Magellan Financial loses its biggest mandate

In March, St James’s Place flagged Magellan’s performance ‘amber’ or ‘subject to closer ongoing monitoring’, while its overall rating was deemed ‘green’ or ‘good value’, the report said, also noting that about 25 per cent of St James’ Place’s managers were flagged amber or red in 2020 and 2021 but none were replaced.

Losing such a large mandate would be the latest in a series of blows faced by the wealth management group.

Magellan shares have fallen nearly 16 per cent in the past month, hurt by Mr Cairns’ exit, a disclosure that co-founder Hamish Douglass was separating from his wife after a report in this paper’s Rear Window column which raised concerns over key man risk and whether the separation might trigger a share sale, and persistent worries about the fund’s underperformance and high fees. Its shares are now worth less than half the $73.67 highs they hit in February 2020.

“The message that Magellan has historically sent to the market, and us, was that most institutional clients hired them to deliver a set return target with strong downside protection, which Magellan did comfortably deliver,” said Morningstar analyst, Shaun Ler.

But Mr Ler also questioned the fund’s disclosure about the mandate loss.

“We were hoping for better transparency from the Magellan team because today’s developments appear to be different from what was communicated to the market in the past.”

St James’s Place removed four fund managers on its global equity fund in November 20 including JO Hambro, owned by Pendal Group, as well as BlackRock, EdgePoint and Sands Capital. The move was partly driven by a push for responsible investing and net zero targets.

Some analysts say the Magellan sell-off is overdone, arguing that it has other, lower-fee products, as well as private equity holdings in Barrenjoey Capital, FinClear and Guzman y Gomez.

Earlier this week, Mr Douglass told investors that the fund had got China wrong, and defended the fund’s investment strategy in an online presentation to clients of advice group Stanford Brown, reported by Morningstar.

Asked about the outlook for 2022, he raised concerns about the Omicron variant.

“We’ve always been cautious around mutation risk but when we saw Delta and earlier ones, we weren’t overly concerned that they would lead to a major event. When we saw Omicron, even before we got any data, when we saw where the mutations were on the spike protein, with our scientific advisers, we thought this is potentially something really different. But the market thinks it’s watching the same movie as Delta,” he said.

“It is very likely this mutation would escape most of the vaccines and that’s what we’re seeing. The two-dose vaccines are almost completely useless protecting against infection from Omicron which means this is going to spread rapidly on a global basis.”