Macquarie Group Limited (MQG) Earnings Call Transcript & Summary

Great. Thank you, and thanks, everyone, for joining us for Macquarie's Third Quarter '25 Trading Update. This morning, you'll hear from our CEO, Shemara Wikramanayake, who will give you an overview of the third quarter, and then we'll turn to questions. So thank you again. Shemara?

Great. Thank you, Sam, and good morning, everyone, from me as well. And as usual, we'll just kick off this quarterly results update by reflecting on the portfolio of businesses and central service groups that we have. And as we've said many times, we have 4 operating groups operating across sectors in which there's structural growth happening, and we're well positioned with our deep expertise. So those are our Australian digital banking offering, our global Asset Management business, our global Commodities and Global Markets business and Macquarie Capital, which is a capital market solutions and principal investing business. And those 4 businesses are supported by 4 central service groups. We have our Risk Management Group and Legal and Governance Group that provide very good second-line challenge and risk management across the group. And then we also have our financial -- now called Financial Management, People and Engagement Group and our Corporate Operations Group. Corporate Operations houses our very important technology, market operations business and our business services division. And we've recently moved from that area some functions over to the Financial Management, People and Engagement business, which are our HR, our strategy team and our foundation team. And this is basically to have all of our stakeholder engagement teams housed in the one area. So equity and debt investor engagement, government engagement, all external community engagement as well as our important staff engagement. So with that, I'll turn to the results for the third quarter. And as you will have seen, we delivered a result for the third quarter which was broadly in line with the prior comparable period. And looking at it across the annuity-style businesses and the market-facing businesses, the annuity-style businesses were substantially up both on the third quarter and the year-to-date versus the prior comparable period. And that was driven by increased volumes, as you will have seen in our Banking and Financial Services business, offset to an extent by margin compression in the year-to-date and also stronger performance fees from Macquarie Asset Management year-to-date. In the market-facing businesses, we were substantially down on the third quarter result and significantly down on the year-to-date result. And that was driven by subdued conditions, particularly in commodity markets, and in this last third quarter as well, the timing of income recognition in the commodities businesses. So turning then to just look at each of our 4 operating groups over this last quarter and starting with Macquarie Asset Management. You will have seen that the assets under management were up 3% on the end of the third -- end of the second quarter, end of September. And that was driven by mostly in the private markets, we had broadly in line figures at about $213 billion of equity under management. But in the public investments, we had a 5% step-up, mostly driven by foreign exchange. Importantly, in the private markets business, where I said we had $213 billion roughly of equity under management, we raised $3.8 billion in this quarter and $11 billion year-to-date. And it was a good investing period where we've invested about $18.2 billion year-to-date, and we are finishing up with $27.4 billion of dry powder at the end of that quarter. Banking and Financial Services, we had good growth with the mortgage book up about 7% and the deposits funding that up about 5%. The funds on platform broadly in line. And the business banking portfolio, broadly, it's down 1% as we've had some maturities in that book. Then in the market-facing businesses, in the Commodities and Global Markets business, as I mentioned, we had lower contribution from the commodities businesses due to the subdued market conditions that we had and particularly in the third quarter in North American Power and Gas, the inventory, the timing of income recognition impact there but also the risk management income in the European Gas and Power up until the end of the third quarter. We did, though, have increased contributions from both financial markets and the Asset Finance business in CGM. Then in Macquarie Capital, the fee and commission income was up on what was a prior weak comparable quarter. And the equity portfolio, you will have seen, has stepped up to $6 billion, so up 25% over this period where basically we're investing a lot in our areas of deep expertise as we build up the book and see opportunities. And our credit book is currently sitting at just over $25 billion with $3.2 billion invested over the last period. So we continue to see good opportunity to get invested with that strategy. Then looking at our global headcount footprint. I'd just briefly note here that we have now -- out of our just under 20,000 staff, we're at 19,795 staff, 51% of the staff based internationally. And then turning to our capital and funding position. And as usual, starting first with the funding, you can see that we continue to have a strong funded balance sheet with our term funding comfortably exceeding our assets. And in this last quarter, we were able to raise $3.8 billion of term funding and also grow our deposits by 7% to end up with $169.4 billion of deposits. In terms of our capital position, you'll see that our group capital surplus, we ended at $8.5 billion, which was a reduction of $1.3 billion from the prior quarter. And that was principally driven by increased business capital requirements, and of course, the dividend that we paid partially offsetting the profits in that period. In relation to our buyback, we announced that the share buyback will run for a further 12 months of $2 billion. And you'll see that we bought back just over $1 billion so far. In terms of the business capital requirements, all of our businesses have absorbed capital over this period. So in Macquarie Asset Management, we were investing in co-investments and underwrites for new funds for the co-investments to align our interest. BFS, we grew our home loan and our banking business loan portfolio -- business banking loan portfolio. Commodities and Global Markets, it was increased credit risk, mostly driven by growth in our specialized asset finance and our fixed income and currencies businesses. And in Macquarie Capital, it was that growth in the private credit that I talked about. Now we also had a step-up in capital absorption due to FX, but that's offset by the foreign currency translation reserve. In terms of regulatory update, there's nothing material that has changed here. It's basically as you have seen. And so with that, I'll just turn to the short-term outlook. And as usual, this is done by operating group. And you can see there's no material change in the short-term outlook that we've shared with you previously. So in relation to Macquarie Asset Management, we expect our base fees to be broadly in line. But subject to market conditions, we expect our net other operating income to be significantly up, and that's mainly due to higher green investment-related income. And we also expect our net expenditure on the green portfolio on balance sheet to remain broadly in line. Banking and Financial Services results will be driven by continued growth in our loan books, our funds on platform, our deposits. Now that will, of course, be impacted by margin pressure. And we continue to invest in lifting our operating platform and investment for better customer experience. Macquarie Capital, as always, subject to market conditions. Our transaction activity, as we expect is -- we expect to be significantly up, as we have said, on a challenging previous year. Our investment income is expected to be broadly in line, supported by growth in the private credit portfolio and by asset realizations. And we're continuing to deploy balance sheet, as you see, particularly in private credit, and we've made announcements on that recently. And then in the Commodities and Global Markets business, subject to market conditions, as we said, we expect the commodity income to be down on what we had last year. But volatility may still create opportunities, and we expect continued contribution from the specialist asset finance business and from financial markets. And we expect our compensation ratio and our tax rate to be in line with historical levels. Now this short-term outlook is, of course, as we always say, subject to a number of factors, which include market conditions, completion of period-end reviews and completion of transactions, geographic composition of impact and impact of foreign exchange and potential tax or regulatory changes and uncertainties. So because of that, we continue to maintain our cautious position on capital funding liquidity that should position us well in the current environment and through all environments. And that has certainly, in the medium term, helped us where we believe we continue to be able to deliver superior performance because of our diversified capabilities across these 4 areas of expertise I mentioned at the beginning that are structurally well positioned for growth and supported by our important second-line proven risk management frameworks and the culture throughout even the first and second and third line in terms of risk culture, our strong operating platform and ongoing investment in that and our strong and conservative balance sheet that we've talked about and our approach of driving patient adjacent growth as we go into new products and markets. So with that, I will hand back to Sam. And Alex Harvey, our CFO, is with me, and our group heads are all joining virtually. And we're happy to answer your questions.

