Macquarie Group Limited (MQG) Earnings Call Transcript & Summary

Good morning, everyone. Welcome to Day 2 of our EMEA Investor Tour. Thanks for joining us again. So this morning, you'll hear from the Macquarie Capital team. Firstly, Michael Silverton, who leads the Global Head of the Macquarie Capital team and the rest of the European team here. Following that presentation, we'll have a Q&A session then lunch. Just a reminder, there are buses that will take you to the U.S. -- starting everyone is on the -- most of you are on the 3:00 U.S. time, so the buses outside from 1:00. So hopefully, you've all got your bags. So we'll have a short video, and then Michael will start his presentation. Thanks very much. [Presentation]

Welcome to Day 2 of our Investor Tour. We really appreciate you taking the time to be with us here in this important region. As you can see from the video, Macquarie Capital has been experiencing a substantial level of activity in EMEA, whether it's investing or advising clients. And I'm excited to talk to you about our growth strategy in this region. I hope you walk away from these sessions with some good insights into our business, including some that you may not have known. Today, you will hear from leaders in a few key areas of our business. You'll hear from Rainer Langel and Fady Lahame on our coverage and advisory efforts. Florian Herold and Patrick Ottersbach on opportunities we see in private credit specifically. Mark Bradshaw and Martina Hunt will speak to us about how we approach the infrastructure investment opportunity. And Gary Munitz, on how we're growing our long-established venture capital business in Europe. But there is so much opportunity we're excited about. And I'm also pleased we've got others joining us in the room who will be here for Q&A and throughout our events during the week in the U.K. Before we focus on our business in Europe, I'd like to start with a global overview. Those of you who joined us for our last Investor Tour in New York, might recall that our mission boils down to a simple concept, connecting ideas to capital for our clients, partners and shareholders. They are at the center of everything we do in Macquarie Capital. Now across the business, we combine our capabilities in advisory, capital markets and principal investing with our deep sector expertise. And we bring the perspective of both an adviser and a principal investor. But most importantly, we are very targeted in our approach, and I hope you get some insight into that today. We don't try and do everything. We place our focus where we can have the most impact. And importantly, we have the ability to invest our own capital. I'd like to make a point about our people who make all of this possible. I'm pleased you're getting exposure to the broader team this week and the depth of talent we have in our group. And we continue to attract people who see our differentiated offering as one that can take their careers forward. Whether it's Ángel Corcostegui in Spain, who is Head of Santander and works for us as a Senior Adviser or Charles de Villaines, who leads our private credit business here in France. And we are developing our junior talent, too, like Fenella Slimmon, who joined Infrastructure Advisory from CGM. Or the many people in the room today, like Martina, who is with us for many years and recently rejoined the firm or Fady, who joined us in 2019 after 20 years at Credit Suisse. And Ash Mehta, who's here from our Infrastructure Advisory team, having joined as a graduate in 2009 and is now an Executive Director. Now on the advisory side, our coverage teams are in constant contact with their clients, providing advice or access to capital to help them achieve their strategic objectives. And our advisory teams also play an important role in actively sourcing opportunities for both clients and the balance sheet. In Europe, we also have a small specialist equities team in the region who supports the APAC business and our global portfolio trading. Our people bring a deep regional focus that's enhanced by our global reach. Like a boutique firm, we demonstrate specialist knowledge in our power alleys. And our people dig down into niches such as testing and inspection certification in principal finance. On the topic of niches, I'd like to share an example that I've seen evolve firsthand. Motorway service stations was an area we decided to explore in 2005, and we invested the balance sheet to buy Moto in the U.K. I was actually part of that deal team having moved from Sydney to London at the time. And what this demonstrates at the point, we were early adopters of this concept of Core+ infrastructure that you will hear, mentioned a few times today. Fast forward to today and Core+ now includes such areas as EV charging stations like we're transacting in Italy or waste recycling, where we recently closed multiple debt advisory deals for clients in the space. This expanding scope is encouraging for us and our broader business, given our positioning. It builds on our infrastructure advisory business, which is market-leading and has done, again, really well this year in tough market conditions, and it's headquartered here in EMEA. You may have actually seen an announcement yesterday about LBC Tank Terminals, which was a sell side in the chemicals logistics sector that was announced yesterday for a client. This is just the latest development in an important part of our presence here in the region, and it's where our Global Head of Infrastructure Advisory, Adam Hain, is based. Now our most differentiating factor remains constant, and it's our ability to bring our balance sheet to bear to deploy capital alongside our clients and partners, whilst advocating for the entire firm and advocating to all our networks. On the equity investing side, you'll notice several logos on the page. They're quite small, but on the right-hand side, just to call out a couple that you may be less familiar with. Onyx is a data analytics company we acquired recently, and it's headquartered in the U.K. and it's responsible for monitoring 28,000 wind turbines across 35 countries. Shield is another company, it's a technology company. Gary will talk about this a bit later, which serves clients across four continents. It's headquartered in Israel and Macquarie is a customer. And Elite is an example of a real estate transaction. They're an alternative real estate investor, and we have a logistics JV here in Europe with them. Now private credit has been a consistent and encouraging theme for us. We've been able to deliver for our clients and in doing so, provide a stable base of earnings while being very selective in deciding the deals we pursue. We benefit from a strong origination network across Macquarie Capital, whether that's the direct investing team or whether that's the network of industry experts we have in coverage. And we uncover opportunities ranging from insurance broking, as you heard in the U.K., to prosthetics in Germany. This has led to our private credit book in the region reaching over AUD 10 billion, but it also allows us to be highly selective. Of the roughly 1,000 deals we formally review each year, and we see many more, we only pursue a small percentage. Credit selection and capital preservation is everything, and it's demonstrated in our long-term loss rate. Now we have significant potential to grow the book in our target markets, and we'll look to do so with partners where that's appropriate. The market is naturally one where there are a number of different structures in the deals, and we've worked with co-investors with in large deals for a long time, and we expect this to continue. This will include a formal partnership with MAM to allow their investor relationships to access our investor expertise and origination. And the balance sheet will continue to invest as we've been doing. Across our equity strategies, we've shown consistently strong performance, and we continue to invest in areas which support growth. Our principal ability has underpinned our success for many years, and we're well placed to perpetuate this trend. Turning to risk management. We are aligned with our shareholders, and we understand that we're afforded the ability to use the balance sheet because of our risk management approach. This is deeply rooted in our principles and our culture. And it's fundamental to all that we do, and we work alongside our colleagues in risk management group who provide important independent oversight. I want to call out here that MacCap owns the risk. What do I mean by that? Well, we dig into everything. And when there's a problem, we don't cut and run. We look for solutions. For example, we really tested during the COVID crisis and before that in the GFC. We didn't panic. We work out what we can control and what we need to do to manage the position. That could be digging into operations. It could be negotiating with our counterparties. It could even be providing rescue capital. Importantly, we're proactive in preparing for potential problems, and our quarterly portfolio reviews are an example of our approach to preparedness. More broadly, when things don't go as planned or circumstances change, we learn and adapt. As Alex mentioned yesterday, as an example, you can look at our recent exit from our syndicated credit business in the Americas, where we recognize the shifting trends in the market and responded accordingly. And as a result, we're able to provide greater focus on our investing business alongside clients where we can really leverage our core capabilities. Now with all that said, we still have our entrepreneurial spirit and our ability to experiment. And that's really important to us. This means outside of our core swim lanes where we traditionally invest, we also get to free-dive occasionally. And for those of you who aren't familiar with the sport, it's where divers explore the deep sea on a single breath. And in our world, that means exploring adjacencies, starting small and building where we see opportunity. To bring this back to risk management, free-diving has led us to invest in companies at the forefront of technology and thereby creating opportunity for us. We get a lot of exposure to cybersecurity companies and regulatory technology through our day-to-day business. And we've seen this as a big theme for investment, and you'll hear from Gary later, who will talk about some examples in the space. Now in a moment, you're going to hear from our Macquarie Capital leaders here in Europe, who will provide more depth. But to give you a bit of background, beyond what you see on the slide, I can't overstate the importance of a local presence. We benefit from having staff in country who deeply understand the specific environments they're operating in, whether it's the customs or the regulation, it's extremely important. And you may still hear the occasional Aussie accent. But on the whole, our people in EMEA have deep knowledge and appreciation for their markets. And I'm really proud of how the team delivers excellence in their home markets, whilst also maintaining the global connectivity. This means sharing the specialist knowledge to the benefit of all in the group and ensuring that we can support our clients on global growth strategies. Our own growth strategy in the region has been to focus on deepening our sector expertise and to increase exposure across resilient and growing sectors such as digital infrastructure, financial services, education and technology, just to name a few. And our business in the region has been a real success. To call out a few things that I'm particularly excited about that may be less well known. Firstly, the strength of our German business. As you'll hear from Rainer, the team has a deep understanding of the German corporate market as well as a really strong network, particularly with supervisory boards. And as a result, we're known as one of the leading, most experienced public M&A advisers in the country. Second, our U.K. private equity investing business. This is a specialist team focusing on the U.K. middle market. The team has done a great job identifying opportunities there, not to mention building our reputation and developing a competitive advantage. You'll hear from Adam Joseph in Florian's team at our dinner on Wednesday in London for more on the topic. And finally, I'm also really excited about our venture capital business and the free-diving that we're doing there. You'll hear from Gary on how we continue to innovate and invest in this key area. This all speaks to the broader opportunity we see here in EMEA, the solid foundations we have in place and the strength of our franchise as our book continues to grow. Now the total addressable market in EMEA is not as big as the U.S., but it's large compared to Australia, and it's connected with the rest of the world. In fact, the EMEA business is a powerful cross-border connector, and it's the largest contributor to our principal finance book. MacCap brings the expertise from our global network, and these integrated teams are often a unique selling point to our clients. As a result, we've seen the proportion of our fees from cross-border deals increased to more than 20% from 12% just 2 years ago. A good example from right here in France is GE Vernova, a deal that Fady led a sell-side transaction between our European and American teams in relation to the sale of GE's steam nuclear business to EDF, a landmark transaction here. We also connected at group level and such as when Macquarie Capital advised MAM on the Verkor deal, as you heard yesterday, which was the largest ever start-up financing in France. Now across Europe, we are scaling on the principal side. We're expanding into new frontiers and using the balance sheet to invest in areas of opportunity such as digital infrastructure. And one example we're proud of is Onivia, the Spanish fiber network. You heard about it in the video from Pablo, and you'll hear more shortly from Mark and Martina. Now the book has been growing, as you all know, and we've been in a heavy investment phase in the last -- in the past 2 years, and we continue to see good opportunities. But as we start to see greater capital returns, we'll also see a step-up in income in the coming years. Now you heard Alex talk about the continuum of earnings, and that also holds true within Macquarie Capital. Now being market-facing is not a pejorative word. It just means that we're more exposed to capital markets activity. And as we've seen, markets can open and close. And we are dependent upon this market activity. But if you look deeper into our business, you can see it's more diverse than a typical investment bank. Our continuum has three distinct income drivers. At one end, you have our advisory and equities business. This is our market-facing fee and commission business that also provides a very important network for the group. On the other end, we have our spread-related earnings, including private credit, which provides a stable base of earnings and is match funded. And in the middle, we have our equity investing strategies, which have historically generated in excess of 20% IRR across a diverse mix of exposures, investments and durations, very diverse. And those returns are because of our ability to not only find opportunities, but to drive value and recycle our permanent capital when appropriate on a timely -- and on a timely manner. Even within each of these areas, there are market-facing and annuity characteristics. For example, while advisory is impacted by market conditions and activity levels, we have clients who want to work with us on a repeat basis. And those deep trusted client relationships provide really strong foundations for Macquarie Capital. Now activities across the continuum, of course, have different capital requirements, headcount and profit margins, but they are each strong opportunities for Macquarie Capital and the group. Importantly, not only do we benefit from having them all, but they benefit from each other. And this is what sets us apart. It's really that ability to combine solutions and our capabilities, connecting clients to ideas and capital. Now the last time we provide an update on our European business was 2022. And you can see we've been consistent in our priorities and delivered against them. For today, there are three points I'd like to leave you with as you listen to the rest of the speakers. One, our strategy is working. We've done what we said we were going to do; two, we're focused on what differentiates us; and three, we will continue to use the balance sheet sensibly. Looking ahead, I can envision a future where our business continues to evolve as it always has done. We continue to find opportunities to deploy the balance sheet. Our current book is more mature, and we selectively hire to add coverage and capabilities. Now none of this would be possible without the culture of collaboration we've created and our people who defy the constraints of time zones and oceans to deliver for our clients. And that's why I'm so pleased to hand you over to some of our long-standing local and global leaders, starting now with Rainer and Fady.

