clients and the remainder from institutional investors.
“We continue to see challenging funds flows in global equities and recognise that results from change can take time,” George says in the report. “However, I am pleased to report that, while very early days, the performance profile in recent quarters has shown an improved trend as position adjustments have had their impact.”
Figures from the Melville Jessup Weaver NZ quarterly investment survey show the core Magellan global shares fund was down -2.8 per cent during the December quarter and -13.8 per cent for the calendar year – placing it sixth out of 15 managers in the growth category. Over the three-, five- and ten-year periods the Magellan fund remains mired to the bottom of the MJW global shares growth manager cohort.