Under the Spotlight AUS: Macquarie Group (MQG)
From subsidiary to investment giant, the story of how the Macquarie Group went from just another complementary business to an Australian titan.
Unlike most companies we put Under the Spotlight in the past, the Macquarie Group doesn’t have clear, individual founders. The company we now know as Macquarie originally operated under the name Hill Samuel David Clarke, a subsidiary of UK merchant bank Hill Samuel. This new Australian subsidiary started off small in 1969 with just three people in an office in Sydney.
Despite its subsidiary origins, it quickly found its niche in providing localised investment banking services in a fast growing market. According to The World Bank, in 1969 and 1970 Australia generated 7% and 7.2% GDP growth, respectively. When we compare this to the UK (1.9% and 6.3%) and the world (5.8% and 3.9%), the logic of expanding into Australia becomes clear.
After significant growth throughout the 1970s, Hill Samuel David Clarke changed its name to Hill Samuel Australia, expanding its product offerings to include direct investments in 1982. This was a significant year for the company, as it marked the beginning of David Moss’ five-year tenure. This man would shape the company’s future path towards Australian investment banking titan.
Still Preoccupied With 19, 19, 1985
Much like Bowling For Soup’s hit, Macquarie Group history buffs are preoccupied with 1985. What made this year so special? It’s when Hill Samuel Australia changed its name to Macquarie Bank and was granted an Australian Banking licence – which was far from easy. Australian banking rules at the time forbade foreign controlled companies to operate full commercial banking services. In order for Australian Federal Treasurer Paul Keating to grant the company an Australian Banking licence, it had to become independent. This process started in 1981 and took four years to complete. As a result of the restructuring, Hill Samuel reduced its ownership stake to under 14%, and Macquarie Bank became the second private trading bank to be created in Australia since 1900. If you’re wondering, parent company Hill Samuel would be acquired by the Lloyds Banking Group ($LYG) in 1995.
Macquarie Bank took full advantage of its new status but it never forgot its startup roots and maintained a flat, simple structure. This structure is what many believe helped the company rapidly expand. And rapidly expand it did; between 1985 and 1995, the company acquired Chemical Australia, Boston Australia, Security Pacific and opened offices in London, Munich, New York and Hong Kong. All of this led to the company IPOing in 1996 on the ASX. Since then, investors have done reasonably well, with the stock price growing 2400% to $167.23 after closing at $6.59 on its first day of trading on 1 July 1996.
All About Infrastructure
One of the main areas of success both pre and post-IPO for Macquarie is infrastructure investments. In a 2001 article in the Australian Financial Review titled ‘The toll road to riches’, Philip Rennie credits former Macquarie CEO Allan Moss with the initial decision to focus on infrastructure, despite the initial challenges of being significantly smaller than the Big Four ($ANZ, $CBA, $NAB, $WBC).
The first project that paved the way for Macquarie Bank in the infrastructure space was the 1994 public float of Hills Motorway, which at the time owned Sydney’s M2 tollway, but was purchased by Transurban ($TCL) in 2005. The Hills Motorway float was a massive win for Macquarie for two reasons. It was the world’s first IPO of a toll road, and the listed company’s structure that allowed cash to be easily funnelled to investors was created by Macquarie. The world took notice. In 1996, Macquarie Bank floated its infrastructure arm, which it later reabsorbed into Macquarie Asset Management.
In FY22, Macquarie Asset Management generated $2.2b in net profit, an increase of 4% year-on-year on $773b in Assets Under Management (AUM). The AUM is split between the Americas ($371b in AUM), Australia ($226b), the EMEA region ($138b) and Asia ($40b). It should be noted that approximately $43b of Macquarie Asset Management’s 38% AUM growth came from its acquisition of AMP Capital.
Macquarie Asset Management is the world’s number one infrastructure investment manager. Still, it is also involved in public and private equity, not just infrastructure. Not bad for a former subsidiary.
The Long Arm Of The Macquarie Group
Infrastructure was not the only growth division for Macquarie. The company continued expanding and acquiring through the 2000s until 2007 when it established the Macquarie Group as a non-operating holding company. By FY22, international income represented 75% of total income, with 48% coming from the Americas, 25% from Australia, 20% from the EMEA region, and 7% from Asia.
The three other divisions under the Macquarie Group are banking and financial services, Macquarie Capital, and commodities and global markets. Combined, these three generated $7.3b in net profit during FY22.
The banking and financial services division may be the smallest, but it’s far from small, generating $1b in net profit during FY22 (30% year-on-year growth) on 1.7m customers. The division focuses mostly on three areas: home loans ($89.5b portfolio), business banking loans ($11.5b) and funds on platform ($119b). To help facilitate the first two, the company manages customer deposits, which grew 21% to $98b compared to March 2021, at the end of FY22. And unlike many other older wealth management companies, this division saw funds on platform grow 17% with $8.2b in net inflows in FY22.
The fastest-growing division in FY22 was Macquarie Capital, which generated 269% growth in net profit to $2.4b. One of the key feathers in this division’s cap during FY22 was its successful bid to be the financial advisor to the Sydney Aviation Alliance on its $32b acquisition of Sydney Airport. But this was just one of the division’s 476 transactions, totalling $457b in FY22, compared to 417 and $364b in FY21.
The last and largest contributor to net profit in FY22 was the commodities and global markets division, generating $3.9b in net profit (50% year-on-year growth). This division is split into asset finance (9% of net profit), commodity markets (65%) and financial markets (26%), which includes FX, equity derivatives and trading and market futures.
All in all, the Macquarie Group is a remarkable story of a lightweight subsidiary to a foreign bank transforming itself into a giant on the world stage and a titan of Australian investment banking in just 53 years.
Sign up to Stake today and buy Australian shares like $MQG, $CBA, $NAB and more!