Magellan shares spike as global equity performance changes tack

Magellan shares spike as global equity performance changes tack

Photo: Atte Gronlund, via Unsplash.

The investor exodus that has plagued Magellan Financial Group (ASX: MFG) for more than 18 months has cut its funds under management by $21.6 billion with profits cut by more than half in FY23, but today its shares are moving upwards amidst board renewal and a rebound in global equities performance fees.

The group's global equities strategy had previously underperformed relative to the market, but in October last year Magellan kicked off a turnaround strategy for the troubled division with CEO David George taking a more hands-on role as chief investment officer (CIO) while the head of Magellan’s infrastructure strategy Gerald Stack was made deputy CIO.

These two executives were placed in these roles with the aim of facilitating an "objective and forensic review" of the global equities strategy performance, which the group claims led to "deliberate and considered changes" to support investment performance, and drive efficiency and collaboration within Magellan's investment team.

As a result, Magellan has revealed a more than quadrupling of performance fee revenue for global equities from $2.6 million in FY22 to $11 million in FY23.

Now that the desired improvements have been made, the Magellan board has felt comfortable enough to revert the investment team leadership to its former ‘business as usual’ structure with George as CEO and managing director, and Stack as head of investments.

"Magellan has enhanced its investment frameworks which are leading to improved outcomes across decision-making, portfolio construction and risk management," says George.

"We are pleased with the benefits we have seen from these changes, particularly across our global equities strategy.

"Our focus remains on sustained performance. Gerald has been key in implementing these structural changes and is expertly positioned to lead Magellan’s investment function."

But these are not the only leadership changes at the company. After the market closed yesterday, the group announced its new director Andrew Formica, a seasoned CEO with experience at Jupiter Asset Management and Janus Henderson Group (ASX: JHG) who was appointed to the board last month, would become a non-executive chairman of Magellan starting today.

Formica's appointment means that former chair Hamish McLennan will transition to the role of deputy chairman and non-executive director.

"Despite challenges over the recent past, we have kept a talented team together, improved investment structures and begun to stabilise FUM," says McLennan.

"There is more work to do and the Board remains focused on improving shareholder outcomes as we enter a new phase for Magellan."

McLennan describes Formica as expertly positioned to take the reins and lead Magellan’s growth agenda.

"He has run global funds management businesses, has an outstanding track-record of building funds under management and understands the importance of fostering a strong culture," he says.

Formica says that in his tenure as chair, McLennan stabilised Magellan through unprecedented circumstances,

"I am honoured to take up the position of Chairman and am deeply motivated to return Magellan to a growth footing," says the new chair.

The announcement coincided with the retirement of longstanding director Robert Fraser from the board. He will be replaced by Deborah Page AM, a current non-executive director at Brickworks (ASX: BKW), Growthpoint Properties (ASX: GOZ) and The Star Entertainment Group (ASX: SGR), who will also chair the audit and risk committee (ARC) when she takes on the job in early October.

"We are pleased to welcome Deborah to the Board. She is a deeply experienced company director with broad experience spanning various ASX-listed, private, public sector and regulated entities," says Formica.

"Importantly, she brings funds management pedigree, having held chair roles at Pendal Group Limited and Investa Listed Funds Management Limited. We expect that she will make a substantial contribution to the board."

On 1 July Magellan also welcomed Mark Burgess as the new head of distribution and marketing, in anticipation of the retirement of Frank Casarotti at the end of this year, having spent 16 years with the group.

In a letter to shareholders today, George says there are many opportunities for growth and continued refinement, and FY24 will be a year of building on initiatives implemented and commenced over the past 12 months.

"We will need to stay nimble in what will likely be a challenging economic environment whilst also remaining focused on the existing strategies and looking for opportunities that address clients’ portfolio needs," he says.

"We remain committed to delivering on our investment strategies’ objectives and shareholder returns in a disciplined way."

MFG shares are up 18.7 per cent at $10.92 at 12:19pm AEST - their highest level in the year to date.

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