Great. Thanks, Shemara. Given we are doing this briefing virtually, I'll hand over to the Chorus Call operator. Thank you.

[Operator Instructions] Your first question comes from Andrei Stadnik from Morgan Stanley.

Can I ask 2 questions? But the first one probably, I think, more front of mind for investors. And that is, how are you thinking about the asset realization environment for green energy, particularly for Cero and Corio? How are you thinking about the asset realization environment given what has changed globally in the past few months?

Thanks for that question, Andrei. And yes, as you know, we've shared that we have about $2.5 billion of assets on the balance sheet that we're gradually transitioning off as we move to investing through our fiduciary strategies more in that area, and we're having good experience fundraising on the fiduciary side. Over this year, we have actually managed to realize a few assets already in Asia and in Europe in line with the program that we had for realization. And the realizations we've been achieving on those assets have been in line with what we expected. So there may be things in the external backdrop that are raising concerns in relation -- or questions in relation to the valuations. But we've exited offshore wind assets in Taiwan, in the U.K., et cetera, in line with where we expected. We had been saying one of the bigger assets we were looking to exit this year was the European solar platform, as you mentioned, Cero, and we're getting good interest in that asset as well. I would say with all these assets, we don't feel pressure to exit them at any particular time. So we will look to exit when we can get the best return for the investment we've made. And the guidance that we've given for this financial year, we're close to the end of the financial year, takes into account what we're seeing in relation to the large pool of assets we have for realization. So the MAM guidance does take that into account. Hopefully, that covers it, Andrei.

