Magellan fund’s hold on institutional investors shrinks to $5b
Magellan is down to managing just $5 billion for institutional clients in its flagship global equities strategy, analysts at Macquarie estimate, after the fund suffered further outflows in June despite a turnaround in performance.
The investment bank cut its recommendation on Magellan shares to “underperform” from “neutral”, arguing the shrinking funds management business was “overvalued”.
Even so, stock picking is working in Magellan’s favour again, and its June-half performance enabled the parent to bank $10.9 million in performance fees over that period. Macquarie attributed this largely to the global strategy, which beat its benchmark by 0.9 percentage points with a return of 18.13 per cent after fees over the six months to June 30.
Magellan CEO David George.
Macquarie appears to disagree with activist investor Sandon Capital’s assessment that Magellan could be worth up to $15 a share if it rethinks its strategy and returns excess cash and passive capital to shareholders. Sandon made the claims in a report last month, to which Magellan is yet to publicly respond.
The broker’s price target is $7.25 a share, reduced from $7.50. Magellan was trading at $8.32 on Monday, down 3.6 per cent.
“We estimate around $5 billion of institutional [funds under management] remains in global equities, which remains at risk of further outflows,” a note distributed to Macquarie clients reads.
“Retail outflows are likely to persist at current levels until we see a sustained improvement in relative investment performance and upgraded fund ratings, which takes time.”
On the flip side, Macquarie speculated that the outflows from Australian equities, represented by Magellan’s Airlie Funds Management business, “appear to have stabilised with
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