Macquarie backs its fund model
July 25, 2008
This Stuart Washington story appeared in The Age on July 24, 2008, after the Macquarie AGM in Melbourne.
MACQUARIE Group will consider privatising its listed infrastructure funds if their performance does not improve.
The significant concession to negative investor sentiment was made at the annual meeting yesterday, when Macquarie Group was warned that investors were on a "capital strike" when it came to listed infrastructure funds.
At a three-hour meeting in Melbourne, Macquarie's managers were challenged to sell Sydney Airport if they believed its value was more than $11 billion.
And it was revealed that the market price of Macquarie's infrastructure and real estate investments had slipped about $240 million below their book value, raising the prospect of asset write-downs at the half-year results.
Macquarie Group's new chief executive, Nicholas Moore, said it was becoming "increasingly challenging" to repeat Macquarie's full-year net profit of $1.8 billion.
The outlook, despite what was termed a "solid start" in the first quarter, is likely to end 16 years of record profits for a home-grown investment bank.
Despite this, Macquarie Group continued to distinguish itself from the big write-downs of its international peers through minimal exposure to bad loans and troubled asset classes.
Investors were buoyed by the lack of bad news, and Macquarie's shares rose $5.41, or 12%, to $52, in a rising market.
Mr Moore said he had heard investors' calls for the privatisation of the group's poorly performing listed infrastructure funds, which include Macquarie Airports and Macquarie Infrastructure Group.
"We are conscious of these issues," he said. "We actually do look at suggestions … they are made by other investors on a not infrequent basis, and we do discuss them and we do develop them.
"If we thought there was merit in them for investors on a long-term basis, we would be investigating them very, very thoroughly."
But Mr Moore said it was unfair to single out the Macquarie model of managing listed infrastructure funds, because real estate and listed infrastructure funds had suffered globally.
He argued that the unit price performance did not reflect the value in the funds, based on recent transactions in infrastructure. He also blamed the performance on investors' love affair with resources.
But Mr Moore and Macquarie chairman David Clarke did not rule out any options if the performance did not improve.
"Frankly, if the underlying assets continue to perform well, and that's not being recognised on a long-term basis, we would see it as our job to try and find a way to realise that value for investors," Mr Clarke said.
Mr Clarke also spoke highly of the "massive demand" from investors for unlisted infrastructure funds, partly because short-term movements in market values were not an issue.
Mr Moore said the issue of the fund performance was of primary importance to Macquarie and its managers of the funds.
He said privatisation was an area "we have looked at extensively", as witnessed by the proposed privatisation of Macquarie Capital Alliance Group.
Shareholder activist Stephen Mayne said if Macquarie's managers truly believed their valuations, they should sell Sydney Airport for its valuation of more than $11 billion and return the capital to Macquarie Airports' unit holders.
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