Activist Sandon says Magellan redemption fears ‘overblown’
Activist investor Sandon Capital has sought to counter concerns about more client money leaving Magellan since the departure of its veteran infrastructure portfolio manager Gerald Stack was made public last week.
Magellan shares fell 23.5 per cent in the three days since the global equities manager informed the market of his exit. But equally, the sharemarket is not adequately valuing Magellan’s stake in investment bank Barrenjoey, said Sandon’s chief investment officer Ga-briel Radzyminski.
Sandon has pursued an activist campaign since June 2023, and told The Australian Financial Review that the sell-off was “overblown”.
Sandon Capital’s Ga-briel Radzyminski says heightened concerns of redemption requests at Magellan are overblown. Dominic Lorrimer
He said Magellan’s 36 per cent stake in Barrenjoey was a “big swing factor” in Sandon’s opinion, and that the business appeared to be “going from strength to strength.”
“I don’t think any parts of the Magellan business are to be underestimated,” he said.
Magellan backed the investment bank founded by ex-UBS dealmakers Matthew Grounds and Guy Fowler in 2020, alongside Barclays. Barrenjoey recorded an annual net profit of $34.7 million in 2023-24, turning its fortunes around from a $26 million loss.
Mr Stack will depart in July following 18 years at Magellan.
On Monday, research firm Morningstar slashed its fair value price estimate for Magellan shares to $8.90 apiece from $10.20 on concerns that Mr Stack’s exit could pull around $8 billion from its infrastructure funds under management. Brokers Jarden and UBS have also downgraded the stock, to “underweight” and “sell” ratings, respectively.
“I don’t think anyone can begrudge someone after 18 years that they might want to move on and do something different or re-evaluate,” Mr Radzyminski said.
“We’re of the view that this is just part and parcel of being invested in an asset management business. People come and go. That’s just the way it is,” he said.
Magellan investors would know; the departure of co-founder Hamish Douglass in 2022 set the business on a collision course, draining its funds under management and remaking its investment team and executive ranks.
The activist investor said clients of Magellan’s infrastructure fund would have already factored in Mr Stack’s departure as a possibility in their decision-making.
“There may well be some outflows but we don’t think it’s fundamentally critical to the value proposition of Magellan,” Mr Radzyminski said.
However, Morningstar analyst Shaun Ler said that Mr Stack’s departure heightened redemption risk, “given it could take time for investors to gain confidence in the new team”.
“Stack has led the infrastructure strategy since 2007, and his team’s stability during Magellan’s turbulence in 2022-23 was a reassuring factor for investors,” Mr Ler wrote.
Australian equities portfolio manager John Sevior retired from Magellan’s Airlie business in 2023. Co-founder Chris Mackay stepped down in October 2022 from a cameo role temporarily overseeing its global equities strategy.
“While Stack’s brand reputation may not hold the same weight for Magellan as Hamish Douglass once did, the reliance on predominantly less-sticky institutional money within the infrastructure strategy highlights the persistent risk of mass redemptions following key personnel changes,” the Morningstar analyst wrote.
He argued such concerns were compounded by the fund’s underperformance relative to its benchmark, which would limit prospects for attracting new money. The strategy has underperformed across the one-year, three-year, five-year and seven-year horizons.
Mr Radzyminski applauded the leadership of Magellan chief executive Sophia Rahmani and executive chairman Andrew Formica. He said the pair have successfully “stabilised the business” but Sandon was not giving up on its push for the board to return cash to shareholders.
“They still have, in our opinion, significant excess capital that would allow them to manage their capital for shareholders.”
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