Entrepreneurial international equities manager Magellan Financial Group Ltd (ASX: MFG) is to ask its existing 250,000 to 300,000 holders of Magellan issued securities to invest at least another $30,000, or 10% of their current capital holdings in units of a new Magellan fund.
You don't need a Bloomberg terminal to see that this offer could raise several billion dollars from investors. The incentive for investors is that Magellan will add another 6.25% to the value of any application via additional units, with the cost borne by the fund manager.
The new listed global equities fund will be co-managed by its founder Hamish Douglass, and Stefan Marcionetti.
The fund will aim to distribute income of 4 per cent per year, while following the popular Magellan mantra of investing in modern-day or classic blue chip stocks across U.S. and European markets.
The underwritten 6.25% in additional units is likely to encourage applicants and could mean Magellan adds $5 billion or more to its funds under management in a single offer.
The group of course earns fees as a fixed percentage of funds under management, with the potential to earn lucrative performance fees on top of the management fees. So another $5 billion in FUM or so could instantly add around another 10% to base revenues (plus lucrative performance fees) at good profit margins and relatively little extra long-term costs.
Outlook
Something of a marketing machine Magellan has also bought sponsorship rights to the upcoming Ashes cricket series to promote itself amongst its target market of traditional Test-cricket-fan types, with healthy superannuation balances.
Magellan is due to hand down its full year profit report on August 10 and investors expect a strong second half based on its FUM growth, with performance fees of $18 million for the half year already revealed to the market. Given its valuation, I would wait to see its results, before considering buying shares in the business.
This week capital-markets facing IOOF Holdings Limited (ASX: IFL) and Janus Henderson Group (ASX: JHG) have beaten market expectations thanks to a combination of robust markets and good cost controls and Magellan may also impress if its costs are controlled.
