The Magellan Financial Group Ltd (ASX: MFG) share price is down after releasing its December 2021 funds under management (FUM), which included the loss of St James’ Place.
Magellan’s big FUM drop
The fund management business revealed that its FUM had fallen to $95.5 billion at 31 December 2021. This was a decline from $113.3 billion at 30 September 2021.
Excluding the termination of the St James’ Place mandate, Magellan experienced net outflows of $1.55 billion, including included net retail outflows of almost $1.1 billion and net institutional outflows of $459 million.
The St James Place mandate termination was effective 20 December 2021, which resulted in a $23 billion reduction in institutional funds under management.
But, whilst the global equities FUM dropped from $84 billion to $64.9 billion. But there was growth in two other areas. Over the quarter, the infrastructure FUM increased from $19.66 billion to $20.57 billion and Australian equities FUM went up from $9.6 billion to $10 billion.
Magellan said its funds were going to pay distributions (net of re-investment) of approximately $416 million in January, which will be reflected in the FUM figures in next month’s announcement.
Management fees and performance fees
Magellan revealed that it was entitled to just $11 million of performance fees for the six months to 31 December 2021.
For the six months to 31 December 2021, base management fees were approximately 62 basis points (0.62%) of the average FUM over that period. Average FUM for the period was $112.7 billion, compared to $100.1 billion for the six months to 31 December 2020.
Looking ahead, the average base management fees are approximately 65 basis points (0.65%) based on the December 2021 closing FUM of $95.5 billion. The run rate of base management fees on closing FUM at December 2021 is broadly in line year on year.
What to make of this announcement for the Magellan share price
The loss of a huge amount of institutional money wasn’t a surprise, but $1.5 billion of outflows is a pretty sizeable amount for one quarter. There is a concern that Magellan could lose more institutional money in the coming months.
Whilst the loss of total fee revenue isn’t a good thing, it’s interesting to see that Magellan’s average base fee of average FUM is going to be a little higher.
I think Magellan’s non-global equities segments have attractive futures, including infrastructure equities, Australian equities and its external investments (like Guzman y Gomez). However, there could be a further decline of FUM in the shorter term if more institutions pull the plug. The next quarter could show what damage will be done, but there’s a fair chance the current Magellan share price has almost, or already, seen the bottom.
