In its full-year results released to the ASX on Friday, Magellan Financial Group reported a 57 per cent decrease in adjusted net profit after tax (NPAT) to $174.3 million.
Statutory NPAT was reported to have fallen by 52 per cent versus the previous financial year to $182.7 million, while profit before tax and performance fees for Magellan’s funds management business was down 55 per cent to $212.3 million.
“We have made a solid start to implementing our five-year strategy and have laid a foundation that can return us to growth in time,” commented Magellan chief executive officer and managing director David George.
“Our primary focus has been on delivering the investment performance we are known for, and we are encouraged that the changes we have made during the year have resulted in improved collaboration, information flow, and efficiency.”
The Magellan CEO said these changes had helped deliver “early signs of performance improvement” particularly for the Global Equities Strategy, which outperformed its benchmark in the second half of the financial year and contributed $11 million in performance fees.
In October last year, Mr George was appointed to the role of chief investment officer (CIO) and Gerald Stack as deputy CIO to facilitate what Magellan said was an “objective and forensic review” of the strategy and implement changes to assist in improving performance.
“With meaningful change implemented across our platform, we have now unwound the CEO/CIO structure that was previously announced and reverted to ‘business as usual’ with Gerald Stack resuming his former role as head of investments,” Mr George said on Friday.
Average funds under management (FUM) over the 2023 financial year was $48.8 million, 48 per cent lower than in the 2022 financial year, when this figure sat at $94.3 million.
Magellan had $39.7 billion in FUM as of 30 June, down from $61.3 billion a year earlier. This was driven by net outflows of $25.2 billion and cash distributions of approximately $0.7 billion but offset by positive investment performance of $4.3 billion.
The firm noted that its net outflows were mainly driven by client outflows in the Global Equities Strategy, which it attributed in part to the strategy’s “recent relative underperformance” which it has sought to address.
Magellan’s strategy update
In his letter to shareholders, Mr George reiterated that the firm’s focus remains on driving investment performance as well as delivering disciplined cost and capital management.
“When investment performance is strong, positive inflows follow. To this end, we have made considered and deliberate changes this year to support investment performance and drive efficiency and collaboration throughout the business across the different strategies,” he said.
“What remains unchanged is our investment philosophy. We still believe investing in the world’s best companies is a path to creating and protecting long-term wealth, particularly in a high inflationary environment.
“All our existing strategies are designed to deliver attractive risk-adjusted returns to investors over the long term and our three primary strategies have outperformed the applicable benchmarks since inception.”
Additionally, Mr George said Magellan had “well-defined growth opportunities” to leverage its existing investment capabilities to create strategies in areas of growing demand.
Longer term, he indicated a focus on “sustainable growth that thoughtfully reduces the risk associated with concentration in a small number of strategies and individuals”.
“This involves taking steps to broaden and deepen the mix of our funds under management and thoughtful succession planning to future-proof Magellan against key person risk,” Mr George said.
“We are proactively looking at opportunities for growth in areas where there are increasing allocations in client portfolios such as alternatives or private markets. Our distribution, marketing, and operational capabilities built over many years provide us with a competitive advantage that provide a unique value proposition for fund managers.
“Importantly, our approach to inorganic growth is disciplined. Any acquisition or investment we make will be timely, strategic, scalable, and complementary to our existing business and ultimately create long-term shareholder value and sustainable revenue growth.”
Magellan’s board declared a final dividend of 35.6 cents per share and a performance fee dividend of 4.2 cents per share. A special dividend of 30 cents per share was also declared, taking the total ordinary and special dividends for the 2023 financial year to $1.167 per share.
Mr George said Magellan has a “highly profitable business” with no debt and strong net cash flows from operating activity of $186.6 million during the 2023 financial year.
“While we are only one year into our five-year strategy and there is much work to do, we are confident Magellan can evolve into a diversified global fund manager of scale that delivers ongoing sustainable growth and attractive shareholder returns,” Mr George concluded.
Prior to the release of its results, Magellan also announced a number of board changes, including the appointment of Andrew Formica as non-executive chairman.
Good on Magellan. No debt but to their investors. It’s good to see a leader who suddenly became a badly judged ‘underdog’, not give up, but keep going and strive to perform, not to be an industry prima donna again, but to serve and deliver real returns, in one of the most difficult climates encountered in the last century, its investor and adviser clients.