Magellan’s New High Conviction ASX-Listed Trust

Magellan Financial Group Ltd (ASX: MFG) today announced the initial public offering (IPO) of the Magellan High Conviction Trust.

It’s a fund/trust which aims to invest in the best 8-to-12 best stock ideas from the Magellan investment team. In its ASX update today, Magellan said the unlisted version of the trust had returned 16.6% per year net of fees since it started in July 2013.

Investors in Magellan can apply for up to $50,000 in the new trust and may receive a loyalty reward of additional units worth 7.5% of their allotment. General public applications will receive additional units worth 2.5% of the value allotted to them.

Magellan will pay for these one-off costs, but it isn’t appointing a broker syndicate and is not paying any fees or commissions to brokers or advisers to handle the raising.

CIO and co-founder Hamish Douglass said he would be taking up his priority offer and also subscribe for $20 million under the wholesale offer. To fund these new costs, Magellan (the company) will be raising $275 million from institutional investors by selling new shares in the company at $55.20.

The high-conviction trust will target a 3% distribution/dividend yield but it will have an annual management fee of 1.5% per year plus a performance fee of 10% over a single hurdle of 10% per year total return after management fees.

That’s quite a high fee which will eat into investors’ returns from the trust. Still, Magellan is a very popular fund manager right now.

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