Magellan chair, Hamish Douglass, admitted he made a mistake on China after a regulatory crackdown by the Chinese Community Party (CCP) impacted two major tech holdings.
Speaking at the Morningstar Investment Conference Thursday, Douglass said he was “over-confident” on China.
“I made a mistake,” Douglass said. “I really liked the businesses in Alibaba and Tencent. They’re wonderful businesses but I underestimated the Communist Party risk.”
Share prices of Alibaba and tencent were affected after Ant Group, a subsidiary of Alibaba which owns payment platform Alipay, was due to IPO but was later cancelled by the CCP in late 2020.
Under pressure from the CCP, Ant Group was instead turned into a financial holding company overseen by the state-controlled Bank of China.
“We bare certain regulatory risk,” Douglass explained. “We understand regulatory risk but at the end of the day the biggest mistake on China was owning two technology companies and they both got caught up in a regulatory crackdown.”
“We now have less than 4 per cent of our portfolio in China. We dramatically tightened our regulatory risk controls.”
However, Douglass said there was still an investment case for the region.
“But you have to think about that regulatory or Communist Party risk in China and manage that in a moderate way in your portfolio,” Douglass said.
“I’ll accept completely I made a mistake in relation to that, but you make a few mistakes in your investing career.”
Douglass said the fund had “taken action” and Chinese regulatory intervention would not materially impact their portfolio again.
According to its fact sheet, the Magellan Global Fund managed by Douglass returned 19.28 per cent during the 2021 calendar year, underperforming its benchmark the MSCI World Net Total Return Index by 10 per cent.
Douglass didn’t address the share price of Magellan Financial Group – now $18.54 compared to a price of $47.87 a year earlier – or losing the investment mandate of English wealth management firm St James’s Place.