It’s hard to get away from the sheer scale of Macquarie Infrastructure and Real Assets and all too easy to get lost in a sea of weighty stats.
For the past eight years, MIRA has topped our ranking of the asset class’s largest investors – the Infrastructure Investor 50; as of last December, it had A$133 billion ($105 billion; €85 billion) of assets under management across 120 assets in 25 countries; A$79 billion of infrastructure equity under management; it raised A$44 billion of equity over the past five years, during which time, it invested A$34 billion, deploying A$10 billion of co-investment capital in the past 12 months alone; and it’s returned A$20 billion to investors over that half-decade.
In short, MIRA is infrastructure’s biggest manager. How big? It’s so big it even has its own internal fund of funds, of sorts (more on that later). But as the crown jewel of the Macquarie Group – the Australian bank that effectively invented infrastructure investing more than two decades ago – it’s also part of a brand that both embodies and transcends the asset class.
Put differently, Macquarie – the “millionaires’ factory” – is the closest infrastructure has to a household name, even if the glare of the spotlight has occasionally singed: in the UK, where it has substantial holdings, journalists dubbed it the “vampire kangaroo”, in a clumsier version of Goldman Sachs’ “vampire squid” epithet, coined by US journalist Matt Taibi to signal Goldman’s pervasive presence.
Not all this attention comes from the mainstream, too. Those of us with longer memories will recall when famed hedge fund investor Jim Chanos, who correctly predicted Enron’s fall, declared Macquarie his next ‘big short’ in 2007, taking aim at its use of leverage and its then listed fund model and sentencing: “Borrowing future growth to pay investors today bears the hallmarks of a Ponzi scheme.”
Macquarie, of course, is no Ponzi scheme – and it’s no Enron either. And, while Chanos might have made his money when its share price tumbled after the crisis, Macquarie hasn’t collapsed – it’s thrived, with the group’s share price hovering around A$100 and MIRA at the top of its game.
To state the obvious, you don’t get to be infrastructure’s largest asset manager without doing something very right. So, it’s perhaps unsurprising that, as we sit down with Martin Stanley, MIRA’s global head, to try to unpack the secret to MIRA’s remarkable longevity, we hit a wall of customer-focused thinking.
“Our job is to meet the customer’s needs – not to push products on them,” Stanley starts. “Of all the things you have to do, you need to make sure the customer is protected and getting what they need – and you have to deliver consistently.”
“That’s one of the ways in which we add value,” he continues, “by relentlessly focusing on the customer. We want to find opportunities for our clients, which, in turn, provides opportunities for ourselves. If they do well, we do well – not the other way around.”
You’d be hard-pressed to find a manager that doesn’t pay lip-service to putting their customers first, but when you sit in a room with Stanley, and hear him repeatedly come back to this point, you realise it goes beyond messaging. Stanley used the word ‘relentless’, but you can also tell he is fiercely protective of the 600-plus third-party investors it has amassed around the globe.
That comes across when he talks about deals: “We came off a transaction last year where the vendor actually got a bit frustrated with us because all the other parties were talking about growth and all we did was talk about what could go wrong. The reality is, that’s the way we think. Our first objective is to protect the downside – if we get the upside, super, but our first objective is not to lose money and protect our investors.”
And it comes across when he talks about how his team is incentivised: “When we do get the chance to consider those opportunities, the individuals involved have to be held accountable – they need to own the results throughout the lifecycle of a deal. And if things go wrong, we want them to feel that and be accountable for fixing them.”
The truth is, those 600 investors, spread across 47 funds and mandates, have given MIRA opportunities most of its competitors can only dream of. Combined with an entrepreneurial culture, it has effectively turned it into a regional powerhouse, with vehicles in established markets such as Europe and North America, but perhaps more importantly, in places where most Western managers cannot easily penetrate, such as China, Russia, Korea or the Philippines.
“It’s all about identifying opportunities within a set framework, but it’s then up to the various teams to capitalise on those opportunities, which creates this very entrepreneurial-driven culture. The regional funds spawned from that,” Stanley explains.
“Take our Korean funds business: we had people in Korea that thought there was a good opportunity in the country, following the government’s desire to bring private finance into the development of roads and bridges. That led the government to develop a very good framework that gave investors a minimum revenue guarantee on roads and bridges, and that, in turn, allowed us to build a Korean fund backed by Korean capital.”
He gives another example: “In the case of the Philippines, GSIS, the big Filipino pension plan, was looking for people to help them invest in projects. That fund has been a terrific success for us and today the country is a key part of our pan-Asian strategy. What we’ve done during that period is build a strong base in Manilla, supported by our other Asian offices. That’s allowed us to deliver dealflow beyond our expectations. And, as you saw with EDC [the world’s largest geothermal company, in which MIRA-managed funds and GIC invested $1.3 billion], we now have the confidence to do those kinds of deals.”
