A Fireside Chat with Magellan’s Hamish Douglass


Lex Hall, Content Editor, Morningstar  |   18th Jul 2019  |   6 min read

Hamish Douglass looks back on the rocky route to Magellan, his exasperation at trying to predict the Fed’s rate moves, and the regulatory risks assailing the US tech stocks that form a pillar of Magellan’s global equity strategy.

There are three things you should know about Magellan’s chief rainmaker Hamish Douglass: first, he puts his money where his mouth is; second, he never loses sight of the fact he’s playing with other people’s money; and third, when it comes to global equities, the key is to invest in the world’s best businesses at sensible prices.

Others, of course, already know this about the steely-eyed investment banker who co-founded Magellan Financial Group in 2006. One of those people is Australian tycoon James Packer. Packer wasn’t at the Morningstar Investment Conference where Douglass shared his wisdom with a 1000-strong crowd of advisers – probably because he was finalising the sale of almost half his stake in Crown Resorts to Melco Entertainment’s Lawrence Ho. But Packer may well have had an envoy in the audience because a few days later he was revealing that he’d been on the phone to Douglass wanting a tip on where to park his newfound $1.8 billion pile.

Douglass may still drive the same car, as he revealed to Morningstar’s Tim Murphy, but he’s the man many – from the high net worth crowd to the humble retail investor – seek when they want returns.

During a wide-ranging and candid “fireside chat”, Douglass recounted the genesis of Magellan, his exasperation at trying to anticipate the US Federal Reserve’s rate moves, and the regulatory risks assailing the US tech stocks that form a pillar of Magellan’s global equity strategy.

Magellan may now boast $83 billion funds under management, but it was a very different story in the early days of 2006 when, with co-founder Chris Mackay, the returns were anything but immediate. The pair, who had started at Schroders on the same day, had a plan to set up their own shop, their heads full of investment lessons gleaned from visits to Warren Buffett’s Berkshire Hathaway forums. Soon after they launched their first flagship fund, the share price took off and performance fees starting rolling in. There was only one problem: Magellan was losing money. “It was just a lot of hot air,” Douglass said. “And in reality, Chris and I were having a heart attack, thinking that we were going to get paid moneythat we hadn’t earned. So, we said, ‘we have to get rid of this, this is horrendous!’”

Back to the drawing board. Another fund and another invaluable lesson in investing. This time on 1 July 2007, just as the seeds of the 2008 global financial crisis were being planted. Then the inevitable: “Markets collapsed, and we’d employed all these people and the business wasn’t effectively earning money at that stage,” Douglass recalled. “And while it didn’t feel like it at the time, it was the best thing that ever happened. It sounds weird. We were lucky we had $100 million of capital so we weren’t actually worried about going bankrupt. But it enabled us to differentiate ourselves in those early days. Never waste a good crisis is probably the message.”

Market timing brings its own lessons so does investment selection, and in the early days it seemed Douglass had hit upon the right mix. A three-pronged sector approach – franchise, financials and infrastructure – an approach Douglass looks back on as something akin to a “three-humped” camel. Others, however, had spotted a fly in the ointment. “I’ve never heard anything so stupid”, deadpanned Frank Casarotti, Douglass’s long-time consigliere and Magellan’s general manager of distribution. And Frank was right. The accountability was shaky, and the decision-making process held little water. But the problem was swiftly solved.

Chris Mackay looked at Douglass and simply said, “Hamish I think you should be the portfolio manager of that strategy.” This time thankfully, Casarotti had intervened before the launch of the product. Another crisis, and another lesson for Douglass. “Whenever you make a mistake, you have to own up to it and you have to deal with it, and don’t be afraid to change your mind if the facts change. Just don’t dig yourself in.”

Those early lessons have shaped Douglass’s thinking and bolster his more recent ambitions such as making listed investment trusts more equitable and innovating in the retirement space – an area he argues has been neglected for three decades despite the fact “there’s more money in retirement phase than in the accumulation phase.”

But other problems gnaw at Douglass. He has almost given up on trying to anticipate the Fed’s interest rate moves, and the burgeoning crackdown on American tech giants such as Facebook and Google Alphabet clearly riles him. Why? Because nosy politicians fail to fully grasp the complexity in regulating social networks like Facebook and Google’s video-sharing site YouTube, which he notes have 2.5 billion and 2 billion users, respectively. “Are you going to turn these platforms into publishers where they have to be fully accountable for any post that’s made on their platform?” And that’s just the start of the regulatory can of worms. “Should you have to separate Google and YouTube? There’s competition issues. Can you prefer your own in-house services from third-party services when you own a platform?”

That’s not to say Douglass has lost faith in tech. On the contrary, he came to the conference armed with startling statistics about Facebook’s messaging platform (2.7 billion users on their messaging platforms “and it’s unmonetised”) and its video-on-demand service Facebook.

Watch (“in its first 14 months it has picked up 100 million watchers, spending on average one hour a day. Netflix has 140 million subscribers at the moment”).

But the question perhaps on everyone’s mind emerged during the audience Q&A. “How do you invest your own personal money?”

“I have to say 90 plus per cent of my wealth is tied up in Magellan Financial Group,” Douglass said. “And I’ve never sold a share and all I’ve done since we set Magellan up is buy shares. And I’m actually not looking to sell shares in Magellan. I think that’s kind of a copout.

“Out of my free cashflow I’m putting the vast majority into the strategies managed by Magellan. I really believe in what we’re doing.”

Originally posted 2019-06-19 17:38:45.

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