Retaining talent has been the key priority for Magellan Financial Group as it looks to rebuild the troubled funds management business.
Speaking at a shareholder conference after posting its FY22 results, chair Hamish McLennan said to mitigate further talent losses the firm implemented a staff engagement and retention program in March.
The program includes a retention bonus plan to be to staff in two instalments during September in 2024 and 2025, as well as the issuance of employee options.
Additionally, the organisation has started a board review and renewal program.
“The program is focused on attracting high quality non-executive directors to the board who will add skills and insights that align to the news of our core funds management business and strategic direction,” McClennan said.
McLellan reiterated the firm’s desire to rebuild trust with clients.
“We’re extremely focused on returning value to Magellan’s clients and shareholders. There is much work to do but we are committed to rebuilding trust and returning to growth.”
New boss
David George was appointed as CEO on 11 May with his start date originally meant to be last Monday; it was instead brought forward to 19 July.
He didn’t mince words describing the state of the company.
“Our clients have a choice of who managed their money and over the last 12 months it’s clear the events have impacted our client’s confidence in us,” George said. “My priority as incoming CEO and the focus of the entire team is on rebuilding that confidence and trust.”
Goerge said he has a “good perspective on what ‘good’ looks” like.
“In my career I’ve had the opportunity to see 1,000 investment managers, investment processes and cultures in practice.”
On that note, George touted the benefits of active management in the current environment.
“We’re at a turning point in the economic regime, a long cycle of lower interest rates is now transitioning to one where inflation and monetary policy environment is shifting. That’s going to bring some volatility.”
He added that means some returns in a broader market sense will be lower going forward, “that’s when I want an active manage instead of an index,” he said.
Old boss
Chair and co-founder Hamish Douglass announced in February he would take a leave of absence from Magellan but will return in October as a consultant.
Douglass cited scrutiny over his professional and personal life as the catalyst. He left behind a year of declining investment performance, a declining share price, and the start of a pattern of outflows through the rest of the financial year.
Total funds under administration was $61.3 billion at the end of the financial year, almost half of a peak of $117 billion towards the end of 2021. The most recent figure (as of 29 July) is $60.2 billion.
The loss of the $23 billion mandate from British wealth manager St James’ Place was the first stone to fall.
Despite Douglass’ return in a consultancy role the company stated it has not had any mandates return.
Magellan’s global fund lost 11.8 per cent over the financial year, a 5.6 per cent excess loss compared to its benchmark, according to the fund’s fact sheet. However, since inception 15 years prior the fund has returned an average of 10 per cent p.a.
The infrastructure fund returned 6.6 per cent in FY22, underperforming it’s benchmark by 2.8 per cent. Launched at the same time as the Global fund, it has returned 7.5 per cent p.a.
The firm also closed its Future Pay product months ago as part of a restructuring of the business. Future Pay was only launched last year.
Financial positioning
The headline financial figure for the fund manager was a 3 per cent decline in adjusted net profit after tax (NPAT) to $399.7 million.
Chief financial officer Kirsten Morton, who was also interim CEO, said the decrease is due to a mix of items but mainly due to a loss of funds management fees.
“[This is] broadly in line with a 9 per cent decrease in the average funds under management this year.”
Statutory NPAT increased 44 per cent to $383 million, but this was due to several one-off items and the firm stated the 3 per cent adjusted NPAT was a more accurate depiction of the business.
Profit before tax and performance fees for the funds management business was $470.6 million – down 11 per cent on the prior year ($526 million) with investment performance and client outflows being cited as the cause.
Performance fees totalled $11.5 million, although that is significantly lower than previous years.
“They were mostly derived from the infrastructure fund’s strong performance,” Morton said. “While performance fees a lower, these fees are lumpy and have the potential to fluctuate significantly from period to period.”
