Q: Hamish, can you tell us about your role as chairman?
Hamish: I'm delighted with the job change. Brett as CEO is effectively doing the jobs I didn't enjoy doing and he’s doing them much better than I did. Contrary to some reports, I haven't retired. I'm busier than I've ever been. As chairman, I think about the strategy for the group. Brett and I work together on what we need to do to advance Magellan.
While the chairman role is important, my main role is being the chief investment officer. Brett becoming the CEO means I can spend more time focused on the CIO functions and that’s important for our clients. I look after the investment process at Magellan and am the lead portfolio manager on our global equity strategies. The investment team reports to me. I meet our key clients regularly.
Q: Brett, can you describe your role?
Brett: As Hamish looks after the investment side of the business, I am in charge of everything else, which includes the distribution and marketing sides of our business. On top of these, I oversee our operations and our finance areas, the business management area, the legal function and, importantly, the governance and advisory group where much of our product development sits. It’s a busy job and I think the switch in roles is working well.
Q: Brett, as CEO, you have stewardship for the culture at Magellan. Could you describe the culture at Magellan and why you think it has been an integral part of our success?
Brett: Culture is a big focus at the moment, particularly in financial services. Magellan has an advantage in many ways in that we are relatively small – we employ only about 120 people – and we're still young, just 13 years old. That means our senior people have worked in other companies for large parts of their careers. We've been good at adopting the best of these experiences and leaving behind the parts that people didn't like. The core of our culture is based on a deep sense of fairness and respect. We pitch in to help each other. Ultimately, it's based on the common-sense approach of treating people as we'd like to be treated ourselves.
We also recognise that Magellan is a business and right from the start when Hamish and Chris Mackay established the business the goal was to have the people who work at Magellan think and act like owners of the business. When you act and think like an owner, you put clients first. We also want people to take the next step and genuinely act in a partnering way with clients, investors and, indeed, shareholders.
Q: Hamish, can you tell us about the investment philosophy at Magellan?
Hamish: Our investment philosophy is to have a concentrated portfolio of high-quality businesses and to buy these great stocks at attractive prices. If we can get these things right, we will do well for our clients but it's not easy. We have to continually assess whether or not a great business will remain great. It wasn't that long ago when television stations and newspapers were great businesses before their competitive advantages were taken away by the internet.
Q: Hamish, what can people expect should they invest with Magellan?
Hamish: First of all, we want people to have a realistic investment time frame and a minimum of five years is a realistic investment time frame. Second, we want people to be in sync with us in terms of the return expectations. We have set a long-term return expectation net of all fees of 9% per annum for our core global strategy. That doesn't mean we will achieve a 9% return every year. Some years we might achieve 30%. Other years, the returns might be negative. There is some correlation with what markets do.
That said, people shouldn’t overly focus on how our strategy might perform in the short term versus the market index. Our portfolios look nothing like the MSCI World Index, which tracks about 1,600 stocks from 23 developed markets. On average, our core global portfolio holds 25 of the world's best businesses. We have some confidence but no guarantee that a portfolio of high-quality stocks bought at attractive prices will over time deliver the return objectives we have set ourselves.
If over time our clients receive compounded returns of 9% per annum, then they will probably double their money every eight years or so. I think that is a satisfactory and realistic outcome for our investors to expect.
Q: Hamish, what is the biggest lesson that you've learned while at Magellan?
Hamish: There are positive and negative lessons. On the negative side, when you're investing it’s inevitable you will make mistakes. The biggest lesson is to learn from those mistakes. Don't try and rewrite history. Don't try and justify that something wasn't foreseeable. It’s hard to do because people are wired not to learn from their mistakes.
On the positive side, the biggest lesson was learning about the power of compound interest. It's crucial to find investments supported by structural growth. It is hard to achieve 9% returns from businesses whose revenues are only growing 1% or 2% a year. It’s essential to find businesses that can grow at rates approaching 10% a year. They exist. Visa and Mastercard have been wonderful compounders over time. We've invested in the US housing recovery that had a long duration. The home-improvement company Lowe's has benefited from this. Yum! Brands, which owns KFC, Pizza Hut and Taco Bell, is another great compounder. We hope Starbucks can do the same with structural growth.
Q: Brett, Magellan is known for innovation; particularly, in 2015 it pioneered Australia's first active ETF, the Magellan Global Equities Fund that trades under the MGE ticker. Could you give us an idea of what solutions Magellan might offer in coming years?
Brett: In many ways, what we were trying to do is to simplify things for investors. That’s what drove the development of the active ETF. There are various further simplifications that we are working on now. Specifically, we are working on a product that revolves around retirement income. It’s not a straightforward area given regulation and other constraints but we are making progress.
Q: You're both passionate about this business. What do you get out of turning up to work every day at Magellan?
Brett: For me, it's the challenge and being the CEO of a business such as Magellan where we are always learning from what we have done. I like coming to work every day and interacting with people who have deep and growing knowledge to find out how we can do things better.
Hamish: I like the investment game, which is a brutal industry because the scorecard is public. Once you've made a decision the scorecard monitors that decision. I like finding a stock that can be successful such as a Starbucks and then watching how the situation develops. With the team, I enjoy developing people.
When it comes to the chairman role, I see that there are few active funds management businesses in the world that have enduring business models. Every day, we come to work asking: What can we do to simplify things for clients? What can we ultimately do to improve Magellan’s business?
Brett and I spend much time talking about this and we often discard ideas. We come up with things and after three months of work we go, well, that's not going to work. It's fun.