Good morning, and a very warm welcome. My colleague, Fady Lahame, and I would like to take the next 15 minutes to introduce you to our advisory business in Europe. We will explain how we have successfully quadrupled revenues since I joined 15 years ago and why we are highly confident in our ability to continue growing the business profitably. Before we dive in, let me briefly introduce myself, Rainer Langel. I started working 32 years ago. I was CFO of Dunlop Tech before joining Merrill Lynch, then 8 years with Lazard and joined Macquarie 15 years ago. Today, our business in Europe is focused on mid-market and large-cap M&A advisory, combined with debt advice. We are providing advice to both private equity firms and corporates. Based on our long-standing client relationship, we are combining this and generate ideas for our principal finance business led by Florian Herold and combine independent advice with our book. To understand how we achieved the strong growth of quadrupling revenues, it is essential to look at how our business has evolved over the last 15 years. Our European MacCap presence initially consisted of two offices, Frankfurt and London. In Frankfurt, a small team focused exclusively on internal client MIRA. In London, there were both an infrastructure and non-infrastructure team. However, the vast majority of our revenues stem from the infrastructure sector, particularly from our internal client Macquarie Funds Group. My first priority was clear. Reposition the German business to focus on external clients. This transition was highly successful, and the team has grown to 30 bankers within a short period of time while maintaining strong profitability. In London, under Michael Magliana and his leadership, we significantly strengthened our non-infrastructure business by deepening sector coverage. Our strategy has been to focus on selected market niches rather than trying to be everything to everyone. At the same time, our infrastructure business, led by Adam Hain has very substantially increased its share of external revenues and is now ranked #1 in Europe and globally. As a result of our focused growth strategy, we have established strong sector coverage. The sectors are listed on this slide, and I will now highlight their relevance and key focus areas. Infrastructure and renewables, still the core of our business, a highly experienced team of certified bankers covering all subsegments of the infrastructure market. Financial institutions, led by Jonny Allison is laser-focused on insurance broking. Industrials based in Frankfurt with a focus on automotive and engineering businesses. TMT and Services, specializing on software, payments and education, closely aligned with our teams in the U.S. Consumer and Gaming. Key focus is consumer services, again, closely aligned with our teams in the U.S. Resources, led by our team in Johannesburg in close cooperation with our market-leading team in Australia. To further leverage our sector expertise and build on the success of the German office, we have decided to expand our presence in Continental Europe. In these markets, language skills and local presence are essential. Relying solely on sector teams based in London is not enough to succeed. Consequently, we opened offices in Amsterdam in 2018, Paris 2019, Milan 2021, Madrid 2022. So we're now present in all large markets with relevant fee pools in Europe. This combination of deep sector expertise and local market coverage has enabled us to continue growing. Even in the challenging market environment of recent years where the M&A market declined by roughly 50%, we have achieved a compounded annual growth rate of 16% since 2021, while maintaining highly attractive profitability. Now I would like to hand it over to Fady, who's been instrumental in driving our growth in Paris.

Thank you, Rainer. Good morning. It's obviously a great honor that this Investor Day is taking place for the first time in Paris. I wanted, first and foremost, to thank you all on behalf of the French team for making some time for these sessions today. Let me introduce myself very briefly. After some 20 years at Credit Suisse, where I eventually became Co-Head of the French Investment Banking Department, I have spent 4 years as partner at Messier Maris & Associés, a more entrepreneurial M&A boutique founded by the former CEO of Vivendi and by the former Head of Lazard in France. I then decided to join MacCap to start the advisory business under the leadership of Rainer some 6 years ago. In the next few minutes, I'd like to essentially focus on three principal topics. Why we are convinced that the French M&A market is relevant to Macquarie? How we have managed to build the Paris franchise in a highly competitive market and over a rather short period of time? And finally, why we believe that we are now well positioned to further leverage the brand and the platform to take the business to the next level? So why is the French M&A market relevant to Macquarie? First of all, France is one of the two largest markets in Continental Europe with the fee pool exceeding AUD 1 billion in '24, in line with the German market. The second reason has to do with the breadth and depth of sectors corresponding to MacCap's core area of expertise: energy transition, infra or critical metals have been a particular focus. And there are sectors that have benefited from continuous support from the French state, which is a critical and meaningful stakeholder in the domestic landscape. Finally, the level of cross-border activity is appealing, which also represents great opportunities to leverage the strengths of the Macquarie brand and network. We all know it's been a tough M&A market over the last 3 years. That's compounded in France by a highly competitive market. That said, we've been on a great and exciting journey. Indeed, we've grown our fees significantly every single year, effectively winning market shares in a challenging environment. But beyond that, we've been winning prominent deals from some of the most significant and heavily banked corporate names in our market. As a result, we've managed to establish effectively from scratch, the Macquarie brand in the French market. So how did we crack the code? First, by leveraging the firm expertise in our core sectors where we have a clear right to win, such as infra, green energy and critical metals. To give you an example of the momentum we've generated, which you can see on the slide to my right, we've recently advised TotalEnergies, the EUR 100 billion market cap French energy group on its second largest sell side in the renewable space. Second, through a real drive to get enhanced visibility and attractive repeat business by having a particular focus on corporates and not just financial investors. For instance, we've closed two sell-sites for EDF, the French state-owned power and utility champion, and we have several ongoing mandates for follow-on deals with other French large caps. Third, by successfully engaging at the right level with all the relevant state entities, particularly important in France. We've been indeed involved in some of the largest cross-border transactions involving the French state as a major controlling shareholder over the past 2 years. And fourth, by nurturing agility and creativity, which are pillars of the Macquarie culture. This allowed us to provide both M&A and debt advisory on the Verkor transaction, which is the largest fundraising event in France ever across sectors. You heard yesterday, the CEO of Verkor telling you about this impressive journey. Now in addition to market share wins, we've also set solid foundation for further profitable growth. Let me briefly share a few facts and figures beyond the slide on the screen. One, we've got great visibility. Sell-side mandates account for a very large proportion of our revenues, providing both greater levels of visibility and certainty versus buy side. Two, our business mix is well balanced and diversified in terms of customer base, geographies and sector exposure. Our focus on corporate has paid off as they now represent approximately 50% of our revenues, and we're indeed seeing in our pipeline both first-time clients and repeat business from existing accounts. Likewise, in terms of geographic diversification, half of our revenues are derived from cross-border transactions. This showcases our global connectivity and ability to deliver complex transactions on the ground for international clients. This allowed us to act as sole adviser to GE Vernova on the high-profile divestiture of its nuclear operations originally purchased from the French group, Alstom's some 10 years ago. Turning to sector exposure beyond infra, green energy or critical metals, we've also managed to successfully expand into other verticals such as consumer or software, typically working with companies backed by PEs and entrepreneurs. One example in the digital space would be our advisory role to the shareholders of DiliTrust, a leading legal tech software company, which was sold to a group of French PE firms. In the consumer space, I could also mention, for instance, that we have advised the Australian company, United Malt Group, which was purchased by French Agri Group for an enterprise value of approximately AUD 2 billion. To wrap things up, we are confident that we're going to be able to build on the momentum we have created and scale up the franchise as the M&A market picks up. We are continuing to build a strong pipeline for the next fiscal year, and that really speaks to the quality of our work, the track record we've created altogether, our brand recognition and our blue-chip client base. Needless to say that we could have never achieved these results without access to Macquarie capabilities across regions and the support of our teams around the world. And finally, of course, the engagement and intensity of the Paris team has been vital. I want to finish here by expressing my deep gratitude for their dedication and incredibly hard work. I'll now hand it back to Rainer to discuss our advisory expertise in more details. Rainer, over to you.

