Big Aussie bank waits for a bite of New Zealand

Macquarie's top New Zealand executive Jim McLay says his political background is

Macquarie Bank is based in Sydney, but its tentacles spread far and wide throughout the world.

It is able to punch far above its weight because it has the kind of financial ingenuity that larger and more established investment banks are scrambling to emulate.

With a relatively modest market capitalisation of A$15 billion, it has beaten bigger investment banks and major private equity groups to secure a succession of high-profile deals, not only in Australia but across Europe, the United States and Asia.

It has snapped up British airports, American toll roads and Taiwanese cable television operators. With about A$150 billion worth of infrastructure under management, it is the world's largest non-governmental owner of such assets.

But in New Zealand, Macquarie has not been able to secure the type and scale of infrastructure assets it has elsewhere.

Its New Zealand executive director Jim McLay - a former National Government Attorney General and Deputy Prime Minister - says the firm still hopes to do so, and has grown strongly in New Zealand in other areas. Its New Zealand investments include resthomes, commercial property, childcare centres and "a bowling alley in Christchurch".

"Our definition of infrastructure is pretty wide-ranging," said McLay.

But it has no direct involvement in roads, water, energy or airports.

McClay says the company had made it clear it would be interested in investing in infrastructure assets under the Government's Public Private Partnership (PPP) legislation.

But no opportunity had presented itself.

"If the Government wished to have investors involved in that, we would be willing to become involved and engage in the appropriate competitive process to seek that opportunity."

McLay says the Land Transport Management Act creates difficulties for PPPs in roading, "and that seems to be acknowledged by the Government".

"Certainly there were some real restrictions put on it that make it quite difficult for such projects to be viable ... also the uncertainty that is inherent in the nature of the process means that bidders could invest a considerable amount in just the bidding process only to find the project for some reason didn't proceed as a PPP."

But while there appears to be no legislative barrier to PPPs and Transport Minister Annette King says she has "an open mind" on them, few of any substance have been set up.

It may be a case of the Government being wary that the benefits of PPPs may go disproportionately to the private side of the partnership, and should things go wrong it tends to be the public side that carries the can - such as in the case of Sydney's cross-city tunnel.

Finance Minister Michael Cullen has also said the Government can raise money for infrastructure investment at more competitive rates than a private entity.

Macquarie is renowned for its ability to extract value from its investments.

Under the "Macquarie model" it buys assets, restructures them and usually spins them off into a listed satellite fund, removing the financial risk from its own balance sheet while still extracting hefty management fees.

That enables the bank to reward its executives richly, earning the company the title of "the millionaires factory".

Last year, chief executive Allan Moss was paid A$21.2 million - A$408,000 a week. The bank's top 14 executives together pocketed more than A$137 million.

In New Zealand, Macquarie is not sitting around waiting for the Government to adopt a more favourable attitude. Its economic research unit has produced reports which identify an "infrastructure deficit" in New Zealand.

"To meet that deficit we needed, as a country, to be investing somewhere around about 5 per cent of GDP for the foreseeable future in infrastructure."

The research also found that "responsible" central and local government could probably justify investing the equivalent of 2 or 3 per cent of GDP worth of taxpayers' money, leaving a gap of 2 or 3 per cent that could be met by the private investors.

Macquarie identified three major areas requiring attention - roads, energy and water.

The research found there was an obvious need for further investment in the first two of those. "We see obvious need of that daily."

In Australia and elsewhere, Macquarie's ability to gain exposure to infrastructure investments of a type previously dominated by governments appears to be assisted by the strong political connections it maintains through the appointment of former politicians and senior political staffers to highly paid senior positions.

But although that appears to apply to McLay, he says it's "not a relevant consideration in New Zealand".

He says Macquarie has "a good relationship" with the Government, which is "aware of the things we can do and that we would like to do".

"We have from time to time provided input into matters the Government has been considering in various areas, whether by making submissions to select committees or by providing general advice about our experience in other markets."

But National Party finance spokesman John Key has said a National-led Government would encourage PPPs in roading as well as energy and prisons, so surely Macquarie would find conditions better under a National-led Government?

McLay kicks for touch.

"As I say, we have good relationships across the board and we're very careful to maintain them in that way."

While PPPs remain off the menu for the time being, Macquarie has done well elsewhere, expanding its investment banking operation in New Zealand rapidly over the past five or six years after a slow start that began with the firm's first office here in 1985.

McLay has been involved with Macquarie for more than 15 years.

"It is growing, there's no doubt about it. When I first got involved in early 90s there were three people, today there are about 120."

Those employees are in Macquarie's main offices in Auckland and Christchurch and a smaller one in Wellington.

Its investment banking division's corporate advisory team was the bookrunner and joint lead manager on the Goodman Fielder float, and advised Transpacific Industries on its merger with Waste Management.

The investment banking division is also a significant owner of assets including 82 per cent of retirement home owner Metlifecare through its joint venture with Australian property fund FKP.

It has invested through another property fund in 32 New Zealand childcare centres, and it also has a leisure fund which has money in a Christchurch bowling alley.

Its Financial Services Group gives sharebroking and wealth management services to investors.

Macquarie split its institutional and retail equity broking operations recently, but last month the group's overall share of the $2.9 billion turnover on the NZSX was $357 million, or 12.8 per cent, making it the market's fourth largest company.

FSG also owns 49 per cent of high-profile fund manager Brook Asset Management.

FSG is complemented by Macquarie Wealth Management the core of which was formed by the acquisition of the former PricewaterhouseCoopers wealth management operation about 18 months ago. It caters to "what you might call the top end" of the market, says McLay.

Other interests include stakes in Macquarie Goodman Property Trust, which is independent from Macquarie's New Zealand operations. "But we have a close relationship and shareholding," says Maclay, who is also the chairman of the trust's manager Macquarie Goodman (NZ) Ltd board.

With about $1 billion of assets under management MGP has almost quadrupled the assets it acquired from Colonial Property Trust more than three years ago.

McLay says the growth of Macquarie's involvement with New Zealand has been "considerable" over the past five or six years, and "we intend to continue that growth".


Aussie giant

Sydney-based Macquarie Bank is the world's largest non-governmental manager of infrastructure assets, with A$150 billion under management.

Macquarie Bank's investment banking arm provides the group with about half of its overall profit.

It provides advisory and capital raising services to corporate and government clients, but also manages its major listed specialist funds including:

Macquarie Infrastructure Group: Owns toll roads in Canada, Britain and Australia.

Macquarie Airports: Airport stakes in UK, Belgium, Denmark, Sydney, Rome.

Macquarie Communications Infrastructure Group: Owns communications infrastructure in Australia and Britain.

Other listed funds own power generation assets in North America, gas and electricity distribution in Australia and a number of Australian highways.

Macquarie's investment banking arm also owns unlisted funds investing in:

North American energy distribution.

Airports in Australia, Britain and Rome.

Korean and Japanese roads.

Macquarie European Infrastructure Fund: Water, energy distribution and airports.

Macquarie also has a substantial banking and property management arm, a treasury and commodities trading operation and its financial services group, which operates in Australia and New Zealand.


Kiwi experience

Investment banking: Macquarie's New Zealand investment banking arm provides corporate advisory and capital raising services, but it is also an owner of assets including:2 per cent of retirement-home operator Metlifecare in a joint venture with Australian property fund FKP.

32 childcare centres.

Banking and property division:

Owns a stake in $1 billion Macquarie Goodman Property Trust (MGP) and also owns its management company.

Financial Services Group:

49 per cent of Brook Asset Management.A leisure fund, which owns a Christchurch bowling alley.