Magellan chairman Brett Cairns said at a recent annual general meeting (AGM) the company’s ability to manage its increasing sums in a scalable, partnership-focused method is the result of having the appropriate structures in place.
Mr Cairns said transitioning from spreadsheet-based management to a full-blown order management system, establishing UCITS funds in Europe, developing a strong relationship with the North American distribution partner, complying with multiple jurisdictional regulations and incorporating efficient financial and accounting systems has been essential to the value of the company during its continued growth.
He did note, however, that while growing in a scalable way was attractive, funds management is not a “frictionless trade” and the company therefore assumes some risks.
“We are very mindful that we need to have the right risk management practices, culture and skilled team in place,” said Mr Cairns.
“Small errors in the execution of investment management responsibilities often do not remain small, particularly when magnified by large sums under management.”
Mr Cairns said scale benefits were most useful in dealing with homogenous tasks and situations and in this sense, the company had been strongly disciplined in not accepting lots of disparate mandates simply to grow funds under management.
“Having many different individual requirements quickly compounds into a practical management challenge, which can usually only be overcome by an increasing cost to income ratio,” he said. Mr Cairns also said the company had been disciplined in what risks it was willing to assume in its role as manager.
“For example, we do not like tail risks and have worked hard to ensure that where we do assume such risks they are manageable and bounded,” he said.
“Even risks with small probabilities of occurrence should not be ignored.”
Mr Cairns said he believed the future of the company was promising and that the vision of Magellan to develop a world-class investment business that would treat both employees and shareholders fairly remained unchanged.
“We are clearly focused on a business area that has significant scope for future growth,” he said.
“Our global equity and infrastructure strategy offerings sit very comfortably in what is an extremely large marketplace, with demand stretching from local Australian and New Zealand retail clients to global institutions.”
As of September, Magellan now holds $17.1 billion in funds under management and has 62 staff members. The company’s balance sheet was strong in June, with net assets reaching $153 million while underlying profit after tax was $48.5 million.
Brett Cairns has only recently taken on the role of chairman, taking over from Chris Mackay who has stepped down to become managing director of the Magellan flagship fund (MMF). Mr Mackay will, however, remain as an adviser to the board and CEO.
