Macquarie Group Limited (MQG) Earnings Call Transcript & Summary

Good morning, everyone, and welcome to Macquarie's 2022 Operational Briefing. Before we begin, I'd like to acknowledge the traditional custodians of this land, the Gadigal people of the Eora Nation, and pay my respects to elders past, present and emerging. Today, as is customary, our CEO, Shemara Wikramanayake, will give a 3Q update, followed by an opportunity for you to ask questions. We also have a deep dive onto our Infrastructure business and in our EMEA business, and we have our group heads from MAM, CGM and MacCap talking to that, plus some videos, and then there'll be an opportunity to talk to -- ask questions at the end of those as well. We also have Paul Plewman, the CEO of our EMEA business, and he will be introducing the EMEA section, following Infrastructure. With that, I'll hand over to Shemara.

All right. Thanks, Sam, and welcome, and hello, everyone, from me as well. And as usual, we'll just kick off with noting the 4 operating groups that make up our business, which is our global asset manager, Macquarie Asset Management; our Banking and Financial Services business, BFS; Australian-focused, our Global Commodities and Global Markets business; and Macquarie Capital, which is also a global business. Now, all 4 of these businesses are ones in which we've spent many decades building deep specialist expertise, which, hopefully, is going to allow us to deliver superior return for the risk through the cycle. And also, hopefully, we are positioned well for growth, structurally, in each of these businesses, either through the sector itself continuing to grow or us being able to grow our share from very small positions. For example, in Banking and Financial Services in Australia, we're still 4% of the home loan market and less than 1% of business banking. In Macquarie Capital in the U.S., in terms of the fee revenue pool, we're less than 0.5% of it. In Asset Management in the U.S., we're less than 1% in Macquarie. So hopefully, well-positioned businesses. And supported by our very strong operating platform across those businesses, with our risk management group, our legal and governance group, our financial management group and our corporate operations group and the 4 businesses as well, getting very good diversification. Now looking at the third quarter and how the business performed in that period, it was actually a record result for Macquarie Group, following a record first half this financial year of just over $2 billion. And basically, that result was supported by improved overall market conditions across all of our businesses. Starting with the annuity-style businesses, they are down on the third quarter last year, principally because last year, we had the big realization of the European rail assets in Macquarie Asset Management. But year-to-date, they're up on the prior comparable year-to-date. And that's driven by continued volume growth in the BFS business and higher base fees in Macquarie Asset Management, including the Waddell & Reed fees that we have, offset by the timing of performance fees and investment realizations. And then turning to the market businesses, they're up substantially on both the third quarter last year and the year-to-date last year. And the big drivers of that are in Macquarie Capital. The principal income is up, driven by exceptionally strong investment realizations, driving a substantially up result across the market-facing businesses. And then in Commodities and Global Markets, as well as the $459 million one-off gain we had from the realization of the commercial and industrial meter leasing -- portion of the meter leasing in the U.K., we also had a very strong contribution from commodities income after taking into account the timing of the recognition of income in storage and transportation contracts. So looking in a little bit more detail at what each of the business groups has been able to -- the operating groups has been able to achieve over this last quarter and starting with Macquarie Asset Management. The assets under management are ending the quarter at $750 billion, which is a record assets under management. And in our public investments, that's mostly been driven by movement -- market movements. In the Private Markets business, we've got just over $160 billion of equity under management at the end of the quarter. And that's been driven by a busy period of over $8 billion of raisings. And that's across infrastructure, but also real estate, private credit and investments, again, overall, those areas of over $7.5 billion. So a busy period of activity and also busy working on bringing the Green Investment Group to operate now as part of the asset manager from the 1st of April. And that process is progressing well. And in addition to that, the Asset Management group entered into an agreement to buy a business called Central Park Group, which has about USD 3.5 billion of assets under management. And it's focusing on bringing private market investment opportunities to high net worth investors, principally in the U.S. at this stage, following the announcements of the acquisitions of Waddell & Reed and AMP. And Banking and Financial Services, also continuing the growth in the base of that business, an 8% growth in the home loan portfolio, just over this last quarter, and also 4% growth, in terms of all of deposits, the business banking book and also the funds on platform, which are now at over $120 billion. And the car leasing portfolio is down 12%, as we continue to focus that business, including exiting or selling the dealer finance portion of that business. Then turning to the market-facing businesses and starting with Commodities and Global Markets. There are 3 business lines, principally, in that business. And the asset finance portion of that business continue to grow balance sheet, particularly in resources and in structured lending. Then the financial markets part of the business delivered a strong contribution across all of fixed income, foreign exchange, credit and equities, including futures. And the third business line there is the Commodities business, where market conditions were particularly volatile. And so our clients were needing support through that period, and the business was able to step up and deliver a strong contribution, including client support, but also trading activity. And then Macquarie Capital. Basically, in this third quarter, it was a very strong period for fee revenue. And our fee revenue is up significantly on the prior comparable period across advisory, equity capital markets and debt capital markets. And our investment-related income is up substantially on the prior comparable period. And that's because we had an exceptionally strong period of investment realizations in this quarter in Macquarie Capital. Now despite that, we're managing to continue to invest. So our Principal Finance portfolio is sitting at about $15 billion at the moment, including about $13 billion in credit investments. And we were able to put $4.5 billion of new capital to work over the quarter as well as having these strong realizations and fee-related income. Now across these businesses, not only have they built their franchises well, but they give us, as I said, very good diversification by operating business line and also good diversification by geography, as you see here, where we continue to build our businesses in Australia, Asia, the Americas and the EMEA region. The operating businesses performance is, of course, continuing to be supported by a very strong platform in funding and capital. And you see here that our funding -- funded balance sheet remains strong, with our term funding or term liabilities exceeding term assets, and in this last quarter, are raising $14.5 billion of further term funding and growing our deposits by another 5%, to $96 billion. In addition to that, as you know, you -- a lot of you supported us with the $2.8 billion equity raising that we undertook at the end of last calendar year. And with that raising, it's contributed to our surplus over our regulatory capital minimum requirements under the APRA [ Bal III ] requirement, going from $8.4 billion to now $11.5 billion. The other big contributor, of course, was the record earnings we had in this third quarter. So we have $2.1 billion offset by a $900 million interim dividend. And despite that, we saw a good opportunity, as I say, to keep investing capital in our businesses, and $900 million was invested in the businesses. So you see here that all 4 of the businesses continue to invest. In Macquarie Asset Management, we had that Central Park Group acquisition, which is a small one. But we had meaningful divestments as well offsetting the net capital. BFS, ongoing growth in our home loans, partially offset by the sale of that Dealer Finance business, as I mentioned. In Commodities and Global Markets, we had increased market risk capital usage as well as growth in the credit portfolio. And in Macquarie Capital, as I mentioned, the principal finance lending activity continues to grow as did also the debt capital markets underwriting, partially offset by the realizations. So we're absorbing still good capital and seeing good opportunity to invest. And that's partly why, as we mentioned, we went ahead and did the $2.8 billion capital raising at the end of last calendar year. That comprised the $1.5 billion institutional placement and $1.3 billion raised in the share purchase plan. And we also raised $83 million from the dividend reinvestment plan. Now, we really appreciate the support given by shareholders and investors to us in that. And as we mentioned, we remain confident that we can invest this capital at superior returns, on a risk-adjusted basis. And indeed, I mentioned this was an exceptionally strong period of investment realizations. Over 90% of those realizations were made since 2019, when we did our last capital raising, and appreciate the support of investors, but we have been able to deploy capital well and realized over 2 to 3 years those investments and see ongoing opportunity today. So that raising has helped, in terms of our broader regulatory ratios, which remain well above our regulatory minimums. And just on regulatory matters, we should note that APRA, one of our two principal regulators, has a very active book of work on. They were able to complete their work very successfully on the unquestionably strong program that we're doing and have released their new bank capital framework. And as we announced, that resulted in a $2.2 billion reduction in our surplus capital over regulatory minimums. And you can see there, APRA has a number of other projects it's working on, to enhance the prudential strength of our industry. And one of them that we're doing a lot of work with APRA on, is CPS 511, in relation to remuneration, but we also are working closely with APRA, in relation to the remediation plan, following the 1st of April announcement at the beginning of this financial year. And as we've mentioned, we are doing a lot of work ourselves in strengthening our operating platform with processes and controls. And this is a multiyear program. As part of that, we're working closely with APRA in areas like intragroup funding, internal exposures and also our liquidity and capital reporting for regulatory purposes, where we're also working to enhance the accountability, governance and risk culture around that. Now, before I turn to the third quarter outlook, just one more thing that we wanted to touch on, which is letting you know that we have made a $20 million additional one-off allocation to our foundation to help them expand the work they're doing on social impact investing. And we think, with both the heightened community needs coming out of the pandemic, but more broadly, the need to address a number of issues in our communities, social impact investing has great opportunity to have really material outcomes. And so this money will be invested over the next couple of years in areas like capacity building for participants in this sector as well as investing in social impact grants. And our team are very engaged and passionate about this and have put together a social impact Investment Advisory Committee, chaired by Verena Lim, who is a leader in the Macquarie Asset Management business based in Singapore, and just took over from Ben Way as CEO of Asia. So with that, I'll turn to the third -- the short-term outlook. And as usual, we'll look at this in terms of each of our operating groups. So starting with Macquarie Asset Management, as we've been saying previously, we expect, excluding the Waddell & Reed impact, that base fee should be broadly in line with last financial year. But net other operating income should be slightly down, particularly given that European rail realization we had last financial year. And we don't expect Waddell & Reed to have meaningful net profit impact this year due to integration costs and other one-off costs. In Banking and Financial Services, as you've seen, we see ongoing momentum in our loan books, our deposits and our platform volumes. And that will be impacted, of course, by competitive dynamics, which continue, in terms of margin pressure and also in terms of the investments we're making in technology, in increased regulatory investment, and also in terms of the growth of the books. And of course, we have to ongoing monitor provisioning in light of the COVID environment. And turning then to our market-facing businesses. In Macquarie Capital, as I just noted, the fee income was significantly up in the third quarter. And we expect that transaction activity in the second half -- throughout the second half to result in the second-half result being significantly up, in terms of transaction activity, compared to the prior comparable second half. And with investment-related income, we expect -- given the exceptionally strong investment realizations that occurred in this quarter, we expect investment-related income to be substantially up on the prior comparable period. Whilst we continue -- well, I should mention, while we see no meaningful realizations occurring in the fourth quarter, and we continue to see good opportunity to deploy capital. And then in Commodities and Global Markets, starting at the bottom bullet point then, the Asset Finance business. We expect a continued contribution from that business, which is a little more annuity style in its nature, but we did have the $459 million one-off gain from the realization of the U.K. industrial and commercial meter leasing portfolio. The Financial Markets business, we expect a strong contribution, and we mentioned how it's performing across all the underlying businesses there. And then lastly, in Commodities, we expect the result to be significantly up on the prior financial year, net of the timing of recognition of income, in terms of storage and transportation contracts. The corporate level, we expect both the compensation ratio and the effective tax rate to be in line with historical levels. Now, that short-term outlook is, of course, subject to many factors that could influence the outcome, things like the duration of the COVID-19 pandemic and the global economic recovery and the extent of government support for economies, as we come out of it or as it continues to be with us. Market conditions, including significant volatility events and geopolitical events, potential tax and regulatory changes and tax uncertainties, completion of period-end reviews and the completion rate of transactions and the geographic composition of that impact -- of that income and the impacts on FX. So given that, we continue to maintain a cautious stance with, as you've seen, a conservative approach to our capital, our funding and our liquidity to position us for the current environment. And over the medium term, as I said at the beginning, we believe we are well placed to deliver superior return for the risk. Given our deep positioning in these major operating business lines and the diversification across those business lines between annuity and market-facing, as well as our strong and conservative balance sheet and our proven risk management framework. So with that, I will hand back to Sam to take any questions you might have. Thank you.

