MFG in the BUY zone, page-654

Hi @Clueso

Great post and thanks for taking the time to respond - in terms of confirmation bias concern, wouldn't worry too much about that. Your views are based on deep analysis of the Magellan business and you will naturally change or maintain your view as you see fit. If you like reading books, read 'The Investment Checklist' by Michael Shearn (ISBN: 9780470891858), this may challenge or confirm your thinking better than anyone here and you can go to certain questions in the book based on what you are reviewing at the time. Note: I don't have a financial interest in recommending this book (you can get for free off z-lib.org).

In terms of other growth, the other fund management streams haven't come on as quickly as expected. The FuturePay product is a wider spread of investments with Magellan guaranteeing the income flow (that is, instead of the main portfolio concentration of stocks like MSFT, YUM, SBUX being at 54%, FuturePay is 29% - risk spread across more). This may be a reason why, but would assume more FUM would flow into here from existing funds, as they are potentially in competition with existing business. The Core Series definitely is, switching to the Core Series maintains the same investment style, but lower the fees for the investor.

The other aspect you mentioned was, the law of averages and the growth in the global fund is maxed out. Do you think that this is due to the size of the Australian Market, inability to perform over $100B or limited investment opportunities? My thought is it is due to the size of the Australian Market, but some fund managers investment strategy limits them and they grow slower past certain FUM markers. For example, PTM has struggled to get beyond mid-$20B, value fund manager Investors Mutual has struggled to get beyond $9B (at $7.5B recently) and Perpetual struggling to grow FUM beyond $30B up until recently. Do you think this can be overcome?

I believe low FUM growth can be overcome if Magellan acquire a US based growth fund manager instead of the capital partner investments? Would PE Ratio have stayed at 30 times and earnings growth stayed in the high teens? - believe Magellan definitely would have stayed at a high valuation and as Perpetual investors have discovered, the fund managers in the US are much cheaper to buy than fund managers in Australia and are growing once more. This would be a growth stream, but not in competition with its current products.

For the Capital Investment Partners, some of the investments definitely have the ability to appreciate, but where do you think they will appreciate too and do you think Magellan will ever sell Barren Joey or hold it for beyond 10-20 years? I can't see Magellan selling Barren Joey. Do you think the Capital Investment Partners businesses will generate earnings contribution (excluding capital gains) of more than 15% of earnings to Magellan over the next 10 years? I keep getting stuck at 10% at most (that could be my bias) - see post here https://hotcopper.com.au/posts/57011897/single

If Barren Joey can get to 4% market share in Australia within ten years to overtake UBS Australia, the investment will be worth $750M in 2032 (based on UBS PE Ratio of 8.5). What do you believe the market is valuing it at today and what should it be worth? In note 9 (Associates) of the Annual Report, Magellan currently has Barren Joey at a holding value of $114.480M. If the growth went up $750M, $635.52M over ten years - $63.52M per annum on a flat calculation or 20.7% annual compound growth (double the Fund Management performance). Excel spreadsheet calculation is [=RRI(10,114.48,750)] Reference: https://support.microsoft.com/en-us/office/rri-function-6f5822d8-7ef1-4233-944c-79e8172930f4

The risk here is that Barren Joey only reaches 4% market share in fifteen years (like Macquarie Bank). This will keep the same end value, but be valued at $750M in 2037 (based on UBS PE Ratio of 8.5). This would lower the annual compound growth to 13.4%.

Know this is just math, but what do you believe is reasonable market share achievable for Barren Joey? $750M value is $4.05 per Magellan share.

I haven't done the others in Note 9, don't believe Mexican food will be that big here in Australia and believe Magellan overpaid (happy to be corrected). FinClear has flagged a $500M float which will add $65M to Magellan Net Assets or about 35c.

What are your thoughts on the Capital Investment Partners? Am I missing any of the investments?

Last but not least, the fund management performance. All Fund Managers got hit by the once in a 100 year event, some adapted and others have not yet or won't. Magellan is a very different business to Berkshire - where do I start? Magellan thrives on its FUM performance, whereas Berkshire invests Insurance Float in multiple industries, grows much slower. It is worth noting from a change perspective that Berkshire invested in airlines in the late 80's, got burnt, swore to never invest again but then invested in airlines again recently, then offloaded the lot again last year. Makes mistakes, admits mistake and then sells to correct investment (note: airlines have bounced back materially since Berkshire sold).

I think it goes back to your first point about Magellan management having accepted the level of FUM has maxed out. The plan is to start the new streams - Core Series, FuturePay and ESG. They are looking to grow this organically - where do you think the FUM level for these funds will get to?

Thanks again for taking the time @Clueso

Best of Luck
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