Thanks, Fady. For this slide, I've selected three examples to illustrate our focus on differentiating advice. As previously mentioned, infrastructure remains a key area for us. However, in the coming years, I see a particularly strong opportunity here as infrastructure funds have raised record amounts of capital in recent years. As a result, they are increasingly expanding into core plus sectors, including hospitals, medical laboratories, radiology clinics, data centers, private universities and schools, software and services companies with stable revenues, et cetera, et cetera, et cetera. Our #1 market position allows us to very significantly capitalize on this trend. This is a very substantial opportunity for us in the next years. Another example is the public to private sector in Germany. Over the past few years, we have consistently increased our market share based on our strong track record. We have advised on transaction worth over EUR 150 billion, and we are confident that we can continue to grow market share in this highly attractive market niche. In Insurance Broking, we have built a leading position in the U.K. and then expanded into Germany. Since 2022, we have generated over AUD 45 billion -- sorry, AUD 45 million in advisory fees in this market niche. In addition, we are closely collaborating with Florian Herold's team to again combine best-in-class advice with our balance sheet. To conclude, the momentum is amazing. The combination of focused sector teams and strong local teams have proven to be very successful. This, especially with the broadening focus of infra funds on Core+ assets provides us with a very strong foundation for future growth. However, quadrupling revenues again will take a bit of time. And with that, I would like to hand over to Florian.

Thanks, Rainer. Hi, I'm Florian Herold. I lead our Principal Finance business within Macquarie Capital. In a few minutes, I'll be joined by Patrick Ottersbach. Both Patrick and I came to Macquarie in 2009. So for the last 16 years through different market environments, Patrick and I have been able to help build and grow the team from its beginnings. I'll just spend a few minutes telling you a little bit what we do in Principal Finance, a little bit more about our group and our team. We are mainly focused on two big areas, a large private credit business. And similar to other teams within Macquarie Capital, private equity investing focus as the second part to our activity level -- activities. We are, within Macquarie Capital, the largest investment portfolio and the largest balance sheet user. We have -- you can see it here on the page globally, more than AUD 28 billion of book size at the moment. Around half of this is here in Europe and around half of our team is based here in the region, too. I spent a few years in Sydney, but I'm now based in London. It was good to connect with a few people that I last met in Sydney a few years ago. Nice to see you again here. But I'm now based in London. The region is very important for us and my team. First, let me tell you about our equity -- our equity portfolio. We have about AUD 1.7 billion of equity portfolio in our team right now. This is out of the AUD 6.2 billion of equity portfolio that Macquarie Capital has overall and that Michael had on his slides earlier. What we have in Principal Finance is a mix of outright ownership of companies. We might buy a middle market business, for example, with a buy-and-build strategy. This could be in the testing and inspection area as an example. We might do a structured deal with somebody. We could provide intermediate capital to clients to provide solutions. A recent example that we had announced was in the U.K., an energy data and metering business called Stark Software. We teamed up here with the founders to provide some liquidity to existing shareholders. We made a minority equity investment, and we support the company for future growth. The returns that we generate on our side of the business in the equity book are very much in line with what Michael was showing earlier for Macquarie Capital overall. Switching from the equity side to the largest part of our portfolio, the private credit side of the book. This is more than 90% of our book globally is in private credit. As you know, this is a space that has been seeing very strong tailwinds as the space has been growing very strongly over a decade or even more. This form of credit has been taking share from other forms of credit. In the U.S., which is the most advanced market when it comes to private credit. In the U.S., S&P now estimates that 9 out of 10 leveraged finance deals are done with a private credit provider. And so we have been on this journey in a market that's in very strong tailwinds. We've been investing here for a very long period of time since 2009 in some shape or form. Out of the AUD 77 billion of total capital that we invested in our team since '09, more than AUD 71 billion has been in credit investments, more than 900 deals we've done since 2009 in this space. We've seen very few losses over this period. Our annual average loss rate is less than 10 basis points, and that's been the case since 2009. How this part of the business works, is that we provide loans, largely loans to borrowers without an underwriter to arrange the deal in the middle. So we go and negotiate the terms with the borrowers. We do our own due diligence very often together with the management teams of -- we have access to the management teams of the borrowers. We negotiate the documentation. And in the end, we make a buy-and-hold investment decision. We expect to be in the loans until we get repaid. We keep all the economics as well. Michael mentioned already, we're very selective in a normal year, we expect to analyze more than 1,000 companies and only a single-digit percentage ends up on our books usually. The type of loans that we provide are typically senior secured loans, to middle market companies, usually private equity companies, they could be entrepreneurs as well, but usually private equity companies. And the returns we're making, as you know, have been in the 400 to 450 basis point spread range above base rate and above internal cost of funds. We usually write floating rate loans to our borrowers. For corporate loans, to give you a sense, we usually expect to be less than half of the value of the company when we lend to them. A quick word on portfolio mix as well or what the portfolio looks like today. We invest very broadly, but we do prioritize spaces and areas where Macquarie is strong and also where our own team has now built up good expertise over a long period of time, where we have relationships, where we have access that differentiate us in some way. Software and tech-enabled businesses are a large part of the TMED portion on the globe. I'm talking globally now on the TMED -- out of the TMED portion of our business, insurance services, insurance brokerage would be the biggest part of the FIC area you see here. Real estate is a space we are in. We announced, for example, a large data center financing last week up in Norway. Services includes education for us. Healthcare and some industrial B2B companies would make up the vast majority of our portfolio. And what these areas have in common and what we look for in our underwriting is that we think these borrowers have a larger, a higher amount of predictability, a higher amount of cash flow forecasting that we can -- with higher confidence that we can do. And so this is what unifies, if you want, the portfolio approach. Our underwriting is very disciplined. It's a global underwriting standard. We run it on a consistent and global basis, our underwriting. Very often, we grow with our clients and with the borrowers. So it's quite usual that we would write a relatively small loan in the beginning. And as the borrowers then start to spend CapEx, as the borrowers make M&A. We grow with them. We give them more capital over the years to come. This is a good way of -- for us engaging with our clients. Recent examples would be, we've got an education business in the U.K. where we've done multiple rounds of financing. We've got an insurance brokerage business in Germany, similar story. There's many of these examples in the portfolio. When you put it together, on average, the book turns roughly every 3 years, at least we expect it to roughly a loan to be outstanding for 3 years. We have instances where we are able to finance another buyer of a business after a change of control. So we have had examples of companies staying with us for 10 years plus. But 3 years is probably a good overall guide for the portfolio churn. And when you put all this together, so this multiyear engagement with the borrowers, across the portfolio for us, it then results in a good amount of revenue stability and earnings visibility back to us. With this, I'll now hand over to Patrick to tell you a little bit more about our private credit business here in Europe. Thank you.