Thanks, Shemara. We'll now open the lines, and I'll hand over to the operator to facilitate the Q&A.

[Operator Instructions] Your first question comes from Ed Henning from CLSA.

First question is just a clarification. In the short-term outlook, you talked about base fees being broadly in line. And I know, that's except Waddell & Reed. In the commentary, you talked about base fees being up. Is that just Waddell & Reed and also potentially FUM going down in the last quarter? That was the first question.

Yes. Thanks, Ed, for that question. Yes, it is because of Waddell & Reed, principally, that in the third quarter, our base fees are up. But we're saying for the full year, we expect it to be broadly in line.

Okay. But base fees are up in the third quarter, excluding Waddell & Reed? Or is that -- I'm just trying to clarify.

Including the Waddell & Reed contract [indiscernible].

Okay. The second question is, you've announced MIP [ 6 ]. Can you just talk about the appetite out there still to raise funds? And you also mentioned that you're seeing good opportunities to deploy capital. Can you just talk about the opportunities you're seeing and what regions or what assets that are out there, are attractive at the moment?

Yes. In terms of the fundraising, we've got a deep dive on infrastructure, and you'll hear from some of our investors speaking, actually, in the introductory video. But we're finding, in this low rate environment, even though rates may go up a little bit, there's huge pools of capital after all the fiscal and monetary stimulus we've experienced that are looking for the sort of investments we deliver in real assets. So long-dated, capital-protected defensive long-duration investments to match people's pension and retiree money and even state money. So we're finding, all of our recent funds have been closing oversubscribed. That's partly because they've also been delivering very good results for a long time now. But certainly, it's a conducive environment for fundraising for infrastructure and real assets. In terms of where we're investing, that is really driven by the deep expertise of our teams in every region and subsector. So thematically, in the EMEA region, we've been investing a bit more. In Eastern Europe, you will have seen in this quarter, we did some large investments in Italy, in Southern Europe. We also are investing much more into areas like social infrastructure, as urbanization continues in various regions, into decarbonization infrastructure. And we bought the Green Investment Group alongside Macquarie Asset Management. And then the other big area is digital infrastructure, which has been accelerated by the pandemic, as people work from home, learn from home, shop from home, they're doing things more remotely. So investment in towers, fiber optic networks, data centers, a range of areas. But we still see opportunity to continue to invest in transportation and utility infrastructure as well. Does that cover it?

Yes. No, no, that's great. I'll leave it here. Thank you very much.

The next question is from Andrew Lyons from Goldman Sachs.

Shemara, just a question on Macquarie Capital and then one on CGM. Starting with MacCap, in the quarter, you've had realizations that you've described as exceptional. And while you're not expecting any material realizations in 4Q, I do note that the capital allocated to the division actually increased by $200 million in the quarter. Can you, therefore, just, perhaps, talk a bit about the runway for growth in the division and perhaps what the 2023 base might look like for the business? And then the second question, in a similar light, in relation to CGM. Based on the outlook described this morning, it does look like that division is going to contribute in excess of $3.5 billion this year. And that's without any unusual weather events or positive timing impacts. Now clearly, over the year, trading conditions have been pretty supportive, and you did have a realization in the first half. But it does appear as if the growth in the business, more than anything, is just being driven by the sheer scale of the business. So just with that in mind, do you think we now have to start thinking about this division as contributing close to $3 billion in what you might call "a normal year" in inverted commas?

Okay. Thanks, Andrew. I'll answer the Macquarie Capital question first and then come on to CGM. With Macquarie Capital -- basically, as with Macquarie Asset Management, we keep investing off the back of the skills of our people, which you'll see in the upcoming videos, where they have deep expertise across sectors and regions. And we are seeing opportunity to deploy capital, despite there being a lot of liquidity out there at good returns. And as you saw, the capital -- the investments that we realized, 90% of them done since 2019, the markets have been as competitive. So we think, we will continue to be able to deploy and deliver realizations. The realization timing depends on when is the best time, in terms of our adding value to that asset. And so it just happened in this third quarter that we had a number of assets. We've realized about a dozen in Macquarie Capital, this financial year. It was the right time to exit those assets to get the optimum return for the risk on the capital we've invested. So that was an exceptionally strong period, but we're continuing to deploy capital. So you saw $4.5 billion deployed, just in this last quarter. Now, we're putting a lot into our credit portfolio. That delivers slightly more annuity-style earnings because we're holding those positions, just for a few years, but they are delivering ongoing yield and income. And that's why in Macquarie Capital, we hopefully are trying to build now much more of a yield-type return from investments as well as the ongoing, slightly lumpier returns that we get from realizing equity positions. But we're seeing good opportunity to continue to invest, but I will repeat that this has been a period of exceptionally strong investment realization income because of the timing of realizations coming in the markets we were exiting into, et cetera. But we should continue to see both contribution from the fee income, but also from the investment realizations net of funding costs, given the expertise of our people. Now, in CGM, as you noted, this year, we had about $460 million one-off gain from the meter realizations. You mentioned, there hadn't been any extreme weather events, et cetera. But we actually have had an environment of very high volatility. And that's been particularly in energy, with all the things going on with huge demand increase for energy, as we come out of COVID, and goods demand has stepped up a lot because people can't consume services and goods, are much more energy intensive. And coupled with that, we've had the challenges in Europe, where Groningen has run off, Nord Stream 2 is under pressure, in terms of gas coming into Europe, the whole Russia, Ukraine situation. And so for example, and Nick O'Kane will speak later, but in terms of European gas, the Dutch gas price, which is normally, I don't know, EUR 10 to EUR 30, it spiked to EUR 180 in December, at one point. So we've had extreme volatility. And so that has contributed to trading income. But your point, I think, is that we're able to build our client franchises in times like this by stepping up with extra support. And so we do feel that the underlying client franchise is growing. Alex Harvey is here, of course. And at the half-year results and at previous results, he's been sharing indications of how the underlying income in CGM continues to grow. And then we have this icing on the cake, where we have things like the polar vortex or the Permian issue or the Texas freeze or now this energy situation. It has been, I have to say, particularly volatile, particularly in this third quarter. And we've grown the franchise, but there has also been meaningful trading income. Let me just ask, Alex, do you want to elaborate?

Thanks, Shemara. I think you probably covered it. I mean, we've talked about the [ grant ] franchise for some time, particularly those customer numbers. And you'll recall the graph that we've had for the last couple of results, talking about the split of client-facing income versus the trade income, about sort of 70%, 80% client-facing, and the balance influenced by those market conditions, leading to trading activity. But the underlying story really is that one of more customers dealing with them in more locations across more products. And then as Shemara just talked about, the conditions over the course of this quarter, third quarter, have been very conducive.