And look, my second question, maybe more about broader strategy. We have seen some news flow that you're pivoting increasingly more aggressively into private credit to the point of actually maybe closing down some businesses over in U.S. in terms of more traditional DCM. So how are you thinking about private credit growth opportunity across both your balance sheet and also in MAM in the fund space?

Yes. Look, you're probably seeing globally, there's much more flow of providing these credit services from traditional banks to the asset management sector. And we still, in our nonbank, find that it's a very good place to invest, so through Macquarie Capital on our balance sheet. And we have about $25 billion of investment at the moment. Our team feel they have the capacity to identify much greater volume of investment than that at the sort of returns they've been generating. So the spreads are not compressing and at the sort of loss ratios they've been able to deliver, which are very, very low. So we're keen to support them with more capital, and that was why you saw us pivot away from the debt capital markets use of funding and capital in the U.S. and allocate that funding more towards private credit or within Macquarie Capital. So we have about $1.5 billion of debt capital market underwriting positions that could -- should run off fairly soon in the next few months, and we'll reallocate that to the private credit investing. And we should have about another $1.5 billion over the next few years as revolvers run off that we can allocate to private credit. But I think our team see the capacity to invest well beyond those amounts of money. So what they are doing at the moment is investing for institutional investors under separate managed accounts, but also the Macquarie Asset Management team have now started working with them to bring third-party fiduciary fund money in alongside that private credit investing capability. And so we're hoping we can grow that through the fund strategy over a patient period of time to multiples of what we have at the moment invested. Now that's just in pure private credit. We also invest obviously in Asset Finance in both Macquarie Asset Management in the aircraft finance where we have third-party money invested in alongside us, and also in CGM, we do shipping finance, et cetera, and other asset finance in our asset finance business. We also have fund finance. There are multiple forms of private credit that we're investing in through Macquarie Capital, Macquarie Asset Management and through CGM as well as the BFS business banking. And we are seeing increasing, a, demand for that; and b, opportunity for us to invest and deliver alpha. So I've given you quite a long answer, but there's many ways that we, as a business, are responding to the evolving environment in private credit.

Your next question comes from Ed Henning from CLSA.

Just a couple from me. You called out an unfavorable impact on the timing of income recognition in CGM. Can you just touch on that a little bit more? Will that reverse in the fourth quarter? Will that reverse in the next half? And how big was that as a first question.

Yes. And I think -- and Alex is here as well, and I'll let him comment. But -- and apologies, I think Alex is having this issue as well. It's breaking up a bit as the questions are asked. But I think I heard you asking about the timing of income recognition, what the impacts were in the third quarter. Will it reverse in the fourth quarter? And what does it mean going forward? I think basically, what happened is last year, we had quite a good result from the timing of income recognition. And relative to that, this year is lower year-to-date. We're not expecting a massive reversal of that in the fourth quarter. Going forward, basically, these are things like transportation and storage assets that we have long-term access to. And it's basically accounting rules that drive when we recognize things. So that's why, Alex, I thought if you don't mind, I'll let you comment.

Yes. Thanks, Shem. Thanks, Ed. As Shem said, we had quite a big reversal of accounting versus economic P&L in the third quarter of last year, which we didn't see repeat this year, Ed. So that's one of the things that's in our mind. There's a couple of things, as you know, that go into that. One is just the spreads that we're seeing in the market. So in the third quarter, we saw spreads narrow around some of our transport and storage assets. That was one of the things that affected that for the third quarter. The other thing the team has been able to do is enter into new transport contracts, and that creates initial accounting versus economic P&L variation that then unwinds over the course of the contract. So I think as Shemara said, we're not expecting to see a big reversal in the fourth quarter, but we continue to see those transport and storage contracts as strategic, obviously, to the business in North America in particular.

And while it's not in the fourth quarter, how long are traditionally these contracts? Will we get a reversal in the first half or second half next year? How does it generally flow through?

Yes. As you know, there's -- it's obviously not one contract. There's multiple contracts on transport and storage. So they vary in length. And so on average, you might see -- across the portfolio, you might see 18-month contract or 12- to 18-month contracts. But they vary in length. As to the exact timing of reversal, it depends on spread movements associated with underlying prices of both consuming and producing ends for pipelines for the sake of the example. It also depends on what other contracts we might sign or what extensions we might sign. So there's no -- I can't give you an exact answer, obviously, but there's a portfolio of contracts that support the business.

And then just a second question on private credit. Obviously, grew very substantially in the period, and you just touched on it before. Can you just remind us of the upfront provisions you need to raise when you go into the private credit and the impact on the P&L and how we should think about that in this period and then going forward?