Thank you, Florian. Good morning, everybody. As Florian said, my name is Patrick Ottersbach. I've been at Macquarie for 16 years, and I've run our EMEA private credit team since 2019. Let me give you a quick overview of our private credit business in Europe. Just like our business globally, we've been active in the local market since 2009, investing over AUD 20 billion across 250-plus transactions. Most of our investment professionals are based in London. However, since 2020, we also have four members of our investment team based here in Paris. The team is made up of a good mix of internally developed talent as well as lateral hires largely from other credit investing platforms. We're supported by a very experienced legal and operations team within the wider Principal Finance umbrella. Our legal team here in Europe is especially important, as we operate across a lot of different legal regimes here in the region. At present, as you can see, the European portfolio exceeds AUD 10 billion, which is just over half of the global corporate private credit portfolio. Allow me now to give you a quick snapshot of the European market. As you can see, it's grown significantly, but it's still approximately only 50% of the size of the U.S. private credit market, as you'd expect, as U.S. private equity AUM is still meaningfully larger than its European equivalent. As in the U.S., traditional bank financing in the LBO space has reduced significantly over the past decade, while alternative credit here still only provides circa 2/3 of financing for buyouts, leaving further room for penetration of the asset class. How do we differentiate ourselves from our competitors? We've been a long-term trusted partner to private equity firms and other sub-investment-grade borrowers in the region, many of whom we've done business with since 2009. In a sector characterized by a significant number of new entrants and some exits, we offer a stable and continuous approach to our clients. We provide fast and reliable financing packages, especially in our areas of deep expertise such as financial services, software and technology as well as education. We take a true view of risk return as opposed to needing to conform to narrow investment mandates and can thus offer a broader range of solutions and products to our clients. And of course, we benefit of being part of the wider Macquarie universe as opposed to being a standard investment platform. Within Macquarie Capital, we work closely with our country, sector and financial sponsor coverage colleagues to help us identify relevant opportunities faster and more efficiently. We also operate as a truly global investment team, which allows us to, for instance, work for a U.S. sponsor largely covered by our New York team to acquire a European asset. And finally, we work closely with our colleagues in CGM, some of whom you'll meet over the coming days, who offer FX, rates and fund finance solutions to our private equity clients. What does all of this mean in practice? Let me illustrate based on a recent case study. Pollen Street Capital is a financial services-focused private equity firm with deep ties to Macquarie, especially with our coverage team within MacCap. They had an opportunity to buy Keylane, a leading SaaS platform in the Netherlands, focusing on the pensions and insurance industry but had a limited time window to do so. We were around the asset for a long time, because it operates at an intersection of two sectors that are highly relevant to us and with us able to create a bespoke financing package in the time required, ultimately becoming the sole lender to the buyout. We were thus able to bring together all the aforementioned ingredients that set us apart from the competition, leveraging our deep and long-term relationship with a key client and using our sector expertise to accurately underwrite an asset under significant time constraints. Thank you for your time and attention, and I will now hand over to Mark.

Thanks, Patrick. Good morning, everybody. I joined -- my name is Mark Bradshaw. I joined Macquarie about 20 years ago in the infrastructure space, and I currently lead the Infrastructure and Energy Capital team or as we call it, the IEC team. For the next few minutes, I'd like to walk you through our capabilities and give you a flavor of the type of work we do and our focus areas. Our Chief Commercial Officer, Martina Hunt, will also join me. Now as you're probably aware, Macquarie has a deep legacy in the infrastructure sector. IEC taps directly into this heritage, leveraging over 25 years' experience in infrastructure development and infrastructure investment to deploy Macquarie's flexible balance sheet into capital across the infrastructure space. Specifically, we make investments into structured equity and traditional equity that support earlier-stage development projects other than those traditionally sought by infrastructure funds. We see the infrastructure funds as our net exit opportunity. We invest across the life cycle from developments and construction projects right through to backing experienced management teams and early-stage infrastructure companies. Our work really embodies the Macquarie DNA of seeking out opportunities where we have deep expertise and can really add value. We're extremely selective when it comes to choosing the best opportunities, placing strategic investments where we have conviction and seeing right through with our construction partners and investors. In practice, this is an active value creation opportunity with a typical holding period of 2 to 4 years, driving value from our investments and supporting their growth and transition from early-stage pipelines right through to scale bankable projects and platforms. IEC in its current form was established 2 or 3 years ago around the time the Green Investment Group was transferred from Macquarie Capital across to MAM. We combine multiple regional teams and separate infrastructure portfolios into one global IEC platform. Today, we're a global team right across the Macquarie key regions in the markets right across North and South America, Europe and APAC. Our on-the-ground teams have deep local expertise and knowledge, sector expertise, and we coordinate this globally to ensure that we have best-in-class and available to find the best opportunities. As seen by the slide, building out on our strong infrastructure and development history, we focus on three main opportunities: digital infrastructure, energy transition and social and economic infrastructure. We adopt a partnering mindset on nearly everything that we do, ensuring we pair the very best ideas with the strong technical knowledge through our trusted industry partners. This allows us to deliver on our partners and clients' objectives, both from a capital structure perspective and from a valuation perspective. Since coming together as one global IEC business, we've actively deployed capital, investing over AUD 2.5 billion of new assets since March 2022, resulting in the diversified portfolio that you see today. We continue to season our assets in the J-curve and recycle the capital into new opportunities. Overall, the flexibility and the agility of the Macquarie balance sheet allows us to adapt to the evolving infrastructure opportunity across our clients, partners, sectors and regions. Equally, we find the right time to exit our investments and maximize the outcomes for all stakeholders. For instance, we may sell down a portion of our stake to bring in co-investors that can help further the growth story of an asset or infrastructure business, as we have done in our Spanish fiber business, Onivia, that Martin is going to talk about a little bit later. One further advantage of being part of the Macquarie Capital platform is it allows us to tap into pools of expertise. For example, our coverage teams often support us across the execution of M&A, and we work closely with the Principal Finance team where we see structured credit opportunities. In IEC, we are well positioned with our flexible balance sheet to continue to deliver a critical infrastructure that best supports our communities and all of the markets in which we operate. Now if we zoom in a little bit closer to home. In Europe, we mirror our global investment strategy and focus areas that I've just mentioned. This is a key infrastructure market for Macquarie Capital with over AUD 1.3 billion invested and Europe makes up about half of that global infrastructure platform. As you've already heard today, Europe is a very strong infrastructure market based on pure fundamentals, underpinned by demographic megatrends generating huge and sustained infrastructure investment needs right across the U.K. and Europe. To put this in perspective, there's an estimated investment gap of over AUD 1 trillion per annum across the EU for the next 5 years. IEC is helping to bridge this gap. With our hub in London and local language staff positioned strategically across Madrid, Milan and Amsterdam, we give this unique opportunities. This local access, coupled with the long-standing industry relationships and partners, gives us access to these transactions. Our approach is to explore opportunities in our specific core infrastructure sectors have social, energy and digital investing as well as the natural adjacencies that sits next to these sectors. This is evolving with the modern industrial revolution. Given our prioritization of the best deals in our deep markets, we gravitate towards market first and have closed a number of award-winning transactions across this. We thrive in complex transactions that need financial structuring, our infrastructure development expertise and clients looking for a really true partner. Let me give you some examples. We are an award-winning developer and sponsor of infrastructure PPPs with a track record spanning over 15 years of supporting governments with social and transport projects right across the Europe and the U.S. From our very first delivery of 10 schools in Ireland in 2009 to acting as sole sponsor and exclusive financial to deliver Ireland's first ever social housing PPP across six sites 10 years later. We've also delivered critical infrastructure in the transport sector across Norway, Belgium, Netherlands, Slovakia. For example, Macquarie Capital was the lead equity sponsor and exclusive financial adviser to the Sotra Link Consortium. The Sotra Link Consortium has delivered Norway's largest ever transport PPP, a 9.4-kilometer tunnel and bridge mega structure across Bergen. We're very proud of this project. It was recognized at many industry awards and brought together our long track record of development through our in-house team of engineers, long-standing partnership with three global construction contractors and market-first financing structure to win a highly competitive tender process. In the U.K., Macquarie Capital also led the consortium as both equity sponsor and sole financial adviser to the new SilverTowne Tunnel. This is the first major river crossing across the Thames in over 30 years. A key piece of infrastructure that's due to open imminently and was required to deliver the congestion relief across the 122-year-old Blackwall Tunnel. In the digital and energy transition sectors, we focus on subsectors and technologies where our capital and expertise can really make a difference. So in energy transition, for example, this includes a joint venture that is adding electric vehicle charging infrastructure to existing service stations with a key local Italian client or our recently announced utility scale battery storage project in the Netherlands with Tesla, where we acted as lead equity sponsor on one of the largest battery projects across the EU. This is our second battery project in the Netherlands and really embodies our approach to bringing partners to our opportunities and going deeper once we have that conviction of the opportunity. Last but not least, we're investing significantly in digital infrastructure. Digital investments now make up over 2/3 of our European portfolio and a significant majority of our global IEC portfolio alongside active investments in Australia, India, Philippines, the U.S. and Brazil. Thank you for listening. I'd now like to hand over to Martina Hunt to showcase our digital activity across the IEC platform.