And I might just make one last point, Andrew, which is in both of Macquarie Capital and Commodities and Global Markets, we call them market-facing businesses, but they both have got strong underlying franchises that give a stable base of income to them. Last year, Macquarie Capital was really impacted in the $650 million result by the expected credit loss provisions we had to take in the market environment. But hopefully, we're building those businesses to an underlying repeat base of earnings as well as when market environments are conducive being able to capture upside.

The next question is from Andrei Stadnik from Morgan Stanley.

Can I ask my first question just around compensation ratio. You mentioned that the outlook slightly expected to be similar to sort of the levels. But we've seen a trend across your global peer group that the better revenue growth has been covering the base salaries, and in a better way, enhanced comp ratios have just been mechanically coming down lower. So what we'd be thinking about, in terms of compensation ratio for Macquarie?

Yes. On rotate, 2 things about that. One is, as you see through the cycle is a range in which our compensation ratio fluctuates. And usually, when the business is doing particularly well for the point you made, the compensation ratio heads to the lower end of that range because the base compensation is fixed and doesn't vary with performance. Having said that, every single peer globally has been commenting -- has had domestically on the really hot market for talent at the moment. Base salaries are going up everywhere. I saw Jamie Dimon at JPMorgan said he'd never experienced anything like this. Here in Australia, we and our peers are finding for areas like tech, operations, risk management. With the borders closed, it's been very hard to get talent. Our business is ultimately a people business, being in services. And it is really dependent on attracting and retaining and developing the best talent. And you'll see that as you watch the videos as we do the deep dives by sector. So on the one hand, we should be at the lower end of compensation ratio because we're at the higher end of earnings, particularly with the exceptionally strong investment realizations and the significant increase in terms of the commodities business. But on the other hand, we are conscious of -- we're not going to trade off long-term gain for short-term gain by not being respondent in a competitive market for talent.

And can I just ask a second question. Just around perception from high interest rates. There's been perception in the markets that high interest rates could be a meaningful headwind for Macquarie. But it seems like the fit and CGM could actually benefit. Can you maybe provide some comments on what do you think higher interest rates, what they could do to Macquarie across the group?

Yes. Look, in the early stages of rates increasing, especially if it's driven by increasing growth, it should be positive for the business. We put out some analysis a few years ago from Macquarie Asset Management showing how infrastructure businesses tend to perform better in the periods when rates start increasing. But for our market-facing businesses as well, typically, you find activity levels are up in these environments where rates start to increase. So we hope generally that we would benefit from it. In Banking and Financial Services, ordinarily, it's good because NIM increases. But we have to see what the competitive dynamic does in terms of those rate increases and how much of it gets passed through to customers, et cetera. So generally, and I'll let Alex comment again if he wants to, but I think generally, it should be supportive to our operating businesses, but there'll be nuances by business.

Thanks, Shem. I think we've covered it from my perspective. The other thing I'd say, Andrei, as that you've seen us over the last few years, continuing to term out the balance sheet. So we raised a lot of term funding last year. And obviously, that's partly in response to a very conducive environment for raising debt funding to support the businesses going forward and to pick up the point that Shem made in the outlook slide, we continue to maintain a cautious approach to funding capital liquidity, consistent with this idea that we want to make sure the business is positioned irrespective of the rate environment to be able to support the businesses in their activities.

Yes. That's a very good point.

The next question comes from Jonathan Mott from Barrenjoey.

This is for both Shemara and Alex, if I could. You talked a lot about the conservative stance, conservative settings of some of the business. But when you look at the quarter and the year, the environment is exceptionally good. You've both been at Macquarie for several decades now. Have you ever seen the environment better than it is today across your businesses or making money? And if -- what would it actually take you to be less conservative in some of these settings?

Yes. Well, John, I'll have a go first, and then I'll let Alex comment. But we've always been conservative. I've been here 30-something years now. And our view is we're thinking about the medium and the long term in terms of making sure we're here through everything. And we always balance risk with return. When I joined in the mid-'80s, the markets were crazy. And we were actually, in that period, if anything, having to make sure we were very disciplined in terms of the risks we took on, the counterparties we dealt with, et cetera. So I guess -- and I've been through those sort of cycles in my time. And if anything, Tony Berg was our CEO at the time, those are times when you actually, if anything, need to be particularly disciplined and cautious and think about where you are bringing real expertise and value add rather than just riding a market cycle. So that's my two cents, Alex?

Yes. I mean John, not much to add other than this. And what we're obviously constantly trying to do with all the businesses and the businesses themselves are trying to do is just continue to improve the franchise. So if you look at what's going on, on the asset management business, we continue to raise capital. We continue to diversify the geographies. We continue to diversify the products that, that business is taking out to their investor base. Obviously, we've been able to make some acquisitions in the public markets business. So I guess with each of the businesses, we're trying to continue to grow the franchise and strengthen the franchise from a BFS perspective, being investments in technology from a CGM viewpoint, investing in that customer base, investing in that expertise, expanding where we're talking to customers all around the world. Same Macquarie Capital and Shem already talked about the growth of the principal finance debt book for the sake of the example, and that sort of annuity style income coming through. So it's hard to analyze this period against any other period, but I think they're constant over a long period of time. As you said, both Shem and I have been here for a long period of time is just continue to work with the businesses to improve their underlying franchise. And that underlying franchise, obviously responds to whatever the market conditions are at the time. Obviously been very good conditions in the last year-to-date. And in some of the businesses, obviously, through the third quarter, as Shem said, there are exceptional conditions for realizing investments. But I think the point long term is how do you keep investing in these franchises to make them better and more responsive to whatever conditions are in front of them at the time.

And just a follow-up question, if I could, on the commodities business. At the start of the call, Shemara, you started mentioning your market share in global M&A and Australian mortgages, a few other products. Have you got a feel for the market share of your commodities business as a share of revenue across North America and Europe? Is there any McLagan data or anything you can point to, to show the opportunity there and what your share is in those businesses as a revenue share?

Yes. Well, Nick O'Kane is on. We're sadly separated physically in different rooms. But I might just comment briefly and then let Nick comment. In certain areas, John, we have a meaningful presence. So in North American Gas and Power, we are the fourth biggest physical trader in North American gas. But in other areas like the EMEA region, we obviously made the Cargill acquisition and in physical oil built our presence, et cetera. But we're much smaller in regions like EMEA and in Asia. But we are growing very nicely in those. So I guess what we try to do is build deep specialist expertise patiently adjacently into new markets and then build up our franchise that Alex talked about based off that. So rather than playing multiple arbitrage when we invest even into CGM where we put balance sheet, what we're trying to do is back human expertise where they understand the producers, the consumers' deep analytics of what's going on in the transportation infrastructure and then can bring extra value through that. Let me just ask, Nick. But John, we can look at sharing more data in terms of what the broader revenue pools are in our percent. I can just say briefly, we have a lot of scope to grow. And that's just in energy. Obviously, in other sorts of commodities, we're small players. There are big trading houses, hedge funds and big peer investment banks that are very big players in these markets. Nick, are you there? And would you like to add anything?

Yes, thank you. I think you covered it well. I might just add that the commodities business is diverse and it operates in a lot of different markets. So it's difficult to benchmark us against, say, a traditional banking revenue pool or a trading house revenue pool or a hedge fund revenue pool because we tend to operate across all of those different market segments. But what is interesting to note is that the size of the commodity business, the commodities marketplace is vast. And whilst we have scale in some of our businesses, there is still room for us to grow in other parts of the business. And what we'll continue to do is to grow our customer franchise. And that's something that we've always focused on and continue to focus on. And that's where our growth comes from. And we think there's a lot of opportunity to continue to grow into adjacent spaces, and we'll touch on that a little bit later on in the presentation as well. But as we move into different parts of the energy transition, there continues to be more opportunity to service our clients and to grow with our clients and to transition with them. So that's what we'll continue to focus on as we evolve and grow.

Thanks, Nick.

The next question is from Brian Johnson from Jefferies.

First point, congratulations. Obviously, 2022 is going to be a great year as some of your competitors struggle. Two questions. The first one is that when we have a look at the principal investments book, I'm just wondering, can we get a feeling for the target hold period and what the target ROE basically is? And then I had a second question after that one, if I may.

Sure. And thanks, Brian. But in terms of the book, it's very hard to give you a target hold and ROE because it really depends where we're investing. So you saw with the realizations the slide said, and I should have noted, that it was across infrastructure, including green energy. It was across business services. It was across technology. So if we're in an early stage technology investment, we may only put a few dollars in and we may be targeting a very high ROE because it's very high risk. And we may hold it for 10 years until that business has really got scale. If we're in a more mature asset or we're doing a PPP project, we may only hold that for a few years. And it's a less risky asset, so we're targeting more moderate returns. So there's a spectrum of capabilities across the asset classes in which we have expertise in the regions. Again, in Asia, we may be targeting higher IRRs, possibly shorter holds than we would in North America and Europe because they're more nascent markets for us. So it's hard to give a simple answer not trying to be difficult. But that's why the management teams, Alex and I, we work incredibly closely with our teams with every equity investment they're making to understand the risks involved, what skills we have to manage and mitigate those risks and hence, what return we should be targeting and what life cycle we expect for capital to be there for. Sorry...

