afr article. its basically game over. the death spiral...

afr article. its basically game over. the death spiral begins.

Short-sellers lick lips as Magellan flounders

But the broker explained there were three separate St James’s Place mandates. A 10 per cent reduction in base fees would slash earnings by about 12.5 per cent. Mr Stadnik also noted that Magellan traded on a multiple of 12.5 times earnings, which was “near the top of Australian asset managers that we cover”.

“We think Magellan could de-rate and head towards our $17.00 bear case valuation as about 75 per cent of funds under management is from institutional clients and is at risk of seeing lumpy outflows,” he wrote.

Mr Douglass said no institutional investors had questioned the performance of the fund over 12 months in an interview with The Sydney Morning Herald after he had spent three months visiting key clients in Europe.

Long-standing Magellan distributors, including local financial planners and wealth managers who have recommended its funds for more than a decade, have increasingly turned their backs on the firm as their duty to act in the best interests of clients outweighs personal loyalty.

Another hedge fund manager, who reduced the size of a short position, said: “There’s no intrinsic value to these businesses. There’s no number where it has to stop at.”

The manager said Magellan’s profit margins were too high for a fund management business that ultimately finds it difficult to sustain market-beating performance.

“Profit margins in this industry always mean revert. You either reduce fees, your assets shrink and therefore so do your margins if your costs stay the same, or your costs go up as you have to retain talented staff.”