It wasn’t long ago, back in February, that Magellan delivered a strong 1H result that saw the stock rerate ~20% on the upside, summarised Here. However, funds under management (FUM) and performance are the cornerstone of all fund managers’ share price, and Magellan may have disrupted one of these two important metrics with yesterday’s interesting update, which saw the stock tumble almost 7% on the day.
Magellan is looking to transform its business, handing its $5.3 billion global equities franchise to quantitative manager Vinva Investment Management and folding the flagship Magellan Global Fund strategies into Vinva’s Global Alpha Strategy from early June. The move marks a significant departure from the stock-picking roots that defined Magellan under high-profile founder Hamish Douglass, a firm that once managed $13.5bn in its global fund alone and outperformed its benchmark by 4.9% in 2020. However, that edge has since slipped to just 1.3% pa since inception in 2007, and the decision to hand the mandate to Vinva, a Sydney-based quant manager running $47 billion, in which Magellan holds a ~23% stake, reflects a frank acknowledgement that their performance isn’t good enough.
- For investors, management fees will fall from 1.35% to 0.89%, and performance fees will be eliminated. For Magellan, the restructure is expected to deliver around $7m in annual cost savings through workforce reductions and lower admin expenses.
However, the global equities reset is only half the 2026 story. In March, Magellan announced its merger with Barrenjoey Capital Partners, the investment bank it already owned 36% of and which is valued at $1.6bn – we discussed the merger when it was announced Here. The intention is to diversify the business away from a structurally challenged funds management company and into an investment banking business, hoping to challenge Macquarie Group (ASX:MQG) over the coming decade, having already assembled a roster of senior talent from UBS, Macquarie, and JPMorgan
CEO Sophia Rahmani is stepping into the role of CEO of Magellan Investment Partners, the division that will house the remaining funds management business, including the untouched Magellan Global Opportunities Fund, a tech-focused $300 million strategy holding Amazon.com Inc. (Nasdaq: AMZN), Microsoft Corp. (Nasdaq: MSFT), and Meta Platforms Inc. (Nasdaq: META).
Magellan shares fell on the fresh news around Vinva as the market reacted to the end of an era, albeit an almost inevitable one, with Hamish Douglass no longer involved. We can see further outflows following the announcement, as the total change in investment direction won’t sit comfortably with everyone, plus, of course, some funds might already have money with Vinva and won’t want to increase exposure to the quant manager.
- We can see long-term value in the new Magellan-Barrenjoey company, but we’re in no hurry to build a position.
MM is neutral towards Magellan around $9.60
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