That's as good an answer as I could probably expect. Shemara, just a second one, if I may. Just when we think about the new Macquarie private market funds that you're raising, can you just give us a feeling of the percentage of initial co-investment? And what is the management of the performance fee structure on the new ones that you're raising now?

Yes. Well, I mean, there's now a spectrum of what we're doing in private markets and Ben Way is on the phone, so I might let him comment as well. But Ben is bringing a new energy to that business because we've grown it very nicely and stably and safely, I would say, for the last decade or 2. But actually, the market is way, way bigger. So we have become very strong in traditional infrastructure. But expanding across into real estate, where we moved our principal investing team over to Macquarie Asset Management into private credit, agriculture, transportation -- they're all things that we could do more of. So with our core funds in infrastructure where we have deep track record, expertise and standing with investors. Our co-investment is small. We're leveraging the capital Macquarie puts in materially. And I think we're now 1% of the money we're raising as the funds get bigger and bigger. In newer areas, like if we're doing a tactical real estate club, we might put a much bigger piece of balance sheet there to show alignment early on with investors as they come on the journey with us and have much more pain at risk ourselves. So it varies. In private credit, we're not having to co-invest a lot and the market doesn't. Let me just ask, Ben, if you don't mind to see if you would like to give a couple of comments. Ben, are you there? Ben is in the U.K. at the moment so very late for him.

Shem, and thanks, Brian. I think, look, Shemara has answered that well. Our fee rates are generally in line for our flagship infrastructure funds with sort of what we've done historically. And we're seeing really strong support for those products at market fee rates. So that business continues to grow strongly and is delivering for us and for investors, and importantly, for shareholders. And Shemara is right. In the other areas, the fees that we get are generally the fees that are in line with where that particular sector is operating. And that's quite different for real estate versus private credit versus agriculture and so on. I think the good news is we see lots of growth opportunities in those areas. And so the good thing is we've got the balance sheet to support those funds where we are moving into new areas, so we can show really good alignment with investors but also so we can give ourselves that kick start to get going in those areas. And again, we're seeing good growth opportunities in areas adjacent to infrastructure. And so we'll continue to really focus on scaling those businesses up.

And Ben, I should have -- sorry. Sorry.

Can I just clarify, Ben, sorry. So where -- as funds mature from a decade ago with the initial co-investment in Infra might have been as much as 10%. You're now initiating new ones where the initial co-investment is 1%. Did I hear that correctly?

No. No, we're not. So generally speaking, we will invest up to -- we'll invest anywhere between 5% and 10% in a scale vintage fund, for example, like the North American or the European funds. But we will have a cap depending on the fund raise. I think as Shemara said, in new funds where we're launching new strategies, in the early vintages, it's likely that we would put a higher percentage of capital in, one, to give that strategy momentum, but also to show alignment where we're trying to do something new. So generally, as we get to more mature, larger vintages, our percentage of commitment comes down.

And Ben, I was just going to say like the U.S. fund, there's been talk of the new U.S. fund potentially being $7 billion. Our co-investment in that wouldn't be $700 million, though in a mature vintage like that, would it, Ben, in terms of...

No, I wouldn't know. So we would cap that at some -- at a much smaller rate. That's right, Shemara, they're much larger funds.

Yes, with the very big funds. And I think that covers it. Just on the fees, I was just going to briefly say, some years ago, Sam, it would have been about 7 years ago, we had Martin Stanley do a presentation that was showing that we were running about 1% to 1.1% of base fees, 50 bps of performance fees, 20 bps of investment income. As time went on, the base fee number came down as real estate funds, et cetera, were on lower base fees. But the performance fee number went up to about 70 or 80 basis points in the investment income as well. When Ben next updates on the MAM business, we can provide an update on that. But we've obviously been in a period where it's been a good environment for realizing and performance fees.

The next question comes from Andrew Triggs from JPMorgan.

Just a couple of questions, please. The first one, a follow-up on investment realizations, particularly in the green space. I would expect the sequencing of some of these investments to occur over the next few years, noting that Q4 is not likely to see any meaningful transactions. And then the second question around the BFS division, obviously, makes you back updates showing significant margin pressure in the quarter, with much of that driven by the fixed rate mortgage space where at least I've observed that Macquarie doesn't play as aggressively in the variable rate space. So just interested in any thoughts you have on margin pressure in the BFS division. And if you're happy with where mortgage margins sit plus the group average.

Yes, so just in relation to BFS, we are subject to competitive dynamics and margin pressure like all others. As you say, our book is probably less weighted to fixed rate, so that's fair enough. But the main driver in growth in BFS has been the volume growth that we've been experiencing. We're now at just over 4% of market share in Australia. So that's going -- that's the big driver. And also, we get a cost-to-income benefit as well as we scale up, although we are investing still a lot in technology, particularly in regulatory compliance and growth of the book.

The only thing to add there is probably just from a return on equity viewpoint. Obviously, we're happy with the equity return we're getting on our BFS business. And partly, as you know, it's about servicing customers and servicing them quickly to actually provide the mortgage to them. So I think the team has done a great job of developing the platform and continuing to originate activity at good rates of return on equity. Other than that, I think it's covered it. Obviously, it's a competitive market, and we continue to obviously have to meet the market. You're right, to some extent, we didn't chase the same volume on the fixed rate side, which is probably helpful.

And then in relation to the green investment realizations, Alex, at the half year gave you the Macquarie Capital balance sheet in terms of what was allocated to green versus debt versus infrastructure versus technology. We've still got a few billion invested in the green space, and that will run off over time over the next few years. As the Green Investment Group moves to Macquarie Asset Management, we will determine what will be invested through the fund mandate and what, if anything, will continue to be invested through the balance sheet. But over the next few years, we will have still a runoff of the book, where we've been investing in what we think are good projects, where we're adding really good value. And it's across waste-to-energy, solar platforms, wind platforms, onshore and offshore. We're doing more things in hydrogen, battery charging, et cetera. So there will be a portfolio of assets which will move across to Macquarie Asset Management and the Green Investment Group team will continue to manage those to best effect for the balance sheet while they grow the asset management portfolio. Does that answer the question, Andrew?

Sorry, yes it does, Shemara.

The next question is from Brendan Sproules from Citi.

I just have a couple of questions. Just firstly, on the runway of growth that you have highlighted here in the commodities business. I've noticed in the last 15 months, the capital you've deployed has gone from about $4.5 billion to $7 billion. What is the risk appetite here for you continue to grow the capital base here, particularly given you're a regulated bank, where a lot of your large global competitors are private companies. To what extent is there any risk appetite limits or other limits in terms of the amount of capital that you can ultimately allocate to this business?

Yes, I'll start and then let Alex and Nick comment if you'd like to. But basically, our decision in terms of allocating capital is the same as for any business, which is do we see superior return for the risk involved. Now in CGM, the money we're putting in a chunk of it is in terms of the credit portfolio, and we're analyzing those positions like we do with any other lending or credit situation. And then a big chunk also is into market risk, where we're having to make calls. And as volatility increases in sectors, we're holding more market risk capital and more funding as well. We're constantly stress testing our portfolios and looking at are we going to be sufficiently funded and have sufficient capital. And if we're holding capital buffers, for those extreme situations, what sort of returns do we need and do we get appropriate return. At this point, we've been very happy. We've continued to provide funding and capital to the CGM business as it grows, because we know we have teams with deep expertise that are able to bring insights and deliver great returns. Alex and Nick, any?

No, just from my, Brendan, the -- I mean, obviously, a key driver of capital usage as you've seen in those charts that we put up again at the half year result is, is client volumes. So what we have seen is the growing franchise, more clients in more markets and demanding more risk management type solutions. So it's obviously attracting credit capital. And as Shemara said, obviously, in more volatile markets, we're also seeing some additional capital to support the market risk. But the risk management approach, the risk appetite hasn't changed for some time. What we are seeing though is just that growing customer franchise that's drawing capital from the group to support that activity level. Nick, I don't know whether you want to add to that?

Look, I think your on point there, Alex. It's the exact same approach we've had since we -- we started the business decades ago. We operate within the same risk management framework and look at risks in the same way and stress those risks against the earnings profile and the probability of risk. So that hasn't changed and won't change. .

And I have a second question on Asset Management. I just wanted to understand the outlook for the organic growth of base fees. Now obviously, you've guided here to sort of broadly in line for this year the similar level that you've had for the last couple of years. Just given the discussion around the composition of base -- average base fee, but also the fact that you are seeing some quite large new infrastructure funds, but we're not seeing, sort of, growth coming through in that base fee line. So is this the case now that you're out of a size where you actually have[indiscernible] to raise a lot just to stand still and the growth in this business is much more inorganic?

I think we should gradually see the base fees continuing to grow. But when we say broadly in line, it can be up a few percent, down a few percent. So they're still growing slightly. And then, of course next year, we will have a full year of Waddell & Reed come through and A&P come through. So I think we -- should next year, and we're not commenting yet on FY '23, we'll do that at the full year, but we should be seeing contribution from those businesses. Again, Ben, anything you'd like to add? .