Sure. And again, Alex, do you want to cover the...

Yes, sure. So when we originate a private credit loan, we obviously create Stage 1 ECL. And that depends on your outlook, obviously, Ed, as you know. But you should think of us as creating 1% to 1.5% in terms of upfront ECL when we originate the deal. We also have establishment fees. So we book the asset at a discount of those establishment fees that amortize through the life of the loan. So we basically hold -- we hold the loans at sort of $0.96 in the dollar -- $0.96, $0.97 in the dollar versus the face value of the loan.

Does that see a weakness in the P&L initially? I think you raised a lot in the third quarter.

Yes. So if you -- and you've seen that in the past. So if we were issuing a lot or entering into a lot of loans in a particular quarter, say, a higher amount than we entered into in the prior corresponding period, then you'd see a drag on the P&L versus the prior corresponding period. Obviously, if you originate less and you've got more repayments, then you'll obviously see the benefit coming through the P&L. So yes, if we have a period of a high level of origination, you typically get more of that ECL and more of that discount. But as I said, it depends a bit on what's happened with the outlook for the economy that obviously affects the scenarios that are underpinning your ECL.

Your next question comes from Andrew Triggs from JPMorgan.

My first question is just a follow-up to Shemara's previous answer to Andrei's question. You mentioned that offshore wind farm asset sales have taken place. From my understanding, both of those were operating assets. Could you comment, please, on to what extent you're confident on bidders paying for the development pipeline in your platform businesses, particularly Cero Generation, please?

Yes. I mean a little bit of how we're timing the sale of our assets is when they are actually ripe to get the best return. So with Cero, what we've been doing is investing for a while to create some operating or very late-stage development assets so that when the portfolio is put to market, it can be the sort of things that people are wanting to invest in. And that's a little bit like with Corio as well. The timing is pushed out because there's a lot of investment going on in that platform, and we feel we'll get better return for it if we have done some of that work and have the assets up and running. So the wind farm assets that we were selling, the offshore wind assets, were developed assets that people were very keen to invest in. The Cero portfolio as well is at a state of maturity that we're finding there's good interest in it. But your question is a fair one that basically, there is more interest once we actually get these assets up and scaled up a little bit more. I don't know, Alex, if you want to add anything.

No, I think that covers it.

Excellent. And just in terms of what the U.S. election result means for your collection of renewable assets -- energy assets around the world. Obviously, most of the executive orders so far have revolved around U.S. offshore wind, which is a small part of your Corio book. But in terms of like the broader piece, the wind back of tax incentives that's likely under the IRA later in the year, what does that mean for your broader portfolio, risk and impairments? And is there some positives given a lot of your GIG platforms are actually non-U.S. and some capital may flow into those business -- into those regions?

Yes. I mean on your first question of the current portfolio, I mentioned to Andrei's first question that we have about $2.5 billion on the books. It's a very small percent of that, that is in the U.S. because basically, the opportunity in renewables has been in Europe and then in Asia. So I wouldn't give you the exact percent, but it's around the 10% in terms of assets that we have in the U.S. on our balance sheet portfolio because that has been built over a couple of decades, as you know, and the IRA has been fairly recent coming in there, and it takes a long time to get these assets up and running. In terms of the go forward, we've been raising both a core fund in terms of green assets and then a more development fund, the energy transition fund. Both of those as well have been investing a lot outside of the U.S. and in the Americas. We've had investments in Brazil, et cetera. But in the U.S., we have very little in the way of investments. What I would say is to the extent we have assets, we've had a look through them. Some of them benefit from tax credits that hasn't been changed. So we're still getting the tax credits on that. Some of them benefit from disbursements, and there's a review of disbursements going on. But ours have all been committed and legally obligated to be made. And I think the ones being reviewed are the ones that have not reached that stage. And then the other thing that's happening is a lot of release in terms of permitting, et cetera, which is actually helping because we've got projects that we're trying to roll out not just in renewal but in conventional energy and other areas. And to the extent that regulatory release happens, that should be good for us. The U.S. has banned onshore wind in which we were not a player in the U.S., and they're not granting new offshore wind licenses at this stage. We monitor things as they evolve, and that doesn't have huge impact on us. It's not material in terms of the U.S. impacts on our green assets at this stage.

Your next question comes from Jonathan Mott from Barrenjoey.