Thanks, Mark. Good morning. I'm Martina Hunt. I'm the Global Chief Commercial Officer for IEC, having rejoined Macquarie recently after a stint in the public sector. I think, I'm affectionately known as Boomerang. I wanted to briefly highlight some of our activities in the digital infrastructure space, where the trend is only gaining momentum with an increasingly online society and a boom in artificial intelligence. IEC has been investing in the fiber and data center sectors, backing management teams to build scalable platforms and deliver on their growth plans through continued investment and capital strategies. Our approach is to deploy flexible capital to earlier-stage opportunities. We've got a few different examples of our European digital infrastructure investments on the slide. I should preface this by saying that each of these investments is very different, be that by scale, level of control or stage of development. In the data center space, which is likely of interest in the room, we have a joint venture with telecoms company, NTT, to develop and operate a 40-megawatt single data center campus in Amsterdam. 20 megawatts is operational with an anchor hyperscaler. This is purposely structured as a single investment and not an operational play into a platform. We're a lead equity investor into Kevlinx at the very early stage of their development plans to support their rollout, starting with the construction of a 32-megawatt colocation center in Brussels, set to be Belgium's largest and will be ready for service later this year. Looking at fiber infrastructure next and from my time in government, I know how important that is to economic growth and the need for capital and collaboration. In the U.K., we have a small interest in rolling out fiber in rural communities. But really where I wanted to take your focus was on to, and you've heard it before, Onivia, which is Spain's bare with first independent wholesale fiber network operator. That's a bit of a mouthful. But each word of that is important. Delving into Onivia's story for a moment as it's a good illustration of our investment approach and the benefit of flexible capital to early-stage opportunities. Demand for reliable broadband has grown significantly everywhere, not the least in Spain. But Spain's national fiber network was historically dominated by large integrated telcos, making it difficult for challengers to expand and limiting options for consumers. So when the Spanish government outlined its Digital 2025 plan, one of the priorities was extending coverage to the entire population and preparing networks for 5G. This would need investment. We spotted the opportunity to accelerate the government's ambitions and in 2019, led the acquisition of a fiber-to-the-home network to create Onivia. At the time, Onivia's network covered 1 million homes. The reach today is now 10 million homes. And to give you a sense of scale, that's about 1/3 of all the homes in Spain. That expansion has been both organic across rural and urban areas, but also through acquisition supported by Macquarie Capital with us bringing in co-investors. Throughout our journey with Onivia, we've taken value opportunities to deliver returns and recycle capital. The growth of an operator such as Onivia, provides a more flexible and secure broadband service. It has increased competition, price transparency and it connects people and businesses. Overall, it's helping to drive positive long-term economic outcomes and closing the digital divide. Our experience across Europe and globally has enabled us to build strong relationships with partners, identify compelling opportunities and offer bespoke solutions that are flexible and innovative. There is no doubt about the importance of the build-out of digital infrastructure and also no doubt about our commitment to bringing solutions that connect ideas with capital. So with that, thank you for your attention, and I'll now hand over to Gary Munitz to speak about our Venture Capital business. Thank you.

Thanks, Martina. Hi, everyone. I'm Gary Munitz. I'm the Co-Head of Macquarie Capital's Venture Capital business, MCVC, for short. MCVC started its journey 30 years ago. And to date, we've deployed AUD 1 billion of Macquarie's balance sheet across 49 investments. We've had 36 realizations so far, some partial, and we've got 14 exciting tech companies in our current portfolio, some of which I will share with you in a little bit. I've been connected to Macquarie for over a decade. And prior to joining, I founded a number of companies in Australia, including Menulog and FoodByUs, of which Macquarie is a co-investor. Elmar Broscheit, my partner in the venture business, also co-founded Gorillas share in EMEA, where he raised over AUD 1 billion. A few years ago, I also started the Israeli office. As many of you know, Israel is a highly competitive market and home to many family offices, local and international funds. The combination of being a founder and having set up a VC business in a competitive market, I think, has given me a unique insight into the Venture Capital landscape. And I'd like to share with you a little bit about what I think sets MCVC apart. But given the diverse audience in the room, I would like to first take a minute to actually talk about traditional Venture Capital, as I think it will help set up our points of differentiation even more clearly. This is a bit of a straw man, but a typical fund usually sets up with clear parameters around some mix of geographies, sectors, company stage and check size. They then go out to raise a fixed amount of money from some combination of high net worth, family offices and institutions. So for example, there could be a AUD 100 million fund focused on early-stage fintech share in EMEA with the intention of writing 10 checks of AUD 10 million each. And from the second they raise their fund, they're on a clock. Funds tend to have a 10-year time horizon. They must invest this money in the first couple of years to give the companies that they invest in a little bit of time to bake and hopefully grow in value before they focus on their exit and returning the funds back to their investor base. And in Venture Capital, this tends to create a misalignment between funds and founders. Funds also tend to take a portfolio view, where built into their model is the knowledge that a number of their companies are going to return a 0x, a couple will return a 1x and hopefully, there'll be an outlier that returns the entire fund. MCVC is very different. First, I think it's a real advantage that so many people in my team are ex-founders. I think it allows us to connect to other founders in a special way, because we've walked a mile or 2 miles in their shoes. And investing on balance sheet where we don't have the same time horizon limitations allows us to make better decisions alongside the founders. Typical funds try to push up the value as fast as possible to facilitate their exit even if that growth is unsustainable. And being flexible with how we invest is yet another advantage. What if the company doesn't need 10 million, what if it only needs 8 million or perhaps 12 million? What if given the nature of the business or where they are in their business cycle that it requires an additional year to roll out their product and business model. And probably the biggest advantage of balance sheet investing is the luxury of doing nothing. So when in 2021, there was no correlation between revenue and valuation, we were able to watch from the sidelines until sanity kind of returned itself and the market corrected. We also tend to follow our money, investing in subsequent rounds and ultimately taking meaningful positions of somewhere between 30% and 35%, which strongly aligns our interest with those of the founders. We tend to invest relatively early. And for us, that means Series A when a business has got a few million dollars of revenue, line of sight to product market fit in areas that my team and I know very, very well and believe that we've got the skill set and the relationships to make a material difference in the success of the company. And as this thesis and everyone's hard work starts to pay off, we double down into subsequent rounds. If the company is performing well, of course, it makes sense to give them additional capital. And again, most traditional funds simply can't compete with this. Conversely, if the company is not performing, we stop investing after a relatively small entry check. This means that when we make a mistake, it's a relatively small mistake. And when we get it right, hopefully, most of the time, we get it right in a big way. This also demonstrates how we deploy more capital across less companies so we can give each company a lot of time and really act as a partner in their success. How do we do that? We tend to work with our founders on an almost daily basis, helping them through the roller coaster of start-up life. We help our portfolio with the go-to-market strategy, leveraging Macquarie's global network and our own broader personal networks to help facilitate customer introductions. We also help them make less mistakes by connecting them to sector specialists, leading entrepreneurs, co-investors, hyperscalers at the right level, the big consultancies at the right level and legal firms at the right level, all of which has proven to be very valuable to our founders. And I'll talk more about the Macquarie Group connections in a few minutes. But first, I'd like to take you through the geographies and sectors that we focus on. We have chosen to establish a presence in Australia, Germany, the U.K. and Portugal and Israel centered around deal origination. And we have Miki Edelman on the ground in New York to help our portfolio expand into the U.S. market. And these countries were not picked at random. This is very important, but it was selected after careful consideration as places that we identified that our team had a clear entitlement to get a seat at the table of the best deals and that the narrative of Macquarie's global presence and our team's skill set really resonates very well. I think, it's also worth pointing out that Germany, the U.K. and Portugal are also relatively new markets for our team, and we are already starting to see promising results, both in terms of helping our portfolio grow into these markets, but also with regards to deal origination and that we expect EMEA to become an increasingly more significant part of our business in the coming years. Every day, I hear from family, friends and coworkers. You invest in start-ups. My wife's cousin's brother-in-law has got a startup. You should talk to him. We're happy to talk to anyone, but focus is really important to my team and I. Not only do we focus on finding the best entrepreneurs in our target geographies and taking them global, but we also focus on very specific sectors where we've developed very strong expertise. When our business started in the late '90s, the focus was around general technology. And I think many of you in the room old enough to remember when at the back of newspapers, there were ads for cars, jobs and real estate. And we rode the wave of digitizing those classifieds, and we had some major successes like with SEEK in Australia. But today, we've become even more specialized towards governance, risk and compliance, CFO and HR software and enterprise AI, which covers the latest AI breakthroughs. And we look for companies that tackle the must-solve problems, not the nice-to-have bucket. And all these sectors have great synergies with the broader Macquarie Group. And I want to be clear, we are a financial investor, not a strategic investor. But if the companies solve problems relevant to Macquarie Group, this does produce a true win-win for Macquarie as a customer and a shareholder and, of course, for the portfolio company itself. At this point, I would like to take a couple of minutes to go through some examples that Michael Silverton mentioned to give you a better sense of what we do and how it connects back to the group. And I'll start with BioCatch. BioCatch is a fraud protection solution that was introduced to MCVC by Macquarie's financial crime team. In a nutshell, BioCatch is biometric fraud protection software that gets embedded into a bank's website and mobile app and creates a digital fingerprint of every single customer's device and unique user behavior. So if it detects anomalies in behavior, think of me logging in as you, but behaving like me, it's able to notify the bank real time and allow them to intervene and prevent the fraud. BFS is a happy customer as are Australia's other major banks. And this has allowed us to work closely with BioCatch's management, leveraging off our experience with groups like PEXA and credit bureaus like Dun & Bradstreet to help them launch an Australian-first interbank fraud protection solution. This was launched late last year and is already showing very promising signs. For clarity, BioCatch has bank customers all around the world and is very strong here in EMEA. And of course, the intent is to replicate Australia's success in all of their markets. Shield, another portfolio company, is an AI digital communications governance platform. But what does that mean exactly? Well, they capture all their electronic communications at a bank, voice, e-mails, SMS, Teams, Zoom, et cetera, and they run very sophisticated AI models across multiple languages in order to catch bad behavior and bring it to the attention of compliance teams. For the most part, they help the 99.9% of good actors remain good actors, while simultaneously stopping bad actors. Bad actions don't just happen. They get planned, and Shield is able to understand the context of these communications and read between the lines into the true meaning. So for example, the phrase, "Can you keep a secret?" perfectly fine when planning a colleague surprise birthday and absolutely not fine in the context of insider trading. Macquarie is currently a customer and is expanding its use cases, and so are many EMEA-based banks such as UBS, Crédit Agricole and Santander. And the last company I want to share with you is Forwood Safety. Steve, the founder lost three of his fingers in a workplace practical joke, some joke. But his accident did inspire him to build software, which is helping to prevent fatalities and injuries at the workplace. By observing a complete set of data covering more than 100 years, the company has pinpointed the specific reasons behind these fatalities and injuries and their solution then introduces critical controls to prevent these moving forward. The company started originally focusing on the mining sector, servicing companies like BHP and Rio Tinto. They now have an outstanding track record of reducing injuries and actually have no fatalities in 99% of the sites where their full software solution has been deployed. Of course, this solution is also relevant to Macquarie's infrastructure assets, and it resonates very well with the Board and management of these companies. As I said, MCVC is a financial investor focused on strong financial returns for Macquarie Capital, but there's no reason why we can't create these win-win situations. And in fact, more than half our portfolio is engaged around the group. Thank you all for listening. Hoping you found some of it useful, and I'm happy to hand back to Michael Silverton, who will wrap up the MacCap session.

