High-flying fund manager Magellan Financial will leverage its 84,000 direct customers as part of a major strategic shift that will see it float a new listed investment vehicle and launch a retirement product.
Magellan on Tuesday revealed it would raise at least $275 million in new equity to launch a new publicly listed fund - Magellan High Conviction Trust - as its underlying business continues to perform strongly.
It also unveiled a new focus on its direct clients that would offer them preferential access to closed-end investments in what co-founder Hamish Douglass described as "a game changer" for the business.
"We want to give people who participate and partner with us real financial benefits," Douglass said.
"We are creating a platform of scale that we can leverage, so it is truly a win-win to both our investors and for Magellan. If we pull it off, we will probably close to the best funds management business in the world."
He said if the company can scale up its direct business and closed-end funds under management, then in five or 10 years Magellan would be "substantially different to our business today."
Magellan unveiled adjusted net profit after tax 78 per cent to $376.9 million in the period ended June 30, as average funds under management ballooned 28 per cent to $75.8 billion. The result easily beat analyst expectations.
Magellan's shares, which have been at record highs, were halted on Tuesday to allow for the equity raising.
The raising will consist of 4.98 million new shares at $55.20 each - a slight discount to the closing price of $58.72 on Monday - with most of the proceeds used to fund costs associated with the launch of the Magellan High Conviction Trust float.
The company said it would also invest about $50 million to develop a new retirement product and to seed other investment strategies to strengthen its balance sheet.
"Retirement products play to our core strength," Mr Douglass said.
We have only scratched a tip of an iceberg here.Magellan Financial Group CIO Hamish Douglass
Chief executive Brett Cairns said the retirement income product should be ready for launch within the next six to 12 months.
"This is not going to be an annuity product," he said. "We have spent a great deal of time working on this. There is a clear need we think for a differentiated post-retirement income solution.
"The number of people retiring is growing and there are clear limited choices for them and low interest rates exasperate that problem."
Through the listing of its Magellan Global Trust in 2017 and the new Magellan High Conviction Trust, Mr Douglass said the company saw "substantial opportunity to do much bigger things in the future."
"We have only scratched a tip of an iceberg here," he said.
"If we keep the funds under management that we have and you took a reasonable period of time of, say, 7 years, we would expect... we could maybe generate revenue growth of 7 to 9 per cent a year.
"That would translate into returns of 11 to 14 per cent a year for shareholders, he said.
Reuben De Barros, investment director, active equities, at IFM Investors, said it was "another strong result" for Magellan.
"Most focus going forward will be on retirement income product - its design and time to launch." he said
Magellan declared a final dividend of 78 cents a share, plus a "performance fee dividend" of 33.4c cents a share, payable to shareholders on August 29.
- SMH/The Age