Magellan’s landmark IPO spinout nets mixed results, raising $862m

The landmark decision by Magellan Financial Group (ASX: MFG) to not pay brokers a commission on funds raised has delivered mixed results with the financial giant raising $862 million from investors for the High Conviction Trust spinout, a notably small figure compared to their $92 billion in funds under management. 

In lieu of paying commissions to brokers for funds raised, Magellan took a more ethical route for the spinout, instead offering the bonus to existing MFG shareholders who were entitled to a 7.5% ‘loyalty bonus’ allocation of the IPO for investments up to $50,000. 

Investors wishing to participate in the IPO who were not existing MFG shareholders could also participate, but were only entitled to a 2.5% bonus on funds invested. 

The $862m raised from approximately 17,000 existing shareholders, as well as 1,800 non-shareholders netted an average participation value of $45,851 per investor. 

“We firmly believe our partnership approach is a win-win outcome for our investors and Magellan shareholders,” said Magellan Chairman & Chief Investment Officer, Hamish Douglass.

Regulatory changes in 2014 enabling brokers to receive commissions for selling Listed Investment Companies to retail investors saw the market double to now be valued around $45 billion as a result of brokers and advisors receiving commissions between 1-3% for selling the investments to retail investors.

As part of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, attention was brought to the activity of brokers and many LICs trading below their net asset values, thus making Magellan’s decision not to offer broker commissions a landmark decision. 

Rather than being promoted within broker networks, shareholders were invited to participate in the Offer via a letter in the post, while the general public could apply via the Magellan website. 

Since its inception in 2013, the Magellan High Conviction Trust had delivered returns of 16.6% per annum, investing only in the Group’s best 8-12 ideas. 

The Magellan High Conviction Trust is expected to commence trading on the ASX on 11 October 2019 under the ASX code ‘MHH’.

*The author of this article is an MFG shareholder.