On Tuesday, Magellan reported their annual results, with the stock plunging 11%. This announcement made me think; how a leading fundie struggled in such a buoyant time? To underperform in this bullish environment, is like not getting backing in the '99 tech bubble. Or to better explain I pinched a PMarca quote:
If a VC told you “no” [to your tech startup] in 1999, I’m sure you’re a wonderful person and you have huge potential and your mother loves you very much, but your plan really was seriously flawed.
If you were told “no” in 2002, you probably actually were the next Google, but most of the VCs were hiding under their desks and they just missed it.
But to bluntly described 2021 as an own goal for Magellan is unfair. Here's what really happened (and apologies if the below is a bit dry):
My thoughts on this generally are:
Their Global Equities fund can be forgiven for not loading up on US Tech (given their stretched valuations) or not predicting the CCP crackdown. After a rubbish year, it has now underperformed the index on 5yr horizon (but outperformed by c.2% over 10yrs). However, at $14bn in size it will continue to provide big income to Magellan & redemptions will likely be more than offset by new funds (see below)
The Barrenjoey employees were always going to be the winners from this startup, so let's hope they eat plenty of Guzman when they're working late to offset their huge salaries
For Infra, when there is more inflation & less COVID-19 restrictions, Toll roads/airports will recover. Even still - this fund won't make huge performance fees for Magellan
In the next 3 months, they are raising new funds (ESG, retirement etc) but these will be low-fee funds to keep the big end of town captive by Magellan
Overall, if you are a Magellan shareholder, these new low fee funds and start-ups detract from what has been a near perfect run. At 23x P/E and a consensus of small net FUM outflows (c.$1.5bn) expected in 2022, sure it is fully priced... but certainly is no time to get melodramatic.
The business HAS to diversify away from the competitive space of Global Equities and less racy product like retirement, infrastructure etc. do help with this.
My only wish is these start-up bankers write some business to justify this years loss & that the upcoming fundraising is not jilted by a bad year.
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