Magellan (ASX:MFG) announces big financial services investment

Magellan Financial Group Ltd (ASX: MFG) has announced a large investment into new financial services firm Barrenjoey Capital Partners.

What is Barrenjoey?

Barrenjoey is a newly established Australian-based full-service financial services business.

For Australian and international clients, it will provide corporate and strategic advice, equity and debt capital market underwritings, cash equities, research, prime brokerage and traditional fixed income services.

Barrenjoey will have Guy Fowler as Executive Chairman and Brian Benari as CEO. Other founding partners will be John Cincotta, Matt Hanning and Chris Williams.

Magellan also said that Ken MacKenzie will also join in early 2021 as a senior strategy partner to provide strategic advice and senior counsel, CEOs, chairpersons, boards, executive teams and business owners to develop and execute their long term strategies.

Cynthia Whelan, former Barclays Australia CEO and Telstra Corporation Ltd (ASX: TLS) executive, will also provide advice to Barrenjoey clients.

Magellan’s investment

Magellan’s investment comprises the issue of approximately 1.2 million Magellan shares and $90 million of cash to take a 40% economic stake in Barrenjoey. Magellan has a 4.99% voting interest and Magellan’s CEO, Brett Cairns, will join the Barrenjoey board.

The funds management business will also provide Barrenjoey with a $50 million working capital facility to support the growth of the business.

Magellan will have no day-to-day operational involvement in Barrenjoey. The investment will form part of Magellan’s ‘Principal Investments’ business.

Barclays involvement

Global banking giant Barclays is also involved with a $45 million with a 9.99% economic stake and a 4.99% voting interest. Barclays has also entered into an agreement with Barrenjoey covering global product distribution, research, cross border advisory and debt capital markets and has made available additional regulatory capital and significant balance sheet capacity for the new company.

Barclays sees Australia as an attractive and important financial services location and could help global clients with access to Australia.

Management comments

Magellan CEO Brett Cairns said: “We believe the partnership model that leaves control, equity ownership and core decision making with the executives is proven and powerful. This partnership model was adopted historically by many investment banks but unfortunately seems to have disappeared over the last 20 years. By offering true ownership and autonomy to staff, we believe that Barrenjoey will be able to attract the best and brightest talent in the country providing clients with the best possible service and outcomes.”

Barrenjoey Executive Chairman Guy Fowler said: “Our vision is to create a platform that will attract, liberate and reward the very best people so they can produce outstanding outcomes for our clients. There are a lot of talented people in the market who are looking for a true partnership which has a team atmosphere, is more entrepreneurial and also provides greater flexibility than traditional firms.”

Summary

This seems like a promising move by Magellan. I’m not sure how much profit Barrenjoey can make over the coming years, but Magellan must have high expectations with how much it’s investing.

Whilst the Magellan share price is riding high, I think it could still be a long term buy for its growth plans and its ‘partnership’ style of initiatives. Collaboration is a good way to make long term profit. However, there are other ASX growth shares I think could be better buys such as Pushpay Holdings Ltd (ASX: PPH).

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At the time of publishing, the author of this article does not have a financial or commercial interest in any of the companies mentioned.

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