Proxy advisors still in Frydenberg’s line of fire despite Magellan’s call

The media have been full coverage of Magellan Financial Group co-founder Hamish Douglass since his struggling fund management company released this statement on December 8 confirming that he was divorced several months from his wife Alexandra.

The move coincided with the shock dismissal of CEO Brett Cairns for “personal reasons” two days earlier and was followed by a trading halt before Magellan announced it had lost its biggest customer when St James Place withdrew nearly $ 20 billion in funds. This revelation alone caused an additional 33% rise in the share price last Monday.

Magellan’s coverage has varied from tabloid research through The Daily Mail to show long features on the business pages to the business consequences, but Douglass is clearly bitter about the attention, and tells the AFR this week: “There’s a time when people really need to stay out of people’s personal lives,” he said, and “some of the stuff in the newspapers.”

The former billionaire is too sensitive here, given all the circumstances, including the poor governance structures at Magellan.

The Magellan situation is relevant as institutional investors wrestle with the proposed Josh Frydenberg kneeling of the proxy advisory sector.

The proxy advisers have long warned institutional clients against the one-man band-worship set up at Magellan, where one guy is the largest shareholder, executive chairman and chief investment officer.

This same dominant figure presides over a company where all non-executive directors have taken out loans with full loans from the company to buy shares, which are now under water after the share of more than $ 70 started last year after under $ 20 this dropped. week.

If one of the directors quits, Magellan could force them to repay their loans in full, a setup that is bad management because it acts as a bond for good behavior.

Instead of exercising bad governance, Magellan should use the power of its $ 114 billion portfolio (before the $ 20 billion departure of St James Place on Monday) to push for greater transparency in the companies in which it invests.

The thing we do not really know at the moment is the position of the founder, but it is quite clear that he should be replaced as chairman by one of the existing directors or, preferably, a respected clean outsider like David Gonski.

Douglass has a 12% stake in Magellan, so it’s not really material if his ex-wife suddenly wanted to sell a 6% stake, besides confirming that he’s good and true in the “former billionaire” club.

The Australian 2021 Rich List valued its wealth at $ 1.49 billion and the AFR puts it at $ 1.23 billion, while after falling 70% from the top down, its 22.2 million Magellan shares are now worth only about $ 440 million.

In addition to the issues with governance and confidence, the biggest problem at Magellan is underperformance, particularly related to last year’s decision to go decisive in cash near the bottom of the COVID-related market meltdown. This was a terrible call that cost clients several billion dollars and will never be recovered, as most of that surplus cash is now being returned to St James Place.

This is a situation in which these five independent directors, encouraged by the proxy advisers and key institutional shareholders, have to raise and stabilize the Magellan ship, which ranks poorly.

Instead, the proxy advisors are currently being consumed by Frydenberg’s extraordinary decision last Friday to propose new regulations that cancel all of their ASIC licenses with just 52 days notice.

US-based ISS is the world’s largest and most powerful proxy adviser and its Australian boss, Vas Kolesnikoff, described the proposed changes as “an embarrassment to Australia that does not even pursue the Trump administration”. De AFR’s “Chanticleer” columnist James Thomson agrees, and dismisses the package as “a shocker”.

If Hamish Douglass wants to rebuild some credibility, he could start by calling on the government to abandon its crazy proposals, which include $ 1.3 million in fines for individuals working at proxy companies who report do not simultaneously e-mail to public companies they go to their paying institutional clients.

Imagine that individual journalists have been fined by the government for not emailing stories to politicians at the same time as they go to paying subscribers. This proposal is no different. It’s time for News Corp journalists to take part in the campaign to stop the coalition’s attack on proxy advisers, even though they have long criticized the governance schemes used by the Murdoch family and other billionaires such as Gerry Harvey and Solomon Lew.

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Peter Freule

Peter Freule
Editor-in-Chief of Crikey

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