Ann: St James's Place Mandate, page-188

First, disclosure - I am not currently invested into MFG, but am looking at this very closely.

I generally agree with a number of your points StockYoda, but I think you have the analogy incorrect (having been closely associated with the B&B implosion and also Blue Sky). B&B was a debt upon debt fueled "investment bank" - so zero correlation to MFG. However, I think the Blue Sky story offers some useful insights.

Blue Sky primarily collapsed due to a loss of investor confidence - its ability to raise new funds and retain existing mandates was curtailed by the short attack and it never was able to regain confidence. When the short attack began, Blue Sky had a $30m debt facility, about $120m in cash and so debt was not an issue. The Oaktree investment (originally designed as a new cornerstone to restore confidence) had a poison pill in the structure of the Convertible Note that allowed Oaktree to pull the pin on a non-monetary default (a great loan to own deal for them and I am pretty certain that they made a handsome return as there was a truckload of assets and cash in Blue Sky at the time they called default).

But the loss of confidence led to a cascade of events at Blue Sky which align to a number of the points you raised and which I think are very relevant to MFG at the moment:

• FUM - having lost its largest Institutional mandate, you can guarantee that every other insto is reviewing their mandates with MFG. This will result in some more mandates being cancelled, but also importantly, every mandate that will stay will almost certainly need to be offered an incentive to stay = substantial reduction in fees. So we will see further reduction in FUM plus a significant reduction in revenues.
• Performance Fees zero - maybe, but will depend on how the investments more broadly pan out. What will happen (in conjunction with the above mandate reviews), is that the negotiated arrangements on performance fees will be recut with each renegotiated mandate for those that stay.
• Dividends will certainly be cut as profits decline - the above outcomes that I described will take about 18 months to fully manifest.
• Financial Planners will pull funds and no recommendations - agree here. Knowing the performance issues plus the relatively high "standard" fees, planners will hold back until performance improves and "standard" fees are reduced. Plus you will continue to see retail FUM leakage over 2022.
• Resignations & Staff defections - you can absolutely guarantee that. Money talks. Whilst the above is happening, the level of bonuses will shrink (and the level of any "Carry" will have shrunk with the recent poor performance). Staff will be open to better offers and this is a perfect environment for any large insto that wishes to establish a new in-house management team - great opportunity to poach a ready made team.
• Management changes - almost certainly.
• Board Changes - essential.

Interestingly, a significant portion of the FUM that comprised Blue Sky are still in existence and generally are doing quite well for investors under management owned entities. You can see a lot of that performance via WAM Alternative Assets Ltd (the old Blue Sky Alternative Investments entity) which continues to deliver very solid returns from its old Blue Sky Real Assets and Private Equity holdings.

So the funds themselves remain OK, but it was the loss of confidence in the manager that made the whole thing terminal. I am certain that will not happen with MFG, but there is a lot more water to flow under the MFG bridge before stability is restored and so I would caution jumping in at that very early stage of an unfolding story.

GLTA & DYOR.