I think that's right, Shemara. I think we expect as we invest in these as we as we raise bigger funds, and we also move into new areas, we'd expect over time that we would see growth in the base fees. And as you said, there's also opportunities that will flow through from the acquisitions we've been making. So I think to be fair, it's an inorganic and organic story. And I think that's good because that gives us multiple levers to drive growth.

Maybe just to add 2 things from my perspective. One is that if you look at the portfolio of funds, it's getting more and more diverse. So if you think about the base fees that are broadly where they have been for many years, you're getting base fees from a more diverse range of funds. And obviously, some of these are quite mature vintages of funds now and the size is going up. . The second thing you see coming through base fees,Bren is obviously, we're realizing assets out of funds as well as investing new capital. So when you put it together in aggregate, obviously, we talk about broadly in line. But the composition of that fee and where it's actually coming from is changing over time. So as the assets under management go up, you expect to see that base fee income trend up over time.

There are no further questions at this time. I'll now hand back to Mr. Dobson.

Great. Thank you. Thanks for all your questions. So before we hear from Shemara talking about our position and the opportunities within the infrastructure sector and our operating group heads, we have a short video to show you, which is our staff and client perspective on the -- on our expertise in infrastructure. [Presentation]

Great. So hopefully, that video showed you the deep capabilities of our team, the relationships we have, the geographies and sectors we operate in at the moment. We've obviously been building this expertise as you heard on the video now for nearly 3 decades when we, together with others, we're a pioneer of developing infrastructure as an asset class in Australia. And so today, we've built to a point patiently, adjacently building that expertise where the biggest 3 areas in which we operate are in Macquarie Capital we continue to be an adviser and a capital arranger. As you can see, we're #1 global infrastructure adviser in that top row of boxes and continually winning awards. And in the bottom row of boxes, you see we also bring our balance sheet and have been for some time to invest alongside the expertise of our Macquarie Capital team. So as [ Mark Bradshaw ]was saying, we're involved in development, construction and operation of platforms and again, constantly winning awards. And then in Macquarie Asset Management, we are still the world's largest manager of infrastructure assets and constantly going up and down the risk curve into new sectors into new geographies, et cetera, and expanding our relationships with investors as well. But I think the other group in which we participate in infrastructure is in commodities and global markets as well, where it's less known that we operate in 3 different areas as a user of that infrastructure in providing services to our clients and also as financier of assets through our asset finance business and then in terms of co-investing with our clients and infrastructure for the energy transition. So in a moment, you're going to hear from Ben Way and the Macquarie Asset Management team on what we are doing today in MAM and where we're looking to go. Also from Michael Silverton and his team in Macquarie Capital in terms of where they're looking to go. And then Nick O'Kane will elaborate on the things that we do in commodities and global markets as well. But before handing over to them, I wanted to touch on 2 things. One is a little bit of the history of the story of how we came here, which speaks to how we will progress in this sector. And as you see, we started 27 years ago. So even after I joined Macquarie, we started doing advisory work in infrastructure and then moved on to arranging debt and arranging equity. But it was really when the big privatization started happening here in Australia, of utilities, road assets, et cetera, and compulsory superannuation got introduced, that we started our asset management business, where we saw a very good match in these long-dated liabilities that we're developing, needing capital-protected defensive assets with the nature of these infrastructure assets, including yield and income as well. So the product sectors -- product areas we were involved in gradually grew most recently into the Green Investment Group area, but also the sectors that we operate in went from traditional utilities and transportation assets through to more social infrastructure. And today, we're going more into energy transition, and climate response and decarbonization and digital assets as well. And over that time, as you can see, we've grown our assets under management from $87 billion to $203 billion just in the last 10 years. And we've also grown the number of transactions we advised on from $11 billion to $105 billion in the last 10 years. So big ongoing step-up. But the most interesting thing about this area is we are still early in the journey. So as you can see here, there is $75 trillion of infrastructure investment required out to 2040, with the largest part being in Asia, but still meaningful $16 trillion each needed in North America and EMEA. And there's big public support for this, not just because of the needs but urbanization and investment in terms of infrastructure to help communities operate, but as you can see here, decarbonization in the green energy journey and also in digital infrastructure. And I think as you saw from that video, with all the deep expertise and relationships we've built, we should be well positioned to keep responding to this and delivering superior return, but also growing. So with that, I might hand over first to Ben Way and team to talk to you about Macquarie Asset Management, then Michael Silverton and then Nick O'Kane.

Thanks, Shemara. Infrastructure is a flagship business for Macquarie Asset Management. We've built a substantive and deep track record over the last 30 years, spanning real assets, private credit and listed equities. Excitingly, we continue to see strong growth opportunities in infrastructure fueled by high investor demand for real assets and long-term thematics such as urbanization, energy transition and digitalization. We'll pick up some of these in our case studies. What Shemara's last slide did is it framed just how big this opportunity is. And what that means for our teams is that we have a deep pipeline of opportunities to match capital with. And this is leading to some really exciting outcomes, larger funds, record deployment as we extend vintages and also our ability to innovate by moving into new markets and new sectors. The integration of Macquarie Asset Management and the Green Investment Group underlines how we keep evolving our business to harness capital so we can invest up and down the risk curve in terms of renewables. It will also allow us to continue to make positive investments addressing the net zero challenge. This is just one example of many, of how we can impact our communities, how we can do well and do good. Our portfolio companies are used by millions of people every day, and our active asset management approach allows us to create value while improving outcomes. The following case studies give you a further sense of MAM's infrastructure activities. [Presentation]

Macquarie Capital's story in infrastructure has been as a pioneer driving innovation in the industry as an adviser, investor and developer, and in many ways, the genesis of the infrastructure activities we have across the group today. We're a market leader. But over the last 3 decades, we have continually evolved our business to remain so. Our deep relationships and networks with clients and partners, specialized expertise and our asset creation experience provide a differentiated offering and a unique advantage. We have more than 200 specialists in infrastructure in MacCap, from advisers and investors, to engineers and developers with capabilities to work at all stages of the infrastructure life cycle and differentiating us from pure-play advisers, financiers or developers. Our teams are on the ground and local, leading to very long-term relationships with partners including corporates, co-investors and contractors globally. These foundations, built over many decades, position us well to support our clients and partners. Now there are 3 points I want to call out around the infrastructure opportunity for Macquarie Capital: One, we are consistently active in traditional core infrastructure, partnering with the public sector to deliver essential improvements in additional capacity. This investment need is driven in part by macro trends such as urbanization, population growth and the energy transition, which, as we know, is broader than just renewables, where we have deep expertise, but also through other activities like investing in LNG and natural gas infrastructure. We'll hear shortly about how we're partnering as lead developer with Transurban on new roads in the U.S., continuing the long heritage that began with the Australian Motorways in the early '90s. Two, infrastructure continues to evolve. As clients expand the scope of their mandates into new areas such as social and digital infrastructure, we are well positioned to support them and to invest alongside in those areas such as Spanish fiber network business on[ Avaya ]that we will hear about shortly. Technology is also creating new business models and ways to improve infrastructure efficiency and resilience, whether it be optimizing traffic flows, productivity or electrification. And three, there is a growing base of private capital seeking opportunities with an estimated USD 2 trillion of dry powder across the industry, of which infrastructure represents a meaningful and growing share. And this is unlevered dry powder. Our deep relationships with private capital providers of all types means we are well placed to capitalize on this growing trend. These investors value our long-standing asset and deal-creation expertise. We are well placed to match investors and partners with the right opportunities based on their risk appetite and desired exposure, whether it be a sector, region or stage of the asset life cycle. And these sponsor clients often require capital solutions or incremental capital, which we can provide from our balance sheet, from development capital to equity and credit investing. We are seeing significant opportunity across the spectrum. We also continue to work with corporate clients on both their energy transition requirements and on pathways to unlock the value of their own embedded infrastructure, again, often leveraging our network of private capital relationships to find partnership solutions. Overall, we are very optimistic about the growth opportunities across the sector, whether it be in core infrastructure across developed and emerging markets, within an increasingly diverse sector and against a backdrop of private capital growth. With that in mind, we'll now hear a couple of perspectives on how we're using our own capital and partnering with clients to deliver better infrastructure outcomes for our communities. [Presentation]

