The Magellan Financial Group Ltd (ASX: MFG) share price has sunk 28% over the past month, 59% since October, and 73% from its highs in 2021.
At the core of Magellan’s troubles is its severe underperformance since 2020.
Its issues compounded when its CEO resigned, largest client redeemed $23 billion in assets and rockstar CIO took medical leave.
Bandaids don’t fix bullet holes
To thwart the Magellan share price capitalisation, Magellan brought back founder Chris Mackay and ex-portfolio manager Nikki Thomas.
This failed to soothe the market.
Then it announced a 1-for-8 options package to reward shareholders if they stuck with the flailing Magellan share price.
That didn’t work either.
Now it’s announced a share buyback to purchase just over 5% of shares.
Wrong again.
To quote Taylor Swift, “bandaids don’t fix bullet holes”.
These are all short-sighted fixes to long-term issues.
Here’s how to actually revive the Magellan share price.
Eliminate key person risk
Magellan has designed its product distribution and more broadly the entire business around Mr Douglass.
This was a decent strategy.
Mr Douglass is a larger-than-life personality, an intelligent fund manager, and popular with investors and advisors.
But he was given too much rope. This was evident in 2017 when the board granted him a $10 million life insurance policy payout.
Or in 2020 when the business decided to venture into private investments including Barrenjoey and Guzman y Gomez.
Now with Mr Douglass on medical leave, the business is without its north star.
To counter this, Mr Mackay has been brought back into the fold.
Anyone who tuned into the half-year results in February could tell Mr Mackay is now calling the shots – much like Hamish did.
But Magellan is making the same mistake again.
Replacing one big personality with another is not a solution. It’s kicking the can down the road.
The business has a quality group of analysts and portfolio managers. Put them on show.
Let Mr Mackay run the funds. But keep him out of shareholder relations.
Leave the operating of the company to a more capable executive team.
Restore market trust
For years, Magellan has wooed investors with its well-crafted presentations and marketing materials.
When asked about the underperformance in October, Mr Douglass said:
“I haven’t found any sort of institutional investors who actually find any sort of concern about what’s going on”
Two months later it lost its largest institutional client.
Even after the Magellan share capitulation, the company is still all over the shop.
Here are direct quotes in February by Mr Mackay:
“Magellan craves excellence”
“In some cases, we must deserve to be trusted to rebuild trust”
“The most important word in teams and in adaptive processes is end”
This is delusion at the highest level.
Instead of announcing a series of new hires and capital management exercises, cut the gibberish and own the mistakes. The following would have been much more reassuring to my ears.
Here’s how we are going to fix performance.
Here’s why we are going to reform the executive team.
Here’s how to measure it. And this is how you can begin to trust us again.
Outperformance
At the crux of all fund management businesses is outperformance.
Without it, you’re toast.
There is no shortage of substitute products. And exchange-traded funds (ETFs) are only growing in popularity.
Therefore it’s integral Magellan begins to outperform its benchmark.
The damage has already been done to long-term performance. But outflows will only accelerate if outperformance fails to return.
The Magellan investment team showed for 13 years it could outperform the market.
So it’s not that far out of the ballpark to suggest they can’t make amends.
How to save the Magellan share price
To summarise, here is how to revive the Magellan share price:
- Reduce key person risk and implement proper governance and organizational structures
- Own mistakes with long-term solutions rather than temporary bandaids
- Quit the smooth-talking and begin to restore market trust
- Return to outperformance, which should halt outflows and stop the share price from sliding
It all seems pretty simple.
But it’s yet to be seen if Magellan can save itself, and its share price.
