MFG Fair Value, page-24

The reason why we are still positive on Magellan is that Magellan is like Macquarie in the making. It's not a mere fund manager. Now, there are no near-term share price catalysts, and its positive traits will take time to occur. But we believe that Magellan's current share price incorporates just a whole lot of pessimism. Now, we believe that this is a bump in the road. We will see more redemptions and fee compression in the near term. Magellan's bargaining power is now weaker, and it would need to cut fees. But I think investors should know that there are still many people many people who held back from investing with Magellan because of their premium pricing.

And another important thing to note Lewis is that the loss of the St James's Place mandate removes concentration risk and frees up capacity for Magellan to invest. I mean SJP or St James's Place is the only elephant in the room. The next four clients, the next four largest institutional clients each make up about 2% of revenue, or about $4 billion in the firm. Now, Magellan will have more capacity to sell more to other clients, it can invest into more stocks, and we have long said that Magellan's holdings have strong economic moats and are undervalued. Now, all of this would help Magellan outperform in the future.

And the third point is that Magellan's compounding power and its investing caliber is strong, right? If you look at Magellan's funds, it has got $90 billion in funds. So, if you think about that, the mere compounding of a 9% to 10% market return is more than enough to offset, say, four to five years of outflows from (platinum) 3:49 or outflows from Magellan's next two largest in institutional clients.

And I guess, lastly, Magellan has a stable product suite and investments that are not pricey, fairly strong, it's getting good money flows into MFG Core series and FuturePay will be stronger after they build up a stronger track record. Now, Magellan is not going bankrupt as well. I mean, its balance sheet is strong; its cash flows are strong. It has stakes in some of the best investment banks – one of the best investment banks and fast-food restaurant chains in Australia, all of which with a strong growth potential. So, we think that because of that shares are massively oversold and there are still many positive traits of Magellan that admittedly will take time to manifest itself.