Good morning, everyone. As has been demonstrated from the opening video and these previous presentations, Macquarie's expertise and involvement across the infrastructure landscape runs deep, while Macquarie Capital and Macquarie Asset Management have long played the role of advisers and investors, developers and managers of infrastructure in our CGM business, the role we play with the infrastructure is somewhat different. For us, infrastructure is integral to our business offering and that it allows us to deliver the services we provide to our customers. Put simply, we are customers of key infrastructure and active users on a day-to-day basis. This activity in turn, facilitates key elements of our offerings to clients. And as you've heard me detail on previous occasions, CGM is a client-focused business. that provides 4 broad product offerings: Capital and financing; risk management; market access and physical execution; and logistics solutions. And we do this across 3 distinct business lines: commodities, financial markets and asset finance. It is across these offerings that CGM uses infrastructure and infrastructure-related sectors to provide niche solutions that are often physical in nature to our diverse client base. So how do we touch infrastructure? Well, firstly, in our commodities business, we use energy and transportation infrastructure to facilitate the physical movement of commodities between where they are produced and where they are consumed. From an energy perspective, we can look at the role we play across our global gas and power business, particularly in North America, where our team understands the power transmission and gas pipeline grid very well. As a result of rapidly changing supply and demand dynamics, our clients have a growing need for our services to help them source and sell their energy products. We do this by getting gas and power from where it is produced to where it is consumed, and by understanding the implication of physical flows and the impact that they have on prices. We are well recognized as a market leader in this industry. We are the #4 ranked gas marketer in the region, with a large team supporting the physical movement of energy on behalf of clients such as producers, utilities, power generators and other marketers. We lean on this expertise of our team, which is underpinned by deep fundamental analytics and a 24-hour real-time monitoring that results in a deep understanding of the network infrastructure. We physically move gas and power to find efficient paths over major interstate pipelines and power grids, which sees us enter into short and long-term leases of physical infrastructure assets. The knowledge we have developed has allowed us to expand our offering, positioning us well to help connect increasingly global energy flows in markets like LNG. Our gas and power business has grown to be a substantial business for CGM and for Macquarie, a business that is fundamentally aligned on the infrastructure sector. In our asset finance business, we use our balance sheet to provide financing solutions for clients usually backed by physical assets. We are currently helping clients across 40 countries acquire and deploy these physical assets. An example of this is in our shipping finance business, where we use our expertise across the shipping industry to provide financing solutions to a large number of global shipping clients. Our portfolio size now stands at over USD 1 billion. We'll hear more about what's driving the growth in that business from Macquarie in just a little bit. This embedded market knowledge inherent within the CGM teams is also demonstrated clearly in our continued funding of gas and electricity meters across the U.K. Utilizing decades of utility infrastructure experience, we have assisted in the rollout of over 10 million meters to homes and businesses in the U.K. Our team is continuing to support U.K. energy retailers as they move towards the deployment of smart meters. And finally, perhaps to a lesser extent, compared to our other offerings, we also support projects that operate in infrastructure adjacent sectors by financing solutions to enable the mobilization of capital. Recent examples here include our investment alongside other prominent financial investors in Storegga, an independent company based in St. Fergus, Scotland. Storegga's pioneering carbon storage and removal methods to assist in the transition to a net zero economy. As a business that has been active in the global energy markets for many years, we see supporting businesses like Storegga as a key part of our energy transition journey. So as you can see across the various parts of our business, given the physical nature of our client offerings, we are a significant user of infrastructure, and it is integral to the way we do business. This is something we've been doing for many years, and we are well placed to adapt and evolve with our clients as their needs change. Now let's hear from Marc Hari, Head of our Shipping Finance Business, who will talk about how we are supporting the transportation infrastructure sector. Thank you. [Presentation]

So hopefully, that has given you a good sense of our deep capability across such a broad range of sectors, geographies and products and some of the opportunities we're looking at. But as I said at the beginning, the most encouraging part about this sector is we are still early in the journey. So looking specifically at some of the things in terms of what's next and starting first of all with new sectors that we're evolving into or sectorally where we go next. There's obviously in urbanization, as I said, far more need for capital and expertise in developing countries, but also in developed countries as they upgrade infrastructure in not just utilities and transport, but social, health, education, infrastructure -- and then there are also a couple of big new themes in terms of decarbonization, which is not going to just impact energy but also transportation and other sectors like agriculture, industrials. And then as you heard in terms of digitization, new investments required in towers, fiber optic networks, data centers, hyper-scale data centers, et cetera. So a lot more for our teams to respond to in terms of sectoral need for infrastructure. Then also regionally, as you've seen, we're growing patiently adjacently into new geographies. Currently, we're growing a lot into Eastern Europe, in the EMEA region and into Latin America, in the Americas, and of course, throughout Asia. And this will happen market-by-market patiently and continue to be locally lead where people develop the deep expertise and understanding of what's needed, the relationships, et cetera. And then lastly, in terms of new products. So you heard Ben talk about in Macquarie Asset Management, we'll gradually move into new asset classes like more in infrastructure debt and credit and real asset debt. We also will move into new sectors with the Green Investment Group coming across and we'll also move into new products up and down the risk curve with super core funds, open-ended funds, et cetera. In Macquarie Asset Management, you heard Michael Silverton and the team talk about things we'll do there. We're not just a leading adviser growing into new countries, et cetera. But in terms of our developer role construction development operations now, as you heard Oliver Bradley talk about, we're looking at platforms more putting together and investing in platforms. And lastly, in CGM, again, patient adjacent growth. You saw that last video from Marc Hari on what we're doing in shipping, as we move to new fuels of hydrogen and ammonia, there'll be scope to finance assets in adjacent areas, like bunkering and as ports evolve, et cetera. So a space which may seem old hat because we've been in it for 27 years, but in Macquarie's classic approach, as you heard in the video from our client, we are dynamic, we're adapting. The external environment keeps changing, the need keeps growing and we are responding. So thanks to all of the team who gave you insights. It's a team we're very proud of, them plus many others. And with that, I'll hand back to Sam if there are any questions on infrastructure.

Thanks, Shemara. I think we're going to hold the questions to the end, so we'll move on to our EMEA section. For those who don't know, Paul Plewman is our Chief Executive Officer for EMEA. Before we hand to Paul and then our group heads will hear a short video from our clients and staff. [Presentation]

I'd like to start by making a connection back to 2019. This was the last time that we profiled a business in Europe, to Middle East and Africa. We had 2 key themes. Firstly, we wanted to continue to build out a strong U.K. base where we've been active since 1989. And secondly, we wanted to use that base to expand across the region, particularly across the rest of Mainland Europe. Those themes remain central to our growth strategy for Macquarie in EMEA. As you can see, we remain very focused on the U.K. and Europe, -- we also have a small presence in Dubai and Johannesburg. Since we last presented 3 years ago, we've done a lot. We've grown our headcount by 400 people. That growth has been biased towards Europe, as you might expect, and it has been driven by exciting opportunities to grow our businesses. It's also led to new offices with Dublin and Paris a key focus. This expansion in Dublin and Paris has been partly due to the U.K.'s withdrawal from the EU. As we previously mentioned, this was not a material event for the group. We carefully managed our way through the Brexit process. We established 3 new regulatory hubs, and we achieved a seamless transition for our clients with no major issues. So Paris is now home to Macquarie Capital France, which is focused on the Macquarie Advisory Business. Dublin is the location for Macquarie Bank Europe, the entity that is mainly focused on the CGM activities. And lastly, Luxembourg is a hub for Macquarie Asset Management Europe, the main entity for MAM business. We've also spent the last 2 years navigating the pandemic. While there's been a strong and rapid rollout of the vaccine, we've seen a staff having to work lengthy periods of time from home. This has naturally been the case for our clients, too. We've also gone the extra mile to support clients and portfolio companies affected by the pandemic and we made a special effort to support our communities through our foundation and staff volunteering. I'm pleased to say that most of our offices are now cleared to return. We are well underway in a shift to a new hybrid working model, and we believe that this combines the benefit of regular office time with continued flexibility for our people. One important characteristic of this region is that we drive innovation and leadership for the group in infrastructure and the green transition. Our MAM real estate and Green Investment Group businesses are led from the U.K. and soon to join forces. This cluster of expertise has been built up from our leadership in Europe in these sectors. This expertise gives us insights and relationships that we then export to other regions. And it also sees us working with the likes of Total Energies in the U.K., France and Korea, Iberdrola in England and Japan and [indiscernible] in the U.K. and Australia. One final point is set the context. We have strong growth opportunities across all of our areas of expertise. This comes in 2 ways. Firstly, the European market is huge, it's huge. And while we've pocketed formidable strength with lots of headroom for growth and of course, lots of headroom for adjacencies, too. And secondly, as I'll come to, we have seen strong growth in almost all our markets, especially our key markets. As you will have often heard, we generally grow through adjacencies. In this region that's happened in 4 main ways. Firstly, by building up businesses that we've grown here like power and gas trading, like infrastructure debt and of course, infrastructure and energy principal investment. These businesses often go on to establish themselves globally. Secondly, by importing experience from around the group. We import successful businesses from outside of EMEA into EMEA, like real estate principal investing. Thirdly, by creating new companies like Corona Energy and [ Sao ] generation, which are operationally segregated subsidiaries. Or lastly, by expanding through acquisitions. For example, Green Investment Group, the Asset Management business ValueInvest, cargo physical oil trading and a number of real estate platforms. We've also made positive progress in the technologies and markets we're active in, with many first from this current year. On the energy transition side, we formed a new partnership in the Netherlands. This partnership is called [ ICC ] and will develop an existing pipeline of 400 megawatts of green hydrogen [indiscernible] projects. This partnership will help to decarbonize energy-intensive industries. In the area of EV charging, we've also formed a new partnership, we will provide public transport and commercial fleet operators with charging infrastructure. And we have entered a number of new offshore wind markets. We have pioneered machine learning strategies in our[ QOS ]investment business. We've seen our shipping finance team pass important growth milestones. And we've built our real estate and logistics capability, which was to respond to market opportunities. So while we don't work to a fixed growth strategy, we are thoughtful at planning and targeting opportunities. In 2019, we spoke about our future plans, and I'd like to spend a moment updating you on this. I'd like to demonstrate our commitment to deliver against our intentions while at the same time, remaining agile and taking opportunities as we see them. You've heard a lot already on infrastructure, and you'll soon hear case studies and fundraising real estate on commodities and on financial markets, on principal finance and our advisory business. You've also seen much through the year on our renewables capabilities. We were proud to showcase this business when we went to Glasgow for the COP in November. I'll add to this by drawing out some of the boarder themes. Our core strength in the U.K. continues to lead us to opportunities. Importantly, these opportunities will maintain our position as one of the leading infrastructure and renewable investors here. Across Europe, we've made significant new investments in the Nordics, Benelux in Italy and across Central and Eastern Europe. We've naturally invested in our own capabilities with senior appointments in our Macquarie Capital team in France, Italy and Spain. And I'm particularly proud of how we've integrated acquisitions, which now lies at the heart of our growth strategies in renewables, commodities, real estate and public investments. Let me turn now to what has been added up to in financial performance. Firstly, we continue to see a trend of steady, sustained growth in income. We grew total income by over 300% in the decade between 2010 and 2020. This growth has continued. While we did see some impact from COVID, which affected our income in financial years '20 and '21, as you can see, we've had a strong recovery in 2022 so far. The second point to note is how well balanced our businesses are across our operating groups. This gives us diversity of income across the full spectrum of our capabilities and increasing geographic diversity. Before I hand over to the global heads of our 3 operating groups to talk about the businesses in EMEA, I'd like to give you a sense of the opportunity that we see here. This repeats the point I made earlier about capitalizing on the growth in the markets we operate in and developing further through adjacencies. This growth opportunity is backed by strong fundamentals. Omicron has caused some recent disruption, but the region is well vaccinated. This has allowed for a rapid bounce back of economies. They are returning quickly to the pre-pandemic levels of output. We are fortunately seeing built-up demand in many key sectors. We were also well aligned to some of the fastest-growing sectors and themes in the economy, including helping companies with the transition to net zero, this is well ahead of 2050 for many sectors and companies. The growth in demand for telco and digital infrastructure. We are aligned with the changing needs for transport investment, continuing growth in demand for gas and power and pent-up demand for higher-than-average levels of M&A activity across the region. Let me now hand over to our group heads to explain how we plan to pursue these opportunities, starting with Ben, who is with me here in London.

