Magellan: Downside From CEO Departure Likely Not as Destructive as Before

The sudden departure of CEO David George is unsettling amid no-moat Magellan’s MFG ongoing turnaround efforts. However, while we anticipate additional redemptions stemming from this event, we don’t think the value erosion will be as great as when Brett Cairns and Hamish Douglass—both longtime Magellan personnel—relinquished their CEO and chairman roles in late 2021 to early 2022.

We cut our fair value estimate to AUD 9.60 per share from AUD 10.20, reflecting further redemptions due to George’s departure. We lift our projected net outflows for fiscal 2024-25 to AUD 20 billion, from AUD 17 billion previously. This includes outflows from the AUD 2.7 billion closed-end Magellan Global Fund, which we expect will be transitioned into an open-class vehicle following pressure from activist investor Nick Bolton.

Sudden leadership departures like George’s have historically raised concerns of instability, leading to persistent redemptions even after new leadership is appointed. George’s abrupt departure, following his brief tenure of under one and a half years, mirrored the cryptic announcement of former CEO Brett Cairns’ exit in December 2021.

However, we believe any associated sense of instability is likely to be short-lived. Unlike early 2022 when Magellan lost both its longtime CEO and chairman and lacked stable leadership, Magellan now has chairman Andrew Formica, an asset management veteran with prior tenures as CEO of Janus Henderson and Jupiter Asset Management, to oversee operations temporarily during the CEO search.

We also don’t foresee adverse changes in fund ratings that would trigger excessive redemptions. Ratings houses, including Morningstar Research Services LLC, have maintained their ratings for Magellan even after George’s transition away from his role as CIO in August 2023. With its funds already being downgraded a few notches since 2022, we think further downgrades are likely only if underperformance is significant and prolonged. This is not our base case.