Two questions, if I could as well. The first one on the investment income in the green. You called out Cero again. I just wanted to clarify the timing. Historically, when you make a transaction, you book the revenue at financial close. If you've only got about 6 weeks left to -- before the end of this period, if you actually agree to a sale, can you book the revenue then? Or do you actually have to wait until the financial close, which could easily be another couple of months later, before you book the revenue?

Basically, it's once we are certain that revenue is there that we can book it, whether it's on signing or if there are meaningful conditions we have to delay until those are met. I'll let our CFO comment further on it, but that's the short answer. Do you want to...

No, I think that covers it, Shem. Jon, obviously, as Shem said, when you think -- when you enter into these agreements, you've obviously got a sale and purchase agreement with conditions attached. So the assessment that we make in relation to all of these activities is what are the conditions, how substantive are the conditions, are they administrative conditions versus significant conditions that -- where there's some uncertainty. And so that's a judgment call. But as you can imagine, when we think about our guidance, we think about -- and where things need to happen over either a short or a long period of time. We're obviously thinking about the extent to which we would anticipate being able to book something based on the conditions that we think might be part of that sale and purchase agreement.

And I'd just briefly say we're also very disciplined in terms of making that judgment err to the conservative and work with our auditors. As we're coming into year-end, they'll also be reviewing. So we basically would have to make sure we follow accounting standards very strictly.

And a follow-on question, if I could, on the commodities. It's been very cold in the U.S. There's a lot of volatility and different weather patterns in different parts of the U.S., which historically has been very good for the fourth quarter, the March quarter in similar environment. I wanted to get a feel if you look at 2 different lines, the risk management, and I think you commented already the inventory management and trading. You've booked some revenue, which will come out over the next 12 to 18 months. Can you comment on those 2 lines? So the risk management, they're expecting to be very solid into that fourth quarter. And can you give us an idea -- I know it's hard, Alex, but how large are the potential unrealized gains that you could get through the storage and transport that could get released over the next 12, 18 months?

Yes. So do you want me to take that one? So in relation to the first, just a couple of things that's worthwhile -- and we've obviously just sort of talked about this through the year. So as you know, the U.S. business, we tend to take more market risk in that business. So it tends to be more responsive to the conditions that you just described. So if markets are more volatile, we tend to see more of that response through the North American business. I would say, though, I mean, as you know, Jon, the fact that it's sort of cold or the fact that prices spike or they retreat for a short period of time or in a particular region doesn't always mean that we'll make money from that transaction. It depends on how you're positioned both from a physical inventory viewpoint and a trading perspective. So there's not that direct correlation. What weather events tend to do is they put volatility into the market. And as you know, we tend to be long volatility. So that's sort of the way it plays out. By contrast, the European business is obviously much more of a client business. And so we've seen much more subdued conditions in the European Gas and Power business throughout the year. Obviously, as we go into the recent periods, you started to see a spike in things like TTF, and that tends to generate client activity. But there is a contrast between the way we think about the North American business and the way we think about the European business. So maybe just -- hopefully, that gives you at least some food for thought when you think about what the fourth quarter might be. And obviously, as we think about the outlook for CGM, we've got in mind what we think -- how we think that might play through from a client activity viewpoint or an inventory management and trading viewpoint. On [ ACVEC ], I mean, obviously, as we've talked about many times before, I don't think it makes sense to be specific about the sort of dollars of unrealized gain. At the end of the day, the physical infrastructure assets that we have in the U.S. are a core part of what the business actually offers to clients, our ability to move, whether it be molecules or whether it be electrons from the point of production to the point of consumption. Those physical infrastructure assets are an important part of the way we trade the business, an important part of what we offer to clients. But the way the income accrues on those, they are accrual accounted as opposed to mark-to-market, which is the balance of the rest of the business. And the reason that we don't -- we're not too specific on the exact dollars of held-up profit, obviously, is that the quantum obviously changes based on the price that you might be able to acquire product at the producing point versus the price at which you might sell it, the extent to which we've already hedged those contracts, new contracts that we might enter into. All of those things go into the underlying P&L for the group. And so being specific about what [ ACVEC ] might mean from one quarter to the next or one half to the next, we don't think, is particularly meaningful for the market. Obviously, we account for things in accordance with the accounting standards. Those physical inventory -- physical assets are required to be accounted for on an accrual basis rather than a mark-to-market basis. And over time, the strategic value of those physical assets have been really valuable to what we offer clients in North America.