And it's great to hear of the real-world impact you're investing is happening -- providing, and that's a mindset that I think applies across all the MacCap businesses. We've got a lot of runway for growth here in the region. I hope that came through, but I'm most pleased that you got exposure to our leaders in the region. With that, I'll pass back to Sam to moderate Q&A.

Great. Thanks, Silva. Thanks, team. So we've probably got 45 minutes or so for Q&A. So open it up to you guys. Start with Andrew at the front here.

Thank you. There's a slide that talks about the average age of your equity investments in MacCap being 3 years. There's obviously a diverse range of what that covers. And Alex Harvey, the last result talked about an immature sort of state of the portfolio. If you could try to piece together the different parts of the book, Florian's book and the MCVC book, just where is the book at with respect to potential realizations into the future?

Sure. So first of all, we referred to our strategies or our swim lanes in terms of equity investing. So we have four of them. Not all of them are represented here today. So if I just quickly step through them. We have the infrastructure business, which Mark and Martina presented on. We have over AUD 2 billion invested there. We have our Principal Finance book, which Florian presented on, so around AUD 1.7 billion. We then have our growth equity business, which was not covered today, but if you were at the New York Investor Tour, you heard from Larry Handen and AUD 1.5 billion in growth equity around tech. And then finally, we have our venture business that Gary mentioned. So they're the strategies that adds up to about AUD 6 billion. We've got two factors going on. In the infrastructure and energy capital business, there's been heavy deployment as the portfolio has ramped and we've seen opportunity. We have also had the market dynamics that we've all spoken of and where with the benefit of permanent capital, we are able to time our exits. And that has had some impact in -- it's not the right time to sell or our partners don't believe so, we will time it appropriately. So what we're seeing here is as the infrastructure and energy businesses ramped and also the growth equity business realized a lot of assets pre the tech correction that you so remember, it effectively reloaded the book as well. And so with those two portfolios, we -- that means that they're effectively seasoning over time. So we will start to see as capital returns, the income step up. I think the other point to note is that in different businesses, there are different return profiles, and we are a risk return investor. So you would have seen Gary talk about high IRRs, but they're relatively smaller investment amounts. In Mark's business, the PPPs, we may have positions for a shorter period of time, so higher IRRs and smaller multiple -- money multiples. So it's hard to give one answer, but I would say the infrastructure and growth equity businesses are the ones where we've had deployment and therefore, they're the ones that are seasoning.

And think about a time frame there, Michael, is that sort of a couple of years where it's a quiet period and then sort of more into '27, '28, you start to see a lot more in the way of realizations?

I think, we would -- it somewhat depends on the market environment. But later '26, '27, that's when we'd start to see it get to more a more regular running -- run rate.

And that's a calendar year or fiscal year?

Fiscal year.

Just a quick point of clarification. You mentioned the private credit loss rate of being less than 10 basis points. I think the number previously was always discussed at 30. It was only a couple of years ago that, that was provided.

Yes. So a couple of things. First of all, it's market convention in terms of how it's calculated. When we did put it out there the first time, we did have a degree of conservatism in the numbers. 0.1% is the actual return. Clearly, that's over the life of our portfolio. And so 0.1% is the right number.

So I might just go to actually -- just go to [ Nick Fordham. ] We've just in front of you right there.

Thanks to the team for your presentations, very insightful. I was -- I have two questions, one for you, Michael, and one for Florian. We've heard a lot about the success stories in investing, but I'm just curious if you could possibly give us a couple of examples of where investments have gone bad. Maybe what went wrong against the original thesis. I mean, maybe how you dealt with that investment? And then, for Florian, I'm just curious as well whether there's any synergies between the private equity and the private credit team, particularly where a credit exposure might migrate to an equity exposure? And then, how -- if that does happen, how that sort of works with the client?

Sure. So, we do make mistakes. And we -- I've been in this business for -- I've been in at Macquarie for 28 years and in Macquarie Capital and its predecessors for 25. So some examples in terms of timing, we made an investment pre-COVID in an asset that was -- we felt very secure. It was in the cruise ship space, and that was ill time. The structure worked quite well, but it was a -- we did not anticipate COVID in that case. That was slightly off strategy, too. So that was a lesson. I think, the other one where we've had experience is with roll-ups, getting the right management team and is critically important. And those that are a bit more consumer-facing areas that we've tended to veer away from, and we've seen firsthand some of those not go according to plan. And we also -- because we've seen so many transactions over the years, we -- in terms of some of the EBITDA adjustments that certain sponsors may make, we're very cautious about those, and we've avoided most problems. But that in terms of those -- the roll-ups is probably where you're most exposed to that sort of risk. So it's where we're a little bit more cautious.

On the second question of whether there are synergies between -- in the Principal Finance business, the lending and the equity side, I'd say on a deal-by-deal basis, no, and on an overall approach basis, yes. So the type of things we look for are quite similar between these two. The way we analyze things is quite consistent. We have team members moving around between teams, too. But on an individual deal perspective, it either goes into one or the other and usually does not travel across. We may have some credit exposures where we also have a small equity exposure. It's unusual, but it can happen that we sit in multiple parts of the structure, not the norm, then it stays within one sub-team as opposed to sitting across. But when you sit through the investment process, the investment decision, of course, there's a lot of similarity between these two.

The only point I'd add to that, which I think is a real advantage because we can invest across the capital structure, we can decide where the best risk-adjusted return is for the balance sheet, which I think is an advantage that we have.

Yes. When a client comes to you with an idea of how they want to invest, how often would you say you go back to the client and you go actually, you were thinking A, but we think is...

Often it depend. When we're talking about the client, often it's the issuer looking for a solution. And so they usually have an idea in mind, but if we have a suggestion as to how it could be approached, that would give them more flexibility or it may be that it's just not fit for us, and we may introduce them to another counterparty. It's an iterative process. So it's not a flow. It's not as much of a flow business.

So we go to Brendan.

It's [ Brendan ] from Citi. Just a question on your balance sheet usage size. I think your private credit, you said up to AUD 26 billion equity up to AUD 6 billion. Just from a divisional perspective, you're obviously doing advisory side and investing. Does that put a natural limit on the size of the investing side just so you're not in that conflict between the sort of the buy and the sell side? And then a second question on the group size. I mean, is there going to be a natural balance sheet limit as to how much Macquarie Capital can consume, I guess, of the group's capital base? And do you have any idea what that might be?

Yes. So thank you. I think both those questions are somewhat connected, because the size of our book is really a function of the size of the aggregate balance sheet and earnings shock analysis. So Andrew Cassidy was here yesterday and working with Alex and Andrew. We work on our limits with regard to that. It doesn't -- the relative size of the fee-based business and the investing business, they both throw off roughly equivalent revenue streams. But obviously, in terms of supporting the principal business, we use extensive capital. And in terms of the fee business, it's all human capital. So we think of it more relative to the total size of Macquarie. We still believe we have room to grow, but largely, that's dependent upon all the groups creating more capital and us continuing to grow. And we are constantly talking about our ability to -- we see great potential to continue to grow from here. I think, there's two other things to note. As Florian mentioned, the weighted average life of the loans is 3 years. So we have roughly current size, about AUD 8 billion to invest every year, and we're selective. So it's not like we're sitting still at that limit. There's many other strategies in private credit as well that could be pursued. They are in the investment-grade side, that's more on the fund relative to -- relevant for the funds business. So you'll probably hear from Ben on that topic. And then, it's also worth noting when it comes to credit, you're often partnering on deals. So Keylane, which Patrick spoke about, we were a sole lender, but many of the deals, it's a fairly clubby market, and you'll team up with the other players and you'll be brought together by the issuer or you'll come together yourself. We also bring in partners behind us so we can continue to grow in terms of deal volume. And so it's a combination of those things, which will see us support growth.

I can do those ones. I'll start with Andre and then we'll go to John.

Michael, can I ask two questions, please? The first one, just around the mix of your business in EMEA. I think previously, you mentioned you'd like to see roughly 1/3 in advisory versus investment, income versus maybe private credit. So where is your current mix? And where are you seeing kind of the right opportunities to grow faster?

Yes, sure. So -- at a very high level, I think what you're referring to is, if you just run the numbers very simply with our credit book, we have AUD 26.5 billion. Let's just say it's throwing off about AUD 1 billion of spread-related income based upon the numbers. Then we have our principal equity book, which is AUD 6 billion. It's not all common equity. There's some structured pref and the like, as Florian mentioned, there's assets in there that we treat as equity, but may have some capped upside. But AUD 6 billion at the sort of returns we're talking about should produce around AUD 1 billion of income. And then, the fee and commission business, it is the most volatile and market facing, and it's somewhere between AUD 0.5 billion to AUD 1 billion of fee revenue that should be created. So it's sort of 1/3, 1/3, 1/3 in terms of the fee revenue. But as I mentioned, each of those have very different elements supporting them, and it's the combination of how we bring those together that can really create some magic. So I think the earnings capacity of the group is higher than we have seen in the past couple of years. It will take us still some time to get there and the market is cooperating in terms of transaction activity. But it's really 1/3, 1/3, 1/3. Hopefully, today, it gave you a sense that there's growth across all of the business lines that we're looking at, but they are driven by different factors.

