Magellan has bigger issues to address than Hamish Douglass’ marital status

It will be up to Douglass to improve the returns from the funds, particularly the key international equities fund, which has underperformed the key benchmark index over one, three and five years.

The early performance success that Magellan experienced will evaporate over time unless it improves over the coming year.

There is no doubt that Douglass is a talented businessman – having founded and grown Magellan into a company with a market capitalisation of more than $5 billion. And with $115 billion under management, Magellan remains a very valuable company and funds have remained fairly sticky considering its performance.

He has also shown self-promotion wizardry and a master at marketing the funds to wholesale and retail clients.

While funds under management improved 1.2 per cent for the month of November 2021, UBS analyst Shreyas Patel did not adjust an expectation that outflows would come in at $3.7 billion for the 2022 financial year.

Patel estimates that Magellan experienced inflows in November but that this represented a bucking of the trend and that inflows from wholesale investors appeared to have offset an outflow from retail investors.

Douglass needs his flagship fund to start outperforming consistently for a sustained period of time.

The bright spot among Magellan’s performance has come from its Australian equities – Airlie.

After the company’s profit fell by a third in the 2021 financial year, Douglass admitted mistakes had been made during the period but that investors needed to focus on the big picture.

But the instability that has played out over this week won’t help investors focus on Douglass’ big strategy piece. Quite the opposite.

There is only one way to turn outflows into inflows and that is performance. The media is suggesting that Magellan is quietly discounting some fees but that seems defeatist.

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Douglass needs his flagship fund to start outperforming consistently for a sustained period of time.

This in turn will address Magellan’s flagging share price, which has fallen by around 50 per cent since July.

There is no shortage of competition in the retail funds management market and the financial advisors that direct much of the retail funds flow will be closely watching Magellan’s returns.

Magellan’s current woes are a good example of why funds management businesses are ultimately hostage to their performance, with or without a rock star running the show.

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