Thanks, Paul. EMEA has been an important region for MAM for some 2 decades. It's the largest part of our global infrastructure platform with some $100 billion of assets under management. As Paul highlighted, we have substantial room to grow in EMEA given the size of the market and our relative share. The good news is we are capitalizing on our heritage to grow and to innovate. We're increasingly active in private credit across infrastructure and real estate, and we're also ramping up our real estate footprint and Funds business and building out our public investment strategies across equities, fixed income and multi-asset solutions. This is allowing us to move into new markets, such as Ireland and Greece, but also allowing us to be more relevant for clients. We're also taking our experience in things like opportunistic real estate to launch new products and invest in sectors such as logistics and build-to-rent. Importantly, EMEA is home to many of our key client relationships. We continue to see this pool of capital grow and support just not our platform in EMEA, but around the world. As always, in MAM, we're not trying to be all things to investors or clients. Rather, we focus on areas we believe we can deliver, while making sure that every investment man makes has a positive impact for everyone building enduring long-term relationships. The following case studies speak to our client focus and our growing activities in the region. [Presentation]

As you've heard already, EMEA is a crucial region for Macquarie as it is for CGM. We offer our full range of products. And they, of course, are capital and financing, risk management, market access and physical execution and logistics solutions. And we offer those products across our 3 distinct business lines: Commodities, Financial Markets and Asset Finance. Over the years, we have experienced significant growth in the region and the office has become the birthplace of some of our most important businesses. One such business is, of course, our Energy business, which we started back in 2003 when I was in the London office. EMEA has always been important for our businesses, having contributed between 25% and 30% of CGM's operating income over the last few years. We now have more than 770 staff in region, and that represents more than 35% of the CGM workforce globally. As we heard earlier, we recently established a European branch with an office in Paris. This new branch has increasingly become a strategic pillar for our client offering in Europe, and we have seen solid growth over a relatively short period of time. We are excited about the potential for future development in that office. Looking now across our 3 business lines, you can see we're very active. Starting with Commodities. EMEA is a significant contributor to the group and has experienced strong growth, particularly in recent years. We provide our client offerings across most traded commodities, including energy, metals, and agricultural commodities markets. We have built a deep franchise of client relationships with some of our most successful businesses originating in this jurisdiction. As discussed earlier, a good example of this is our global Energy business, which we started in London back in 2003 before exploiting some of our learnings to other regions and has now become one of our strongest and most successful global businesses. We are a leading provider of risk management and financing services across European power, gas and oil markets, actively trading across all liquid wholesale European hubs. As you will hear shortly from Eric Peterson, Head of Power and Gas for EMEA, our expertise and strong market position enables us to work closely with our clients during periods of extreme volatility. An obvious example of this is what we are currently witnessing in these markets. Our clients are facing unprecedented volatility that is impacting their bottom lines. We are well positioned to help them navigate the challenges of the current environment. We also have a substantial offering across agricultural and soft commodities, major bulk commodities and precious and base metals markets. We continue to develop our presence in other exciting markets, including compliance and voluntary carbon markets. Our EMEA Commodities business also houses the Commodity Investor Products business, a platform that provides institutional investors with access to enhanced returns linked to commodities through index-based risk premier strategies. We have seen this business expand more recently to include quantitative index products across all asset classes, such as equities, fixed income and foreign exchange. Turning to our financial markets businesses. There, too, we have a full service offering across a range of products. We provide a broad range of financial products, including foreign exchange and interest rate swap hedging solutions, derivatives products and equity and debt finance solutions to corporate and institutional clients. We are a provider of securitization solutions. Later, you will hear from Sarah Milne, a Managing Director in our FIC team. She will talk about our investment in Domivest, a Dutch buy-to-let mortgage provider that we helped establish back in 2017 with an equity investment and financing through a new warehouse facility. We continue to support this company as it continues to grow today. We are also active in more than 50 futures markets globally with hubs in London and Frankfurt being a key part of this global operation. And given the size of the markets across EMEA we continue to see significant growth opportunity for all of these businesses. Finally, 1/3 of our business lines, Asset Finance, also enjoys a strong presence in EMEA. Here, we deliver a diverse range of tailored finance solutions across a variety of industries and asset classes, including technology, electronics, energy and mining. As I've previously mentioned, we are one of the largest independent EMEA asset providers in the U.K., delivering more than 10 million gas and energy meters across homes and businesses. We also have more than 2 decades of experience providing solutions that improve accessibility and affordability of essential IT and telecoms equipment. And as you heard from Marc Hari, we are now an established counterparty to the shipping sector with a USD 1 billion loan book. So as you can see, a very strong suite of CGM businesses in EMEA where we continue to evolve and see a lot of opportunity for growth. In terms of areas of immediate focus, we continue to see growth in adjacent markets to the businesses we currently operate in. And from a medium- to longer-term perspective, we see significant opportunities supporting our clients through the energy transition. Given our deep expertise and capabilities across the energy sector, we are well placed to support our clients with their decarbonization ambitions. We will now hear from Eric on how we're supporting clients navigate the volatility in current energy markets in EMEA, and from Sarah with more on our investment in Domivest. Thank you. [Presentation]

EMEA has never been more active for Macquarie Capital than it is now, building from our long history and looking ahead to an exciting future. We are an integrated advisory, capital markets and principal investing team, creating opportunities for our clients in the balance sheet across a range of very clearly defined sectors. We differentiate ourselves by our depth of sector insight, focusing where we have differentiated ideas and connecting into our global teams on cross-border opportunities, including in areas such as technology and infrastructure. In particular, we work in a very agile way with private equity clients, helping them to unlock opportunities. As you'll hear in the example of working with Carlyle on their recent take-private of Schaltbau in Germany, a technology provider in the infrastructure sector. The private capital trend I spoke about earlier is also a significant factor across many sectors in Europe. And the strong alignment of our business with private equity clients is a positive driver for Macquarie Capital in the region as we provide integrated solutions such as combining our advice with our private credit capabilities, deploying a significant amount in the first 3 quarters of FY '22. Turning to look at growth. We see significant opportunities, and the 2 I want to call out are regional expansion and principal deployment. In recent years, we have successfully expanded beyond our long-standing core markets in the U.K. and Germany into the rest of Continental Europe. This expansion has already started to generate meaningful opportunities in connecting new markets like France, Spain and Benelux with our broader capabilities. And the opportunity is very significant. The global M&A market has reached over USD 5 trillion of deal value in 2021 and Europe was approximately 1/4 of that. At Macquarie, we're still at a relatively early stage of our progress with lots of room to grow geographically. And with approximately USD 1 trillion of sponsor-based M&A activity globally, our strong alignment with this client base creates a significant opportunity in Europe and beyond. Likewise, in principal investing, there continue to be attractive opportunities to deploy capital alongside clients across both debt and equity, including into tech-enabled businesses as is the case with education technology provider, Tes Global, that we'll hear about in a moment. Principal opportunities like Tes come about because of our commitment to building deep expertise in active subsectors, developing long-term relationships and supporting clients and management teams with flexible capital. All of the opportunities I've covered today come together because of the close cooperation of our teams on the ground working together with our global colleagues. This network effect from connecting across regions, sectors and products is real. And it's this agile, boutique-like culture of collaboration and teamwork across a global platform that allows us to continue to attract talent at all levels and deliver the best outcomes for clients and shareholders. I'm excited by the opportunity in Europe, and we look set to benefit from our recent investments in geographic and coverage expansion over the coming years as we grow our market position. And now you will hear from a couple of colleagues sharing examples of how we're helping clients further their strategic objectives. [Presentation]

