I was wondering what your thoughts on the same rule versus Magellan’s circle of competence as a business. Fund Management is what has made Magellan a stand out company historically, why have they not focused on that one strength?
I think its simply down to the law of averages in terms of their run way of growth in the funds management business when its over 110B. At some point growth is going to get challenged when you get to this size and i believe this why even in FUM they have introduced new FUM's (Core series, Future pay, ECG etc) as this allows a further runway. These funds are also been created by a gap in the market that needs to be filled not simply making a fund for the sake of it. I feel they know the global fund is close to being maxed out and they are simply looking at growing in other areas and new revenue streams. It makes perfect sense in terms of a strategy if you are looking at building your business for the next 20 years.
This then bring us to the capital partners investments, which I think makes perfect sense if the data suggest FUM is relatively capped in terms of growth. What I also liked was they said in order for a capital partners investment to get approved, they need to trust management and not be running the investment as they want to focus on purely the FUM business. However, they are smart in that whilst they wont get involved in the day to day, they are getting involved in businesses that they truly understand and have deep knowledge in. I think its a very shrewd strategy which the market hasn't priced in any upside at all at the moment. I believe in 10 years time these investments could be material to Magellan.
You mentioned that Douglass took responsibility for the last year(very good quality), but what is the plan to correct these issues (primarily the Funds Management business)? I am keen to know because I didn’t hear or see any way that this will be changed.
Quite simply I think its two reasons. One as others have said, in the FUM business you dont play your out hand in public. But I also think as Hamish has said numerous time, they arent going to change their strategy just because an once in a hundred year event got them unstuck. for 14 years they delivered year in year out and the mistake they made was erring on the side of caution which I don't think is a hanging offense. Isn't it interesting that both Magellan and Berkshire under performed the market when every average punter and fund made easy money in the last 12 months? But who would you back in the long run?
I am happy to receive feedback as there is a fair bit of confirmation bias in my current views on Magellan.
Cheers
MFG Price at posting:
$35.00 Sentiment: Buy Disclosure: Held
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