Magellan infrastructure funds downgraded on key-person risk fears

Morningstar has downgraded Magellan’s infrastructure funds as it is concerned about the heightened risk of a departure by its management team.

Magellan Infrastructure, Infrastructure Unhedged and Infrastructure Currency Hedged were all downgraded from gold to silver.

The ratings agency said the funds remained a strong proposition for investors but that it had a less optimistic view of the management firm.

“Head of infrastructure and lead portfolio manager, Gerald Stack, helms this strategy and a dedicated infrastructure team of eight. Stack is a meticulous investor and represents meaningful key-person risk given the esteem in which he is held, as he has run the strategy with prowess since its 2007 inception.

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“The team largely operates as a silo, meaning it is somewhat isolated from broader business issues Magellan has encountered recently. While comforting from a functioning perspective, we see heightened risk of Stack and the infrastructure team leaving the firm, both as individuals or as a collective.”

Earlier this week, Stack was appointed deputy chief investment officer alongside David George.

However, Morningstar acknowledged Magellan had made retention incentives since the temporary departure of chief investment officer and chair, Hamish Douglass, earlier this year.

It also was positive on the firm’s investment process where it applied a strict definition of infrastructure assets.

“To be considered for inclusion, a company must possess an asset that is essential for the efficient functioning of society and have profits that aren’t overly affected by competition, commodity prices, or sovereign risks.

“The risk-conscious attitude tends to lead to greater utilities allocations, though infrastructure allocations can rise should the view of economic conditions be bullish. We appreciate the measured approach but note this can lead to lagging in buoyant market environments.”