Thanks, Michael. So I hope that gives you a good sense of the businesses we have in EMEA. I'd like to turn to some of the themes that we believe will shape the next phase of growth and activity in the region. These themes are incredibly exciting for us. They're also well aligned to what you've already heard in infrastructure. The key message here is one that I mentioned at the start. The businesses here are already making a large contribution to Macquarie, but their presence here is small relative to the opportunity in front of us. Our markets are growing, we have a strong existing expertise and relationship in place and with room to grow across all parts of our business. In this region, the market fund was strong and government ambition is high, but it is reliant on private capital for delivery. We are very well placed to market-leading capabilities in asset management, in principal investment and in advisory. We were also well advanced in extending the geographical reach and impact of these capabilities. We're looking forward to bringing strong regional hubs of cross-group capabilities in cities like Paris, Milan and beyond. We've added important senior hires who will help accelerate our growth in new markets. And we aim to broaden and improve the products we bring to our clients. Let me give you a few examples. In our CGM business, we're already creating new opportunities in areas like mobility, carbon projects and recycling. Our investors will have access to broader opportunities as we combine GIG with MAM, but the opportunity of the transition goes well beyond renewable energy generation. Across Europe, many of our largest companies have made commitments to achieve a net zero emissions. The most energy-intensive companies often lead the way in this. We believe that we can be a partner to them in that effort. For some like oil and gas, this will require a significant company transformation. For others, like chemical and refiners, the transition will create opportunities and risks that we can help them manage. We're already working across the operating groups to make sure that we are bringing together all of our capabilities. We want to bring together all of our capabilities to meet these rapidly evolving client needs. So I hope that gives you a good overview of Macquarie in EMEA. It's been an unusual and challenging 2 years, but it really does feel like we've come through it well. I'm proud of the team we have here. I'm proud of the resilience and the commitment to deliver in our clients and our purpose. We are ready to get back to a new normal and harness the optimism and energy that we see building in our clients and communities. Thank you. And I'll hand back to Sam for the Q&A now.

Thanks very much, Paul. We have gone over our allotted time, but we probably have time for 1 or 2 questions. I'll hand over to Chorus Call.

[Operator Instructions] Your first question is from Brian Johnson from Jefferies.

I had a few questions, if I may, so I'll make them pretty quick. The first one is when we have look at the Commodities and Global Markets business, I think it's now starting to be appreciated that in the U.S., your long transportation, long storage, long volatility, it was interesting in the presentation today, we can see the thing about physically shipping gas from the U.S. to basically Europe. Could you just -- I'm just wondering if someone can just explain to us how we should be thinking of the European Commodities and Global Markets business with regards to this spike within gas prices? Then I've got a few others.

Sure. Maybe Nick and Paul. Paul, maybe you want to start and then hand over to Nick?

Thanks, Brian, for the question. Generally, we -- the business is fairly well positioned for that volatility. We're very mindful of the spikes and the need to be positioned, but also that we can help our clients in terms of servicing those needs when they need those products and prices. It's a different type of structured market to the U.S. Nick would probably be best to comment on the comparison between the two.

Maybe, Nick, if you want to...

Yes. Thanks, Paul. I think a good way to think about the business in EMEA is the focus on servicing the utility customer base there. And with the volatility that we saw, and Eric touched on this a little bit in his presentation that the customers were experiencing some significant challenges, just trying to navigate that volatility, and we were able to provide some basic risk management and supply services to them. So the market is probably less fragmented than the U.S. market, but still the customers have fairly significant requirements to manage their exposure. So we find we're doing a lot of work with our customers trying to help them manage those macro themes that they're dealing with at the moment. So it's about helping them manage the volatility more than anything else.

Just the next one, if I may. Can I just get a feeling, just with Green Investment Group now being transferred into MAM, and Europe perhaps being much more kind of transitioned to renewable energy, perhaps than most places in the world. Can we just get a feeling for the investor demand for the products that you're manufacturing the new funds in Europe, and whether that is actually, in fact, correct?

Thanks, Brian. I might go to Ben on that one.

Sorry, Brian, just to double check. Your question is, is there -- do we think there's a demand for products specifically for Europe or from Europe investors?

I'm more interested in the from-Europe investments.

I think -- look, I think the demand for real assets, particularly assets that relate to energy transition is very strong around the world. So I wouldn't say that our European investors are more -- have a bigger appetite than other regions in the world. So I think that's just a general theme for investors. And I think the really exciting thing for us about integrating GIG is that it allows us to do more on probably traditional renewables, but also look at those technologies and sources of renewable energy and things that will facilitate energy transition that will become mainstream over time. And that's what we talked about before about being able to invest up and down the risk curve. So I think there is just generally a large appetite for investors who see both the need to catalyze capital to address things like net zero, but also the fact that there's a huge gap in capital and so that creates a very large opportunity. So I think it's just general enthusiasm for that. And hopefully, we'll see more and more capital come in that. So it allows us to address those issues and deliver good returns.

Okay. Just a final one for me. Just on Brexit, I can see that you've transferred the operations from basically the U.K. on to the continent. Are there any opportunities that Brexit has created within the U.K?

Thanks, Brian. Maybe one for Paul.

I don't think there's any opportunities within the U.K. It has been a fairly smooth move to get people across Europe to continue that business. And we're quite excited about the new opportunities we're finding by having people on the ground. But the U.K. business remains very strong. I wouldn't say it's because of Brexit. It just remains very strong for us.

The next question is from Andrei Stadnik from Morgan Stanley.

So I wanted to ask 2 questions. One is just around the green funds of the private markets asset management business will be driving going forward. Do you think the green funds can attract higher or better pricing for Macquarie?

I'll hand it over to Ben.

Thanks for that question. Is that higher pricing in terms of fees? Is that the question?

In terms of fees, yes.

In terms of fees, right. Okay. Look, I think, generally speaking, the market whether you're looking at a general infrastructure fund or a specific renewables fund, would price broadly the same as what we're seeing today. I don't think there will be a huge difference. I think what you will see is the fact that there's a lot of capital looking to be deployed in that space. And so I think it will be more a scale game over time than a pricing game. I think generally speaking, for most of [indiscernible] managers' fees are broadly the same. And that's because that's where investors are at, and that's where the umbrella of pricing is basically set in the industry. So I think it's much more about trying to get over time scale. I do think within that, there is probably an opportunity to do perhaps some higher returning funds, and we're certainly looking at the moment that allows us to really invest in those newer technologies. But I think as Shemara touched on before, there is a very big appetite for traditional renewables all around the world. And so that's creating quite significant price competition and what that does, obviously, it means is that lower returning capital is more efficient in chasing that. So I think we probably just need to be quite sober about the point about there's not likely to be any additional uptick in fee loads for those particular funds.

And can I ask my second question around the structural change towards greener renewable energy around the world? Do you think that this actual change, which could be 10 or 20 years, do you think that actually creates an environment where we'll see structurally high volatility in energy and commodity markets around the world whilst this change take place, and no one is actually quite sure where the mix should end up ultimately?

Okay, on the market. Shemara, do you want to answer that in the first instance?

Yes, of course. Yes. Look, there has to be a massive transition, and we are going to have to have a new whole new sources of energy developed. Particularly, at the moment, we're dependent on wind and solar for renewable and they are intermittent sources. So we need firming solutions for that. And so that is going to cause change and, in some cases, disruption. We, of course, have been advocating an orderly transition so that communities can come through this and deliver what we need. But the need is quite urgent for the transition. So we are finding lots of opportunities for our teams to add value by developing these new areas, but also to help the legacy areas in that transition and try to minimize the disruption. I think some of the volatility we're seeing at the moment is partly contributed to by the transition to renewable and energy markets, I mean, because of the intermittency of wind and solar and lower volumes of wind in the last little while. But other factors have proven, I think, in the short term, like as I said, the surge in goods demand, the issues going on with Russia and the Nord Stream 2 pipeline and the implications that the gas market is in having for the oil market and other energy markets. plus a little bit of cold weather in the U.S. So I think there is going to be huge structural change, and it's a big opportunity for us to respond whether that creates volatility, will some, but at the moment, the volatility we're seeing is being driven by many other factors as well, I think. I don't know if others want to comment, Sam or you think that might cover it?

That's probably fine.

Thank you. There are no further questions at this time. I'll now hand back to Mr. Dobson.

Great. Thank you. Look, I'd just like to say thank you to our investors and analysts for their ongoing interest and support. And I'd also like to thank all our presenters today, including those who are in unfavorable time zones. So thank you very much, and we look forward to catching up soon.