Our saviours walk among usThe relative underperformance of...

Our saviours walk among us

The relative underperformance of Magellan’s global equities strategy since March 2020 has been well and truly dissected. Magellan’s global fund now lags its index over every time period from three months through to 10 years, including by 14.76 per cent over one year and 5 per cent over three years.

Only since the fund’s relative underperformance opened up did Magellan begin claiming “we are not pacing ourselves against benchmarks” while charging fees (and paying executive bonuses) based on fund performance versus benchmark.

Douglass’ stretch of poor returns has coincided with a period of personal turmoil. He recently returned from a four-month working trip in Europe. We flagged his marriage breakdown on December 7 and the Douglasses released a statement the following day confirming their separation “some months ago”.

Magellan’s chief executive Brett Cairns had resigned abruptly on December 6 citing “personal reasons”, though Magellan clarified they were unrelated to Douglass.

The horror run also coincides with Douglass using Magellan’s balance sheet for plunges on side hustles – investments in burrito chain Guzman y Gomez and Matthew Grounds’ new investment bank Barrenjoey. Magellan’s share price has fallen 60 per cent in six months.

Magellan accumulated $115 billion of funds under management by constructing a cult persona for Douglass as an ascetic prodigy of global markets, Australia’s own Warren Buffett who catches the bus and eats McDonald’s while excreting superhuman insights. Having learnt at the feet of Chris Cuffe at Colonial First State, Magellan’s distribution mastermind Frank Casarotti knew to keep Douglass constantly declaiming his wisdom in the media and the retail money would roll in. Which it did.

This blueprint was all very well until Douglass’ mojo abandoned him.

A man in profound denial

Time and time again, hubris blows up star fund managers, who are persuaded of their own exceptionalism by enough years prophesising to packed stadia of reverential financial advisers and with retired stars of the Federal Reserve and Central Intelligence Agency hanging off their teats. This mindset also causes them to react indignantly to any unbelief in their genius. Caledonia’s recent misfortune bears comparable hallmarks.

Worse still, Douglass exhibits all the signs of a man in profound denial. “I haven’t found an institutional investor who has questioned the performance over the last 12 months,” he said on December 4. If he truly believed this, he was delusional. He might as well have said that JobKeeper was well targeted.

Thirteen days later, Magellan’s largest institutional investor, St James’s Place, redeemed its $23 billion of funds, sending Magellan’s share price into freefall. The mandate had been under review for months. Yet we are asked to believe that a $275 billion asset manager listed on the London Stock Exchange yanked 23 large, after eight years, without first uttering a word of disquiet.

The market is justifiably concerned about what is really going on inside Magellan. In that information vacuum, Douglass presented last week to a friendly financial advisory firm, a very safe space of softball questions and edited extracts.

“When we saw omicron, even before we got any data, when we saw where the mutations were on the spike protein, with our scientific advisers, we thought this is potentially something really different. But the market thinks it’s watching the same movie as delta.”

Here he goes again, lording his supposed virological edge over spellbound retail money. The strangest part of this tired act is that Magellan has never delivered worse returns than since the arrival of COVID-19. If Douglass (with his crack team of experts) always knows better than the market, why does he so chronically underperform it?

Douglass is an artist at creating a dual impression that the world is confoundingly complex but that he, uniquely, perceives its secrets. His followers therefore feel indebted to him for stepping away from the inner chamber of the global Illuminati – or just his yoga mat – to dust them with a few crumbs of his exquisite foresight.

As his fund investors and shareholders are only now coming to understand, these foresights are dubiously exclusive and seriously fallible. He badly misjudged the sovereign risk to Chinese stocks. For half of the last decade, he vehemently warned of US quantitative tightening that never came. The idea that Douglass is any kind of futurist is sheer phantasm. He is race-calling the market just like the rest of us.