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Magellan (ASX:MFG) share price set to sink as major client pulls funds

The Magellan Financial Group Ltd (ASX: MFG) share price will be the most-watched company on the ASX on Monday when the business commences trading again after being placed in a trading halt this afternoon.

While the trading halt was short on details, Magellan announced it had a material contract terminated.

MFG share price

Source: Rask Media MFG 1-year share price
Source: Rask Media MFG 1-year share price

The first domino falls

The trading halt announcement at 2.17 PM was promptly followed up with Magellan’s original request for a pause on share trading at 2.28 PM.

What caught investors and the market’s attention was the likelihood of a big client outflow:

“The trading halt is being requested pending an announcement to be made by MFG. The announcement relates to the termination of a material contract”.

The client remains unconfirmed at this stage. However, it is rumoured to be UK-listed wealth management firm, St James’s Place.

Given Magellan lacklustre performance over the past 18 months, it’s no surprise to see a major client redeem funds.

However, only in October co-founder, Chairman and Chief Investment Officer Hamish Douglass attempted to calm market concerns:

“On fees. On the institutional business, which is $80 billion in funds under management. We haven’t seen any questions or pressures on fees whatsoever. We are highly, highly competitive there”.

My take

Today’s announcement has certainly humbled this writer.

Just two months ago I wrote about why I thought the Magellan share price could be a buying opportunity.

Here’s why I’m bullish on the Magellan (ASX:MFG) share price

Has Magellan (ASX:MFG) lost its Midas touch, or is this a buying opportunity?

The Magellan share price has fallen by 19% since then, demonstrating that knowing the downside of an investment is just as, if not more important, than knowing the upside.

The market has likely overreacted to one client pulling funds. But it’s the potential mass exodus of client outflows that will worry investors the most.

How many more clients will withdraw funds? Will fees need to be slashed? What about performance? 

It’s fair to say this writer is walking away with his tail between his legs.

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At the time of publishing, Lachlan does not have a financial or commercial interest in any of the companies or funds mentioned.
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