Magellan Financial Group is building on its “investor partnership” model with the initial public offering for its new listed investment company, the Magellan High Conviction Trust. Investors in some of its other funds will receive a “loyalty reward” of units worth 7.5 per cent of the units allotted to them under the priority offer.
Magellan is proceeding with the offer without appointing a broker syndicate and is not paying commissions to brokers or advisers to handle the issue. Eligible applicants under the wholesale offer and general public offer will receive additional units worth 2.5 per cent of the value of the units allotted to them.
Magellan chair Hamish Douglass says the 2.5 per cent represents the money that Magellan would have paid to brokers and advisers.
Magellan will pay the cost of these benefits and it will pay all the costs of the offer.
Douglass says such expenses are a good investment in building investor loyalty, which he described as win-win for investors and the company.
This approach started in 2017, when Magellan listed the Magellan Global Trust. Included in that offer was a dividend reinvestment pan with a 5 per cent discount. The costs of the discount are paid by Magellan.
The total cost of “investor partnership benefits” to date has been more than $90 million.
Douglass says: “The approach we are taking is; if you are in the club you get benefits. We are building a very large direct investor base that we can talk to directly.
“We have 63,000 now and we would like to get many hundreds of thousands of direct investors. We think loyalty is very powerful.”
Douglass says another reason the company is bypassing brokers and advisers with the High Conviction Trust listing is to avoid problems with conflicted remuneration, which he says is “a real issue”.
Magellan reported very strong results for 2018/19. Funds under management increased by 28 per cent and net profit was up 78 per cent to $376.9 million (up 35 per cent to $364 million on an adjusted basis). The company increased its dividend by 38 per cent.
The new Magellan High Conviction Trust will mirror the investment strategy of the unlisted Magellan High Conviction Fund, which invests in a concentrated portfolio of global stocks. The fund has produced an average return of 16.6 per cent a year since it was launched in July 2013.
The fund’s strategy is to invest in eight to 12 of Magellan’s “best ideas” in a concentrated portfolio of global companies aiming to deliver a cash distribution yield of 3 per cent.
The trust includes companies such as Facebook, Visa, Apple, Starbucks and Warren Buffet’s investment company Berkshire Hathaway.
The investment mandate will be flexible to enable the trust to hold up to 50 per cent of the portfolio in cash and manage the currency exposure.
The initial public offer will launch on 21 August and the portfolio will be managed by Magellan’s chief investment officer Hamish Douglass and assistant portfolio manager of global equity strategies, Chris Wheldon.
Investors in the Magellan Global Trust, the Magellan High Conviction Fund and Magellan Financial Group shareholders will be eligible for the 7.5 per cent loyalty reward.