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Magellan eyes buys, alts on long road back to $100bn

Magellan has flagged acquisitions and the addition of alternatives strategies as part of a five-year plan to reclaim the $100 billion plus heights it last scaled in 2021.

Since hitting about $116 billion in December 2021, Magellan has seen funds under management plummet to just over $46 billion by the end of 2022 as both retail and institutional investors outflows combined with difficult markets to derail the once unstoppable juggernaut. But new Magellan chief David George (picture at top) says the business has rebuilt on “strong foundations” following a series of senior staff departures over 2022, including co-founder and investment figurehead Hamish Douglass.

As well as rationalising its product range, George says Magellan has retained key staff to shore-up its existing global, infrastructure and Australian equities strategies. His five-year path back to $100 billion will also require the addition of “new and complementary capabilities through inorganic growth”, including in areas of “increasing demand and allocations” like alternatives and private markets.

“In deciding where to invest, we will look to leading indicators, market trends, industry tailwinds and client demand to invest in growth areas where there are increasing allocations in client portfolios,” George said at Magellan’s interim results presentation on Thursday (February 16). “This will include exploring opportunities to invest in experienced quality teams and capabilities in equities where we can replicate the success of (Australian shares manager) Airlie.”

On the question of how new talent from the exorbitantly-remunerated world of alternatives and private markets will be attracted to the sick man of ASX-listed fund managers, George acknowledged that it was a competitive environment but said that Magellan “has a great value proposition for investment managers” and would be able to get them at a reasonable cost.

“We have outstanding operations, outstanding compliance and risk management and outstanding distribution,” George said. “Those are things investment teams appreciate and it makes their life easier and allows them to focus on what’s important for them.”

“I do think we have an opportunity to expand the platform and I think we’re an attractive destination… It’s very difficult to put a timeframe on things like that; these are opportunistic processes – you need to have a lot of things go right for it to make sense. But in doing that we’ll operate with our normal discipline and make sure any acquisition or transaction in that space makes sense for shareholders and adds value.”

On the question of whether Magellan was already in acquisition talks, George stayed mum. The addition of alternatives and more private markets strategies is perhaps unsurprising  given the Future Fund – of which George is an alumnus – was skeptical of the ability of active equity managers to beat the benchmark. Still, he’ll be hoping that this particular equity manager will be able to do just that as the re-emergence of inflation and interest rate cycles creates a choppier market.

“These are more challenging conditions for businesses, and for that reason we see the focus shifting from the interest rate cycle to corporate earnings,” George said. “Cost pressures, financing pressures and slowing economies will create challenges for many companies, resulting in dispersed performance and earnings outcomes.”

“I’ve said before that I’m bullish active management, and this is exactly the environment where deep understanding of companies can allow our team to differentiate and capitalise on value as it emerges. Thoughtful, long-term and deeply researched investing will be rewarded. These are good conditions for performance; volatility offers periodic opportunity to invest in businesses at attractive prices. Magellan… can be nimble and lean into these opportunities.”

With reporting by David Chaplin.

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