Magellan has launched its much-anticipated retirement income product today with a pay cheque replacement, having first flagged the idea back in 2017.
FuturePay is an actively managed fund available on Chi-X from Wednesday and in an unlisted vehicle investing in low volatility, high quality global companies.
Magellan general manager - distribution Frank Cassarotti said his elevator pitch for FuturePay is that it delivers a predictable and growing monthly income and aims to grow capital with a focus on downside protection with daily liquidity.
"It ticks a few boxes. There is no silver bullet, but we do believe this offer will be appealing to some investors in that retirement income space," he said.
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Magellan chief executive Brett Cairns went on to explain FuturePay is a replacement for a pay cheque.
"The pay cheque stops and the super and savings need to be replaced with what you had from a pay cheque. The idea here is trying to replace a pay cheque - a predictable, known income," Cairns said.
"Growth is a very important part of this. Access to capital is also important there is no point locking your money up if you are feeling anxious about that money."
In terms of asset allocation, Magellan head of retirement solutions Paddy McCruden said it is in real growth assets and Magellan believes many investors are using equities to solve their retirement needs.
"As this grows, we expect we will manage a full allocation into growth assets," he said.
In risking markets, FuturePay will reserve a portion of the outperformance to a support trust (reserve).
In falling markets where the portfolio isn't keeping up with inflation adjusted target, the support trust is available to help and lend support back to the FuturePay fund.
Cairns explained the support trust will invest in cash and is a discretionary trust with FuturePay as the beneficiary and a Magellan entity as trustee.
"It acts like a mutual fund as there is an upfront contribution on investment and has ongoing contributions from investment outperformance," Cairns said.
Investors will need to pay a contribution upon entering the fund and, if they redeem, the investor will receive the money from the portfolio and leave behind the value of the benefit provided by the trust.
The contribution is currently around 5% of the initial investment.
"We believe the way the support trust is set up deals with sequencing risk, leans on mutualisation and does it effectively," Cairns said.
He added that the amount to enter FuturePay will go up as the reserves become more valuable.
MFG has set aside $50 million to be incrementally added to the support trust as new units are issued.
It has committed a debt facility of 2% of FuturePay capped at $100 million to provide support during poor market conditions.
FuturePay will be $2.03 cents per unit at inception, growing at inflation quarterly with monthly distributions yielding around 4.3%.
The distributions are paid monthly on the 15th of each month, paid early if it falls on a weekend or public holiday.
"In my head it's a salary replacement," Cairns said.