My second question. So Slide 25 had some interesting numbers on it. Just to remind the numbers were basically the infrastructure investment gaps. And it suggests that U.K. is GBP 39 billion, so call it EUR 50 billion. So 20 -- sorry, that's one. Whereas Europe is just over EUR 1 trillion, right? So you've got EUR 50 billion in U.K. versus over EUR 1 trillion in Europe. So are you trying to tell us that -- and right now, it feels like your business is actually bigger potentially in U.K. than in Europe. So you're trying to tell us that Europe is a huge growth opportunity relative to what you've been doing over in U.K. Like is that right? Is it really 20x in terms of the...

I might throw that to Mark on this. I don't think that was what the message we were trying to send in the slide. But I would say that our growth is certainly -- we're underrepresented on the continent relative to where we are in the U.K. We've obviously been in the U.K. in size for for many decades, even going back to when I was there in '05. So Mark, I don't know if there's anything you'd add, given...

Look, I don't think there's too much to add there. It's the infrastructure gap that we're looking at there in the different economies. And obviously, the size of the economy is the key element there. Most of the infrastructure capital that we have out is across Europe for that reason. We don't have a lot out in the U.K. Obviously, the hub is in London, but effectively, most of the capital is out across Europe.

I've got a couple of questions while on the slide. How come there's no arrow in France?

So we are very selective on the France -- on French investments. It's a highly competitive equity market. And so really, from our perspective, it's finding those unique opportunities. And we do -- we are talking with value at the moment on a transaction, but it's being selective.

One of the questions I had -- one of the highlights you talked about, let's say, 23%, 24% equity IRR that you've got. All the slides you've got up here in Australian dollars. The Aussie dollar has been hit pretty hard going from parity in 2013 down to where AUD 0.62 today, wherever it is. What is that in local currencies? Because obviously, you're going to be thinking in local currencies. What's the IRR when you look at that way?

Well, because it goes back to our history, I can't give you an immediate response on that. FX is definitely a factor, and it's actually absorbed some of the capital that we're presenting in the [ 6.2. ] So I can't give you a -- we target the same IRRs in local currency. It's possible that in that period, it moves, and we hedge capital at a central level. So it's really income. We can come back to you on that.

Yes. We just think, there's a lot of the returns actually just currency movement over that period. The second -- the third question...

It has to be cleared. That's the returns over our long history. So...

But even over the last 10 years, the vast majority of the capital has been deployed when the Aussie dollar has been falling. So the vast -- a lot of that return is currency movement as well. So it would be good to see what that is like in currency terms. The other question, I just wanted to get a feel on how you manage the group -- it's not the group, the division. So when we talk about the different lines and you've got the M&A, you've got debt, you're got the equity side. You've also horizontally got Europe or EMEA, you've got U.S., you've got APAC. How do you think about it? So internally, when you're getting your accounts coming through and you're seeing the performance of it, do you look at it as if like there's a whole lot of different boxes in the square? Or do you look at it vertically, horizontally, internally, how do you actually manage the company or the group?

So first and foremost, the shareholders, you would be happy to hear that we -- first and foremost, from a capital standpoint, we manage our businesses by sort of investment strategy. So the capital is managed, whether it be Florian on private credit and private equity or Mark for infrastructure and energy, Gary and Larry Handen. So we have our principal investing divisions. That's where the investment committees reside, the capital allocation occurs within the divisions. They each have their own limits that they're managing to and their own forecasts. But we are clearly most focused on making sure from a worst-case contingent loss standpoint, we're managing the books appropriately. Then critically, from a client-facing standpoint in region and also from a regulatory standpoint, we have our country heads. So Rainer leads Europe, and the teams that we have dedicated teams for coverage and advisory, they are also mandated to bring those ideas forward to the balance sheet. And so the way we are organized, we have our coverage and advisory teams, which are also led by the country heads. And then we have the global principal business lines. And so they're the divisional -- that's the divisional way we manage the books. And then when we represent ourselves to our clients, we're clearly not talking in internal organization, and we're representing ourselves as Macquarie Capital.

So getting a bit confused internally, when you look at your accounts, we don't get to see. Does it come geographically or horizontally? How do you...

No. It comes through in terms of business lines. And then, we do, as needed, geographical overlay for presentation and for us to understand what impact we're having in the region and tracking our performance in those given regions, but it's by business line.

Michael, congratulations on a great presentation. Mike, as ever, I reckon the most interesting stuff is always in the smallest font. If we have a look at Figure 19, the smallness of the font is truly amazing. But what I'd like to understand...

You have deteriorating eyesight.

Let's say it. Well, that's part of it. But if you look at the ECL provisioning that you're taking on the private credit book and your expense -- you've kind of discussed this before. I've got a question after this. Could you just run us through what's happening as the book grows with the profit that's reported? And when -- what is the outlook for the future growth as basically -- what's the objective? Is it growth or return? When do we start to see the returns coming through?

Sure. So thanks, Brian. So as we -- as you'd be familiar, we've got ECL and we've got Stage 1 and 2 ECL of around 2.2% across the book. We also have Stage 3 where we've obviously impaired or provisioned a certain number of names. The Stage 1 and 2 is as we're growing, it creates the sort of that J curve and we continue to grow. We also have unamortized fees, which I believe are in the footnote as well of around 1.5%. So we -- for a 3-year deal, we get those fees upfront and we amortize them over time. So there's about 1.5% there. So we're talking about 3.7% of provisions against the book between Stage 1, 2 and unamortized fees and a 3-year weighted average life. So I think...

So that was a 4% margin -- with 4%...

4% to 5% margin in the 400 to 450 over.

First year, you only get half of that. So basically, when you put it on the first year, it's negative.

Correct. Well, first, yes, you get half of it and then...

And then the next year, it goes from being negative, other things being equal to positive, which is quite a big delta?

Yes. And -- but we're also getting credits repaid, which sometimes will offset it. If it gets repaid early or something, there may be some offset to that.

Great. Can I ask a question to Gary?

Sure.

Gary, this is a question that I've been asked numerous times, and I don't often get the opportunity to ask the person. Could you just run us through what happened at Nuix? Because it's a question that never gets asked, but we've got the person that can explain it. What were the lessons out of it, if at all? And if I look at the investment, the market value is well above the restated down book value. What is the future of it?

Gary, I'm happy to take it for you. I mean, Brian, you know the answer that we're not going to comment on a specific portfolio position, particularly one that's listed where we're still big believers in Nuix and not only in terms of the technology that it provides that Macquarie uses and legal firms use, but with what's happening in AI as well, I think it has other use cases. I mean, Gary, if you've got anything to say on it, but it's hard for us to make any specific comment. I think one thing I would say is if you do look at the timing of the IPO and where the markets are at, it was a time where valuations were quite high, and we've seen a correction from that standpoint as well in terms of the revenue multiples that stocks were trading on at that point. We're clearly much higher than they are now, but we're -- we continue to believe in the company.

Any other? Bret?

You mentioned the -- that you lend up to half the value of the company. Yes. So does that mean, for example, in insurance broking that you'd lend half the consideration, the acquisition price?

Yes. So that's -- yes, the loan to value. I mean, we usually, as Florian mentioned, would look at the free cash flow multiple in terms of really sizing our position for insurance broking, it's a particularly resilient space and the earnings multiples that it can support are higher. So it may be higher than 50% for insurance broking just given the nature of those businesses. We also, in insurance broking, you have -- because they're very acquisitive, you have delayed draw term loan. So this is where we provide a facility that then they can draw down on when they acquire other assets. And so it depends on whether you include that. And it's worth noting that even in the AUD 26.5 billion that we have outstanding, about AUD 3 billion of that is undrawn for facilities like delayed draw and some revolvers.

So given a lot of these acquisitions are done at least 10x EBITDA, so you lend at least 5x EBITDA.

Yes. I think across the book, it averages out at about 5x, 5.5x. And obviously, it grows into it a bit, but the insurance brokers would be higher than that.

I'm not sure who's best placed for this question, might be Florian, might be you, so whoever. Conscious that as you're growing a book really strongly with the private debt book, you're going to overprovision as you provision build. But if you're putting away 2.5% and your realized losses on that book and they're now at, say, 26.5% is sort of 10 basis points. At what point do you reassess and sort of normalize that assumption for the longer-term provision?

Well, the provisioning is as much model-driven in terms of the assumptions that are made, which are set through our ECL modeling. So Alex is who we deal with most on that. And then, Florian, if you want to add anything, please feel free.

