More Mandate Losses Expected For Magellan

Australia | Dec 22 2021

Funds underperformance this year has led to Magellan Financial Group losing its biggest client, and brokers suspect this is just the beginning.

-Annus horribilis for Magellan Financial
-Big mandate loss likely triggers further redemptions
-Most, but not all, agree the stock is no-go for the time being

By Greg Peel

Any ad you might see for a funds manager always comes with the caveat “past performance is no guarantee of future performance”. Not for no good reason.

Up until covid hit, Magellan Financial Group ((MFG)) was the darling among listed funds managers in Australia, putting in stellar returns performances when all about were struggling, and attracting solid inflows as a result. From the end of 2018 to the beginning of 2020, Magellan’s share price rose 186%.

Over the same period, the ASX200 rose 24%. However, Magellan’s flagship is its Global Fund, and foreign institutions clients make up the bulk of clientele. Thanks to its strong performance, Magellan was able to charge market-leading performance fees to both institutional and retail clients.

From that January 2020 high, Magellan shares have now fallen -70%, including -33% last Friday. One single year of funds underperformance has wiped out the manager’s ten-year “alpha”, UBS notes, (relative market performance), and this will now be carried for a long time before it rolls off.

Earlier this month, Magellan’s CEO suddenly walked, leaving no succession plan. This was not a positive sign for investors.

The big share price fall on Friday came after Magellan lost its biggest mandate. Institutions mandate funds managers to manage an amount of their own funds. The St James Place mandate was worth 12% of Magellan’s revenues. The next three largest mandates together represent 10%, Macquarie notes.

Conga Line?

When a stock falls by such a magnitude in one day this often elicits calls of “oversold” by brokers, on the simple stairs & elevators principle of market panic. But not for Magellan, among FNArena database brokers.


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