Magellan shares plummet as it continues to bleed funds

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Embattled fund manager Magellan has reported more outflows amid uncertain market conditions, with its share price plunging by almost a fifth after it said investors had pulled another $2 billion from the company last month.

On Friday, the former high-flying fund manager said in a market update that its total funds under management had dropped from $39 billion in August to $35 billion in September. It reported $2 billion in net outflows for the month, driven by $1.7 billion in institutional investor outflows.

Magellan chief executive David George is pursuing a goal to reach $100 billion in funds under management by 2027.Credit: Magellan

Last year, the company had $61.4 billion in funds under management in June and $115 billion in mid-2021. Shares in Magellan plunged 19.4 per cent to $7.10 a share in afternoon trading.

Morningstar equity analyst Shaun Ler said the share price movement was likely a result of the fund’s inconsistent performance in its global strategy, which lagged benchmarks. But he said conditions for equities in general had been tough because of uncertainty around interest rate hikes and inflation.

“My guess is the drag on flows for asset managers will continue so long as the uncertainty around interest rates and inflation persists, as you could get investors who simply want to move away from equities in addition to those who are concerned about Magellan’s performance,” he said.

Magellan’s flagship global equities portfolio saw the biggest decline in funds under management, dropping from $18.6 billion in August to $15.3 billion in September.

Ler said institutional outflows were “disappointingly high” – with a fall from $21.5 billion in funds under management in August to $18.8 billion in September – but that retail outflows were less than he expected. Retail funds under management fell from $17.5 billion to $16.2 billion.

Managing director of activist fund Sandon Capital, Gabriel Radzyminski, who has pushed for Magellan to return capital to shareholders, said he wasn’t concerned about the impact of sharemarket movements on the company’s latest results, but said the continued outflows were concerning.

“Funds under management can rise and fall with markets, but David George, the new CEO, has been in the role for over a year, and the outflows from retail and institutional investors are continuing to hit Magellan,” he said.

Radzyminski said he still stood by the need for Magellan to return capital to shareholders, but that the company also needed a clear commitment to cutting costs.

“Magellan has not bought back its shares since December last year,” he said. “If the company and board sees its shares are cheap, why would they not want to buy them back? They’ve revised down their cost guidance, but with fund outflows continuing, there’s got to be a further commitment to cost-cutting.”

Radzyminski said Magellan’s target to return funds under management to $100 billion by 2027 was “delusional”, and that pursuing acquisitions was not a viable solution.

“Companies can grow through a combination of organic or inorganic growth but if you look at Perpetual, they’ve grown from acquisitions, but their share price hasn’t necessarily recovered,” he said. “Our internal scenario is that Magellan’s funds under management will continue to decline while they pursue their current strategy,” he said.

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