Newly installed Magellan executive chair, Andrew Formica, has hung his hat on active management and technology to lift the now A$34.3 billion firm out a two-year funk.
Formica told the embattled group’s AGM last week that the business, which has seen assets under management shrink by 70 per cent since December 2021, is well-placed to recover.
“I am a firm believer that there is and continues to be an important role played by active management in the investment industry,” he said. “… The growth in recent years of passive investment strategies… drives an even greater need for strong local active managers.”
According to Formica, the investment management sector was also poised for a rapid technological overhaul as artificial intelligence and other developments hit the sector.
“Magellan has a significant opportunity to embrace its culture of innovation and to take advantage of this changing landscape by providing intelligent solutions for our clients through innovation,” he told AGM. “The potential applications of this are far-reaching – ranging from enhancing investment processes to transforming client interactions, to optimising our own business processes, and even new areas of investments that aren’t even in the design stage currently.”
But regardless of the potential upside, Formica acknowledged that shareholders were alarmed about the “substantial decrease” in Magellan funds under management (FUM) during the last two years. From a high of about A$116 billion near the end of 2021, the manager saw FUM slump to just A$34.3 billion as at October 31 this year.
“Over the last 3 months, I have made it a priority to meet with clients and advisors, both existing and those that have left, to understand what can be done to improve the situation,” he said.
Formica stepped in as interim head of Magellan following the surprise departure of incumbent, David George, late in October.
However, in a ‘first strike’ event, Magellan shareholders rejected the firm’s remuneration report at the annual meeting while a large minority voted to turf former Wallabies captain, John Eales, off the board. Under Australian rules, ASX-listed firms must call a board spill vote if they receive three ‘strikes’ against executive pay proposals in AGMs.
Despite the “significant challenges” of recent times, Formica said Magellan reported a net profit after tax of A$174 million for the 12 months to June 30 with a “strong balance sheet” comprising A$945 million in cash, other financial assets and investments in associated entities.
Those factors could also make Magellan an attractive takeover target given the group’s share price has plummeted from a high of more than A$66 in 2020 to just A$6.95 at the end of last week.
“There’s significant value and potential in what we can do and that’s our job as a board and as a business to unlock that. I can’t run the business or worry about being a target,” Formica told media at the AGM.
“The best thing I can do is to deliver the value inherent in the business and structure and focus on what we can control.”