Magellan Financial Group Ltd (MFG.AU) saw its stock price plummet 5.19% during intraday trading on Wednesday, following a significant analyst downgrade.

The sharp decline came after Morningstar cut its fair value estimate for the fund manager to A$8 per share from A$8.65. The downgrade was prompted by Magellan's decision to hand over management of its flagship global equity funds to a lower-cost partner, Vinva Investment Management. This move reflects rising competitive pressure in the investment management industry.

Morningstar noted that Magellan is reducing fees on approximately A$5 billion of assets and will forgo performance fees on those strategies, which directly compresses profit margins. The analyst warned that these changes limit the company's near-term recovery prospects and that the market may be underestimating structural headwinds from cheaper passive investment alternatives.