Yes. So the -- I mean, obviously, we reassess the provisioning every reporting period. I mean, and the way we think about it, which is consistent with, I guess, the IFRS approach, you've got a range of scenarios that we model. We weight those scenarios based on our expectation that scenario goes -- that emerges going forward. So that's really what's driving the underlying ECL. And obviously, that model is a function of just the economic outlook that we're seeing in upside, a base case return, a downside return. So that's really what's driving the outlook for the private credit book. We have been -- over the last few years, we have continue to retain overlays in the book. And the reason we've retained overlay is a couple of things. Through that COVID period, we did -- we really didn't see significant impairments, and we didn't -- and we were surprised about that given the downturn in the economy. And obviously, that was a function of the fact that the economy is well supported by central banks and governments. And then, just last year, we retained the provision because one of the factors in the provision is the share price. And the share price were indicating a recovery rate that we weren't convinced of based on the fact that share prices were so high relative to the historical rates. So that's sort of explaining a bit of the overlay. We'll continue to assess that. I mean, obviously, probably the most sort of relevant factor is the overlay because obviously, as time goes by, as you're not seeing those things that you're overlaying for, then your capacity retain that provision becomes a little less -- a little more challenging. But we do think that -- we do think that we're appropriately provisioned. Obviously, the loss rate over the past is one factor. But the real thing that's driving the provision is just the economic modeling and the scenario. So one of the things that the IFRS 9 standard requires you to do is sort of anticipate and model the future, which is pretty hard to do, I must admit. So there's some comparability issues across the globe that I think are relevant for people. But in our case, it's obviously, as Michael said, it's a model driven -- largely a model-driven outcome.

Okay. We'll go to Ed and then Brian.

Can you just circle back to Andrew's first question, talking about the equity investments and talking before about, Alex, how now it's more mature business or when you get to mature business. That's more annuity like. But you made a lot of investments more recently. Obviously, then they'll start to season. Why won't that be lumpy coming out and you want to obviously make the best gains you can of those investments. So why -- I'm just trying to line those up, why it's going to be smooth when you're trying to make the best returns and timing of those?

Sure. Well, I think it's the diversity of the exposures and the markets that we're operating in. If I think back to when we were investing 20 years ago, we were making more concentrated investments and likely more dependent upon public markets. Now when you think about the difference between a regulatory tech business, Venture Capital in Israel compared to a PPP in Norway, the diversity, what drives the returns on those businesses are quite different. And I think the one area where it's fair to say we have a bit more common exposure is if there is a market disruption event and people are risk off, we may be able to sell something in a given market, but we may decide to defer and time the exit to optimize the return outcome. We are privileged in our ability to do that. And often, that's the debate we're having, when is the right time to launch something. So that may make things a bit more lumpier. But I think the real answer is the character of the investment strategies and the geographical mix of them provides a lot more diversity and sort of offsetting timing and the lumpiness sort of should level out. And when you look at the size of the books, we've got about AUD 2 billion in tech-related, AUD 2 billion in private equity, AUD 2 billion in infrastructure. And so it's sort of fairly equally sized in that regard.

And just because you've reloaded the book a lot in the last 2 years, a lot of those will be timing kind of coming out roughly at the same time. So how do you think about managing that then? Are you're happy to hold some for a little bit longer than you normally would to smooth it or...

We would, but we really look at it independently by asset in terms of optimization if we see -- read across. I mean, something live right now, which is we've been investing in a lot of government modernization technologies, which Larry would have spoken about. And clearly, there's a lot going on in the U.S. with DOGE and the like. We feel very good about the investments that we've made, because they're focused on IT modernization, supporting government agencies. But if -- in terms of the market multiples right now, they're quite impacted in the public markets given there's a degree of uncertainty. So in that case, if we had opportunities to divest right now, we would likely wait, but it's a hypothetical. We are -- we do go through forecasting for every given year and see what the numbers are and we -- but things come in and out frequently. So in terms of management, a lot of management time is spent on reforecasting and seeing what the right decisions are at a business level. And then I'll liaise with Alex to update him on what those forecasts look like on a periodic basis, and he'll feed it into his equation. But we'd be surprised just given the number of investments, I think in credit, we've got just under 200. And on the equity side, about 100 investments, I think, overall.

Michael, sorry to be greedy, asking another one. Michael just if we have a look at it, Macquarie's earnings have struggled a little bit in recent years, global capital velocity seems to have slowed. I'd be just interested to get your perspective on what are the drivers at the moment, you think of transactions that you see in your business?

Yes.

Because like bond rates seem to be at some kind of inflection. We've got different economic rates. Could we just get a feeling about what you're seeing in the book?

Yes, I'd break it down into -- from an M&A standpoint into three categories. So from an infrastructure standpoint, and we've got Adam Hain here, who leads our global business. I think he's still here, yes. So the bond rate coming down is, I'd say, a more positive dynamic for long-duration assets such as infrastructure, and it's been a really solid year for us in the infrastructure advisory segment. And so we would see the environment fairly conducive to continued growth and also the opportunities that Rainer mentioned and others around Core+ infrastructure and the appetite and the expertise we have there. So we're probably as busy as we've been. Now there are many different sectors within infrastructure and markets. And -- but that segment, I think the bond rate coming down is very helpful. I think, then the corporates, we've got two things going on. You're seeing a huge amount of investment-grade issuance, which we don't participate in as a service provider, but we advise corporates on M&A. And I think, there's a lot of corporates preparing themselves for M&A activity. But given the geopolitical environment, we are seeing some of them pausing or timing their decisions appropriately. But in our business, we're not playing for market share for the most part, and we're still seeing growth. We're sort of taking share there. But I think corporate sensitivity to the geopolitical environment is high. And then, on the sponsor side, the big issue there is DPI being so much lower than it has been historically. I think, it's 5x lower than it was in a more normalized cycle. And we are awaiting that activity returning. They are more services companies there. So they're probably not as sensitive to, say, the tariff dialogue, but they are sensitive to rates and growth. So I think bond rates coming down there should be supportive, but it's probably the one that we're waiting for across those three segments. Adam, would you have added anything to that on the infrastructure side? Given Adam's you haven't heard from Adam.

So I just, I probably reinforce what Silver said is on the infra side, the amount of money. Have you seen the stats going into infrastructure, is getting bigger and bigger and the transactions are getting bigger and the definition of infrastructure is getting broader. So we're constantly seeing that. And as far as our pipeline has never looked healthier than ever, particularly obviously the connectivity across the world and the rest of the offices in Europe.

Michael, the interesting comment that you made just on how you obviously fair value, obviously, you got a view on what the value of your equity investments look like, right? So the AUD 6.5 billion that you show there, have you got a sense of what the unrealized gains as you sit today are within that book?

So first of all, yes, you're right to say that we're cost accounting, most of our book and a relatively small amount of it is fair valued through P&L. We do estimate, but we typically estimate it in the context of the realization objective. And in terms of -- we don't produce like a daily NAV. That's not the goal. So we have a belief in terms of, if we went to market at a particular time what we think something is worth, but that exercise is something that we run for our own benefit. But we're typically more focused on if something is off plan or where we're really digging into things. But if they're on course, we measure it relative to what we call a proposition summary at the start of a deal. We put together our forecast and we monitor it relative to those plans.

So, we kind of -- I guess, you're almost back solving into the 20% plus kind of IRR rate?

Well, usually, when we've got our base case plans, they're not surprisingly sort of we've got thresholds that we tend to hold.

The second question I have is just on the private credit business. I mean it's actually remarkable if you think about it sitting in New York a few years ago, how much capital has actually gone into private credit over the last few years, right? And I appreciate the types of spaces that you operate in are pretty niche. But I mean, is there any comment that you can make in terms of the credit quality and where you've had to play to kind of maintain the type of margins and yields that you have? Have you had to go down the credit curve to still deliver those types of yields that you have?

No. I think clearly, that funnel that we mentioned, the 1,000 deals, we've kept the percentage roughly the same. I think, the stat that Florian mentioned in terms of the 9 out of 10 deals going private, just the addressable market is much greater. So we're not really playing a share game. So we just continue to be very focused on deal selection. There is competition out there in terms of new entrants, as Patrick mentioned, but our model is somewhat different, and we just continue to see opportunities, particularly the follow-on opportunities with names that we've committed into.

We'll go to Andrew, front here.

If I look at the data center thematic, the MAM funds made a series present investments quite early on. You said that the -- I guess, the age of the MacCap portfolio is younger. Why was MacCap sort of a bit slower to, I guess, deploy capital in that space? I know these are very capital-hungry investments, but I presume the fiber businesses that you invest in earlier are also of that ilk.

Sure. So -- and Macquarie Capital advised on a number of those transactions as well. Some of it is a function of we -- on Onivia, we've been in a reasonable amount of time, I think, since 2019, '18, maybe. And so we saw opportunity there. We -- in region, I think it's more a function of being organized to prosecute the opportunity, and there continues to be a lot of opportunity. I think, the other thing to note is that, it's -- I wouldn't be doing a read across necessarily from air trunk to all the positions that Martina mentioned and assuming multibillion-dollar profits. There's different types of returns within the space. So Florian mentioned the debt commitment we had, a very creative one recently in Europe. So that will be more typical debt returns. The NTT business is more like a triple net lease style return profile. KevlinX is a more operating platform that -- where we put a management team together, we've gone in when it's sort of shovel-ready very early stage. So there's different types of exposure within the data center world that I think people need to focus on. And we have not really been -- we have not been focused on the large-scale GPU clusters and trying to be the biggest developer in a particular region. We've tried to find good sites, good management teams. And I think the reason AirTrunk was a great result. And in terms of timing, wasn't that far from when we made these other investments. They're just of a different character. So it is a key focus for us. But within the digital numbers that Mark mentioned, Onivia and the fiber investments were an area that we'd focus on.

Great. Any final questions? No. Exhausted all those, great. Well, we might pause there. Thanks, Silver. Thanks for that.

Thanks for the time.

Thank you. And we probably got a little bit more time now for lunch, and then the bus is at around 1-ish. So thanks again. Cheers.