And I was just going to briefly add, Jon, in terms of what you're asking about this winter. Basically, what's been happening in North America is that the prompts are very short-dated prices in Henry Hub that have been scooting up, but it hasn't been sustaining. And so in terms of our inventory management and trading, that's not really driving huge positive impacts. So we said it was a subdued environment, and it continues to be subdued. And I think the challenge there is we've got a huge oversupply of gas until the export facilities can be built to take that gas out. So we're seeing underlying in North America, a situation of oversupply and not a lot of volatility. In Europe, as Alex said, we've seen TTF rocket up overnight. It was at 58.50. That's only happened very recently. So since the Russian invasion of Ukraine, we've had 2 winters where Europe has had ample storage to make it through a winter, and they're now experiencing a winter where the storage actually isn't proving to be enough. That's only happening very recently. So you wouldn't have seen an impact of that in the third quarter. In terms of the fourth quarter, as Alex said, it's a more client business that we have in Europe compared to North America. So the manifestation of that takes longer because we have to see it come through in client activity. So I just wanted to share both of those things in terms of the winter. And I should say as well, we've seen in North America overnight the copper prices surge with the potential tariffs that are being muted. And again, because we have mostly a client business in that area, you don't see the impacts come through as quickly.

Can I just go back to Alex? Just one of the comments you gave is a very detailed answer. Thank you for that. Does that give you more confidence into the commodities revenue, especially the inventory management and trading into FY '26?

Yes. I mean when we think about CGM, maybe more generally, Jon. I mean I know Shem and I probably both made this point a few times. I mean I think our level of confidence in the outlook for CGM into the medium term is really underpinned by the client franchise. And we keep coming back to this. At the end of the day, what the team is doing is it's slowly, patiently, adjacently growing out the European franchise, the Asian franchise, the U.S. franchise across gas, power, emissions, metals, base metals and so on. In addition to that, what we're seeing is a growth in the client franchise in the financial markets business. And you've seen that pretty consistently perform. And Shem mentioned in her comments earlier, we've seen a growth in the specialized and asset finance area there as well. We're seeing opportunities to extend credit to shipping for the sake of example. So the confidence, I think we have in the CGM franchise is really based on that underlying client numbers and that client franchise actually growing. And what we're -- what the team is trying to do -- what Simon and the team trying to do is more clients in more locations and more often. Now on top of that, obviously, what you get is that you get the sort of optionality or you get the returns that come from the trading activity or the physical infrastructure we have access to that we tend to benefit from because of the long volatility. We tend to benefit from when markets dislocate for a whole variety of reasons, one of which could be weather. It could be infrastructure outages. It could be a whole range of things that affect that underlying volatility. So I think as that customer franchise continues to grow, we've got more confidence in the sort of annuity style, if you like, or the repeatability of that business. And on top of that, the business is trying to put -- continue to maintain that low-cost optionality that's driven that exceptional performance that we saw through '22 and '23. So I think that's why sort of we feel good about the positioning of the business in the medium term. What might happen in a quarter, what might happen in a half, obviously, and we've seen over the course of the last 18 months that for a lot of that period of time, commodities have been quite subdued. And so that's affected levels of client activity. It's affected the repeatability of that activity. It's obviously affected some of that -- some of the inventory management and trading. And so the conditions themselves will affect the extent to which we can write business with clients, but underlying, that franchise is actually growing. So yes, the way you account for the income associated with storage and transport contracts, I guess, smooths income over the period of that contract. But the really -- the much more significant point, I think, is what's actually happening with that underlying franchise and into the medium term, can we keep delivering services to those customers that they're prepared to pay for. So that's sort of the way we think about it.

Your next question comes from Matt Dunger from Bank of America.

You've extended the buyback, obviously seeing some more opportunities to deploy capital. Is it fair to expect that you would want to wait for some of this capital recycling, and Shemara, you talked about $2.5 billion of green assets, before you resume the buyback?

Yes. Again, I'll let Alex comment on what we're doing on the buyback. Probably the same answer I'd give, but you should probably...

Yes. No, I mean, I think, Matt, you made the right point. Obviously, when we think about the buyback, one of the things we're balancing is the fact that we accreted surplus capital based on that exceptional performance we saw through '22, '23. That was -- once we saw the stability in rates, we then announced the buyback. We've extended that for 12 months. We think that gives us good flexibility to return capital to shareholders in an efficient way. That's always balanced against the opportunities the groups are seeing to deploy capital. And obviously, over the last quarter, we deployed nearly $1 billion of capital -- just over $1 billion of capital -- or the group's deployed just over $1 billion worth of capital. So we saw good usage. We're obviously still sitting on surplus capital. I think as -- we obviously make this judgment on a daily basis or on a monthly basis based on the outlook that the groups are seeing versus giving the money back to shareholders via the buyback. So we'll continue -- there's no sort of predetermined view. I think we'll -- and certainly doesn't rely on the recycling because what we're effectively doing is announcing the -- using the surplus capital we created from a couple of years ago to fund the buyback. So I think we're still in that position. And obviously, generally speaking, the groups are finding good opportunities to invest in. And we've been generally encouraged, I suppose, by the market. If we can find ways to deploy capital, then we obviously should do that. So that's what the team is doing. Shem?

