Over time, it promises a “very, very good return”, and “optionality around what we might be able to do”, Mr Cairns said, referring to possible partnerships.
“I know people are thinking about what it does for the multiples and all these sorts of things; this is a relatively small investment from a balance sheet point of view.”
Monday’s confirmation by way of market update from Magellan is the first time the global equities manager has acknowledged rumours in the market about the new venture.
Partnership culture
Asked at August’s full-year result briefing about reporting by The Australian Financial Review alluding to the project, Magellan chairman Hamish Douglass told analysts: “If we’ve got anything to say, you’ll be the first to hear it.”
Mr Cairns said on Monday: “Hamish is not involved in running this and I’m only on the board.”
However, Magellan’s duo have been critical in bringing Barrenjoey to life, as Mr Cairns explained.
“The question was really when Hamish and I started to talk about it, whether those sorts of things [the advantages of partnership culture and autonomy] could be engendered in an investment bank in which then we could have some optionality around the things that we do for a living.
“Not everything that we see fits well within Magellan’s business, because it could upset our core, it could distract us. And we don’t want to do that.
“But we could build in other partnerships and potentially other asset classes and other things we might look at over time which may work in a partnership model with people that we know, like and trust. Having those sorts of things in our orbit, if you like, could be very, very important.”
Though he could not name six actionable ideas this early in the process, the combination meant “good things are likely to come out of this over time”.
Mr Cairns said he and Mr Douglass had been presented with lots of deals in the past, but they were too far removed from their core focus.
“This is a very unusual alignment of the stars, in my opinion,” he said.
Magellan shares fell on Monday by 2.4 per cent to $55.55 in afternoon trading; it raised capital in 2019 at $55.20 a share to fund growth opportunities.
“For a foundation business that will likely incur significant upfront costs in order to achieve scale this investment clearly comes with a high degree of risk and uncertainty,” broker Macquarie said, finding Barrenjoey is worth an implied $396 million.
“Should Barrenjoey not gain the required level of traction across the Australian client base within 18 to 24 months, success without further investment will likely be hard to come by.”
