After posting 35 per cent profit growth for financial year 2019 and growing FUM to over $75 billion, Magellan this week announced the launch of the Magellan High Conviction Trust, a listed investment trust (LIT) that will invest in a concentrated portfolio of high-quality global companies, weighted toward Magellan’s best ideas and will aim to deliver investors a target cash distribution of 3 per cent a year.
The investment strategy will replicate the investment strategy of the unlisted Magellan High Conviction Fund which has returned 16.6 per cent per annum net of fees since inception on 1 July 2013 to 31 July 2019. Magellan will be the investment manager and act as the responsible entity, with Hamish Douglass and Chris Wheldon acting as the portfolio managers.
Magellan is proceeding with the offer without appointing a broker syndicate and is not paying any fees or commissions to brokers or advisers to handle the raising.
“We are addressing potential concerns regarding conflicted remuneration by proceeding without appointing a broker syndicate or paying any fees or commissions to any brokers or advisers to handle the offer,” Mr Douglass said.
“Instead, Magellan is offering directly to investors who subscribe for units in the offer the right to receive additional units worth either 7.5 per cent or 2.5 per cent of their allotment depending if they subscribe under the priority offer or wholesale/general public offer. The full cost of the additional units and costs of the offer will be borne by Magellan. We hope that investors will find the offer attractive.
“I intend to take up my priority offer and, in addition, to subscribe for $20 million worth of units under the wholesale offer.”
Magellan’s decision to scrap commission payments comes after growing concerns over the payment of commissions to financial advisers by LIT’s and LIC’s, which have become a $45 billion market in Australia.
Conflicts of interest have emerged after the share price of listed funds associated with SMSF specialist Evans Dixon crashed in June.
Evans Dixon recently restructured its management, with chief executive Alan Dixon dropping his role to instead focus on salvaging the company’s troubled US property fund.
The US Masters Residential Property Fund (URF) told shareholders earlier this month it would cut its dividends from 5 cents to 1 cent as well as take to selling the property portfolio to pay off its debts.
The fund has come under scrutiny from within the financial advice space, including Jim Stackpool from Certainty Advice Group, who warned advisers that the law fails to protect consumer from vertically integrated business models such as Evans Dixon’s, saying “the fact there’s a conflict of interest is irrelevant under law”.