Yes, I agree completely. And that $2.5 billion we said would run off over a few years. We factored that in already into the amount we thought we had of surplus for the buyback.

Great. And just if I could talk to the 9 months for FY '25 being broadly in line implies that the third quarter was down roughly $200 million versus the third quarter of '24. And you've called out those North American commodities contracts and private credit originations. Are there any impairments or any other one-offs in the third quarter that I should be thinking about on top of those?

Nothing material.

No, nothing material. Nothing. Obviously, we look at the carrying value of assets through the balance date, but no, nothing material in the third quarter.

Your next question comes from Brian Johnson from MST.

I'll ask 2 questions, if I may. The first one is, Shemara, when we actually have a look at the Macquarie private markets EUM, I think it's a little bit disappointing given the weakness that we saw in the currency. Can we get some explanation why the strong fundraising activity and kind of like the inherent growth in this business doesn't seem to be flowing through in the EUM in the quarter?

Yes, sure. Basically, our fund raising is impacted a lot by what funds are open at a particular time. And the funds that raise the biggest amounts of money are the most mature ones, which are our North American and European infrastructure funds, where we're raising EUR 7 billion, EUR 8 billion for those European funds and USD 7 billion, USD 8 billion for the U.S. funds. And those funds typically are having a 4-year investment period once they've raised. So we've just finished raising a couple of those in the last couple of years. And that's the main reason why this year, you saw in terms of the fundraising in the private markets, we have $11 billion year-to-date. The strategies we're raising for are somewhat newer, the renewable strategies, the private credit. And basically, what we'll do with the early funds is raise smaller-sized funds, prove up to the market we can get them invested and then go out and raise bigger and bigger funds. It's the pattern that happened with the infrastructure funds. So with private credit, even though we have $25 billion on the balance sheet and a very long decade-plus investing track record, as we take the fiduciary model out, investors want to see that repeat. And so we will work patiently with investors in those early funds, which will be reasonably smaller ones. There will be sort of billion-sized funds, $1 billion to $2 billion, as we are doing with the green funds despite our long balance sheet track record. And when Andrei was asking actually about private credit, I should have mentioned Alex was discussing this with me earlier that what we are seeing is increased opportunity in Europe at the moment. So in terms of all the money getting raised, we are finding spreads are compressing a little bit more in the U.S. where there is a lot of money being raised, but we're still finding great opportunities to invest in Europe. So as we take our fiduciary strategies out as well, we're hoping we can bring things to investors they can't find elsewhere, but we'll be patient with the early funds. So I guess, Brian, that's the short answer, is it depends what funds are open in terms of EUM increase in the private markets.

Shem, can I maybe just add? Just, Brian, before we go on to the next one, just a couple of other points. We obviously completed the divestment of a couple of assets in the third quarter as well. So AirTrunk completed in the third quarter. That obviously comes out of the EUM that you're seeing reported. And the other thing we did is we spun off our European real estate platform into a separately managed business. So both of those things have reduced the EUM over the quarter. So I agree entirely with Shem's points about the timing of raisings and how we're seeing it. But you've obviously got a couple of particular divestments that occurred.

So Alex, so sorry, just on that European real estate business, that was about EUR 10 billion?

Yes. Of assets.

So from memory. Yes. So if we were to strip that out, it was actually phenomenally strong?

Yes. I mean obviously, that's not all -- some of that's debt, too, Brian. So I don't -- I wouldn't take the EUR 10 billion as solely the equity component. But yes, I mean, obviously, we -- I don't think we're particularly concerned about the fundraising in the third quarter. We didn't anticipate a high level of raising. As Shem says, one of the things that occurs, obviously, you get a bit of lumpiness in the raising because you've got a big fund open, happens to be raising in that quarter. You'll see a large pickup in equity under management over the quarter. And so the real driver of that underlying is have you got your big fund open at the time. But you obviously do get a bit of variability through the EUM based on whether you actually complete divestments over that period as well.

