Shares in Australian fund manager Magellan Financial Group Ltd (ASX: MFG) finished trading on Monday, up 1.27% at $29.49.
It's been a tremulous year for Magellan's share price, where it has lagged key benchmarks by a considerable amount – a long-term trend that has seen its global equities fund underperform its benchmark by 1.1% over 5 years.
After more velitations in the past few weeks, namely CEO Dr Brett Cairns walking out, plus both its Chairman and former CEO announcing the split from their spouses, Magellan has suffered another tumble to trade at its lowest point in over 2 years.
Now the firm is scrambling to ensure that massive outflows of capital don't continue, and is working to stabilise the performance of its flagship funds for investors. Here are the details.
What's Magellan up to?
After years of underperformance, it's hard for Magellan to continue justifying relatively high management and performance fees to investors.
As such, the firm has begun offering significantly lower fees to wealth managers after palming off similar requests for several years, according to reporting from The Australian.
The report confirms that Magellan has launched a new product for its managed accounts operators and wealth managers, with a fee that is 50 basis points lower than its global fund.
Moreover, it will avoid charging a performance fee on its new offering, making it potentially more attractive from a cost basis. For reference, active equity managers often charge a percentage fee of total funds under management, plus a performance fee if the fund reaches a certain performance watermark.
Many hedge funds charge a "2 and 20" structure for example – 2% of funds under management, plus a 20% profit share of any returns above the defined watermark.
Now Magellan has looked to scrap that similar kind of fee structure and is responding to the requests of its account managers. Apparently, it has been "asked to drop fees for managed accounts" for several years.
According to Magellan's general manager of distributions, Frank Casarotti, the firm has been "looking at this for years and the reticence around the retail investor is (unrelated and) very much around the relative underperformance".
To date, there are no funds under the new offering, which took off in November. Magellan says the new product should not be considered as being offered at a discount either. It is only offered to operators of managed accounts that reach a threshold of $20 million.
What's the outlook for Magellan?
Going by what the experts say, uncertainty is the main theme on the outlook for the Magellan share price. For instance, the team at UBS reckon that whilst the group's infrastructure and Airlie funds are cruising along, a turnaround for its global fund is still not evident.
UBS also notes that a recovery in retail inflows still appears to be a fair slog away. The firm estimates that since June 30 2021, the global equities fund's underperformance relative to its benchmark is 540 basis points (5.4%) whereas its Airlie offering has outperformed by 600 basis points (6%).
UBS says it "continues to see downside risks to the revenue outlook (flows/fees)" and retains its sell rating on a $29.50 price target.
Macquarie has Magellan's share price rated to outperform and values the group at $38.50 per share, whereas each of Morgan Stanley, Jarden Securities and Evans and Partners have it as a sell.
In the past 12 months, the Magellan share price has plunged almost 46%, after sliding another 45% this year to date.
In the last month alone, it has slipped 16% and is down 9% over the past week of trading.
