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You may not like it, but you have to own it

Paul Rickard
1 November 2022

Macquarie Group (MQG) is a company that some investors still loathe. Known as the “millionaires factory”, the payment of huge bonusses combined with public relations missteps around Sydney Airport, car parking and the taxi industry (to name but a few) seriously hurt its reputation in the broader community. But putting that to one side, as a company to invest in, it is a great company, and you have to own it.

Friday’s first half year profit result (1H23) re-confirmed why it’s a great company. The profit of $2,305m, up 13% on the corresponding half in FY22, was a clear beat on analysts’ forecasts which were in the $2.0bn - $2.1bn range. More impressively, 72% of Macquarie’s income was generated offshore. Passionate Australians might say that this is something to be truly  proud of – an Australian company that is a global leader in its field of investment banking and financial risk management.

Macquarie has four operating divisions. Banking & Financial Services (BFS), which competes with the local Australian banks and provides home loans, business loans and wealth management services; Macquarie Asset Management (MAM) – a global specialist asset manager with almost $800bn in funds under management in fields as diverse as infrastructure, green investment, agriculture, fixed income and real estate; Commodities & Global Markets (CGM); a global business  in trading and financial risk management; and Macquarie Capital (MC), a global business in advisory, capital raisings and equities broking.

The first two business units, BFS and MAM, are considered by Macquarie to be “annuity style businesses”, while the latter two, CGM and MC, are “market facing” businesses. In 1H23, the profit split between the annuity and market facing businesses was exactly 50%/50%.

That’s not to say that there isn’t volatility in the earnings of Macquarie Asset Management (MAM). While base management fees are fairly predictable, performance fees aren’t. Further, MAM also books considerable income from the divestment of assets, so the timing of these events can have a big impact on profit from one half to the next. In the first half, MAM was responsible for 31% of Macquarie’s profit.

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