So the numbers we were giving -- sorry, you go, Brian.

Just that real estate business didn't make a lot of money. Is that correct? Like the costs were pretty high versus EUM versus...

Yes. I mean I think we like the business, but we felt like it was better placed in the hands of the management team rather than our hands just on the basis of the product they were taking out to the customers. And we'd hope to buy that business on the basis that we would be able to scale it. That obviously hadn't happened, and we think that the business is better placed owned by the management team. And so we spun it off as we announced. So we...

To elaborate on that a bit, it was a core real estate offering, and we tend to be much better in the core plus and the opportunistic areas. So areas we focus on are things -- they call them beds, sheds and bites. But logistics, housing, data center-type assets, that's where we tend to have really the ability to deliver more alpha. So we weren't adding to their investing capability and also in terms of cross-selling to our clients. It wasn't playing out the way we expected. So we thought that business was better off independently and not also having the structure of -- it's a high-cost structure of being part of a bigger platform. So we've spun that out. We still have interest in it. I was going to say, though, the numbers of the raisings we've given are gross, the $3.8 billion this quarter and the $11 billion year-to-date. The net private markets increase in equity does offset for the GLL spinout and also for the AirTrunk, and the FX piece is also in there. So the fundraisings, though, are gross. So that's probably what reflects what we're raising at the moment, which is mostly impacted by what's open. But if you have other questions on GLL, Alex, happy to -- both of us happy to answer.

Just a second question, if I may. Just Slide 19, which is the one that shows the ROE in first half '25 versus the 18-year average. I just wonder, could we just get an explanation of, a, that the currency sensitivity, we used have a really good feel that it was 7% move in currency -- 10% move in currency with 7% on the earnings. Can we get in the context of this particular slide, what is the appropriate ROE that we should be thinking for Macquarie in the longer term? Is this 18-year average the right one? Or is it not?

I can comment at a high level, and then you can elaborate. Yes, I think over the medium term, we are aiming for a mid-teens ROE. And the currency has had limited impact because it's only impacting a couple of months of this financial year. So 10% is a 7% impact. We've had 1/12 of that impact so far. So it's a negligible impact on the bottom line so far. But I think in terms of the underlying businesses, we would be aiming for a mid-teens ROE. Now that can vary from time to time, but that's what we'd be aiming for. Do you want to elaborate?

Yes. I mean I think that covers it, Brian. As we talked about at the half year result, there's a couple of things that are obviously bringing down that current year return on equity, that half return on equity. One is that in the case of -- if I start with Macquarie Capital, you can see the capital amount stepped up. And that partly reflects the growth in the equity book, and we talked about the fact that that's relatively young. And Shem's slide earlier refers to the fact that on a PCP basis, the equity out the door is up by 25%, but it's a relatively young book and average life of 2.5 years. So you're paying the funding costs, and you're not getting the realizations, which is sort of what we expect based on the fact that we think the team is just accreting value on those younger assets. And then the Macquarie Asset Management business, we're in the midst of this transition of the green investing activity from the balance sheet to the funds. And at the moment, the P&L in the asset management business obviously reflects the fact that the funds are still relatively small because they're in that growth phase and that we continue to amortize the development and operating expenses through the P&L, which, as you know, is quite a significant amount. So those 2 things are bringing down the return on equity. We anticipate over time that you get to a more mature portfolio in Macquarie Capital, which you will realize at the same time that you're investing. So that will produce a more stable outcome from the equity book in Macquarie Capital. And then the second thing, obviously, is that we're in the process of transitioning those assets off the balance sheet of Macquarie Asset Management group, which will mean that the DevEx and OpEx drag will be eliminated.

Thank you. There are no further questions at this time. I'll now hand back for any closing remarks.

Okay. Well, I just want to say thank you all for joining. This is obviously just an update. We'll have full year results in May. But before that, Alex will be taking a lot of our group heads in mid-March to the U.K., and I'm hoping some of you can join for that. We've had previous sessions in the North American region and also in the Asian region that I know people have found very useful getting deeper insights into our business, which is quite diverse. And you get to meet more people within our team as well deeper into the organization. So I would highly recommend that to anyone that can join. We have had our group heads all on the phone available, but we were conscious that we had this mid-March session coming, and you would have great opportunity to hear from them then. Certainly, the 4 global operating groups, you'd hear from them and a lot of their teams. So with that, unless Alex, you have anything further to add, just thank you, everyone, for joining and look forward to engaging with you all in May with full year results. Thanks.