Being an early mover in Asia has also paid-off handsomely on the fundraising front: of the A$7.1 billion raised during the third fiscal quarter of 2018, A$3.9 billion came from Asia, according to a February presentation.
So, does that mean Stanley never looks sideways at a Global Infrastructure Partners or a Brookfield Asset Management and think about raising a global mega-fund?
“Clearly, others have been very successful with a global strategy. But for us, it’s not about how much money you raise – it’s about what you do with the money. What we’ve got to remember is that it’s not our money and we have a huge responsibility to make sure we are managing that money well,” he says.
“Having a one-size-fits-all-approach may be a way of raising a very large fund and maximising your AUM, but, in our view, it’s less likely to deliver a sustainable, long-term secure future for the investor base. We have a very simple model of sizing our funds to the opportunity and our strategy – not the amount of capital available.
“The result is that our model is probably more expensive from a manager perspective – we have some 500 people around the world, located in 27 different offices – but it gives us a broad-based coverage, which allows us to identify opportunities and, hopefully, not lose customers’ money.”
Still, MIRA is well aware that, for some clients, global is the only way to go – which gave birth to one of its most interesting products in years: the Macquarie Infrastructure Global Solutions Fund. Effectively functioning as an umbrella fund, the vehicle’s investment committee allocates to other MIRA funds and has the right to co-invest, giving its LPs global exposure via MIRA’s network of regional funds.
Stanley declined to comment on the fund, but market sources say around $1 billion was raised for it, with a second vehicle in the works.
Super-core or super-risky?
There is another recent MIRA product that is interesting for entirely different reasons. Dubbed a ‘Super Core’ fund, it is thought to be raising an initial €1.5 billion to target regulated assets across Europe with a lower risk/return profile than those offered by its Macquarie European Infrastructure Funds.
Since its seed asset is a stake in a UK regulated gas network, the kind of asset the opposition Labour party is threatening to nationalise if it comes to power, it’s only fair to ask Stanley how he’s viewing that risk in what will almost certainly be a significant market for the vehicle.
“I think a nationalisation agenda is pretty unlikely as a scenario and there’s a long way to go down the path to nationalisation,” he answers. “However, I think there are some elements of the discussion that are actually legitimate and intelligent. At the heart of it is the question of whether private ownership has delivered real value to the ultimate customers of those assets. That is a legitimate question that we should not be afraid of answering.”
To his credit, Stanley doesn’t shy away from the discussion, as some of his peers might. But tellingly, the example he settles on – MIRA’s decade-long ownership of Thames Water, which it fully exited last year – has the unintended consequence of demonstrating how hard that discussion (if it ever happens) might be.
For Stanley, Thames Water is a clear success story, one supported by a hefty list of measurable outputs, including an annual £1 billion ($1.4 billion, €1.3 billion) capex spend from 2006-17; a 22 percent reduction in leakages; and a 71 percent decrease in injuries over the past five years.
“Across a whole range of stats, the performance under our ownership is better than when we did the deal in 2006,” he argues.
Be that as it may, you can still find plenty of grumbling about Thames Water, with headlines last year focusing on the company’s record £20 million fine for polluting the river Thames from 2012-14; BBC accusations that Macquarie left the utility loaded with debt while extracting very high returns (which it refuted); and running innuendo about its tax arrangements.
The point is not to dispute MIRA’s ownership record or paint Stanley as disconnected – it’s to question whether a serious discussion about a complex asset operating in one of the busiest cities in the world can take place in this charged political environment. And to consider whether Labour’s incessant calls for nationalisation are starting to change the Overton window, the range of ideas that are politically acceptable.
“The real question is whether you are creating an environment that could lead to a situation where the regulator destroys longer-term shareholder value,” Stanley concedes. “That’s one of the key points you think about when investing in these businesses. But the separation between the regulator and government is a key feature of the UK system. That continues to be the case and I don’t see any sign that government is changing its tack.”
Eyes on the next century
As our discussion winds down, talk turns to the changing macro-economic environment just as we are about to hit the 10-year anniversary of the global financial crisis.
“People have short memories,” Stanley comments. “They look back and see we’ve had nearly 10 years of expansion and think it’s going to last forever – people just get into that mindset. We have to remember we are a long way into this cycle – with all the signs of exuberant debt and capital markets – so you have to be careful and not be afraid to say ‘no’ to things.”
On that note, what is MIRA doing differently since the GFC? “Making sure we’re taking counsel from as wide range of sources as possible,” Stanley answers.
“That’s an important lesson: if you look at the GFC – and this is a simplistic view – it was a crisis concocted by white, Anglo-Saxon males of the same age sitting around the same tables, talking about the same data and coming up with same conclusions. Our business today is much more diverse from a gender, nationality and cultural perspective, but it still needs to be more diverse. You want diverse teams with alternative backgrounds and different perspectives. If you miss one of those items, you run into trouble. And we want to be here for the next 100 years.”
Martin Stanley will be a keynote speaker at our upcoming Global Summit, taking place in Berlin on 20-22 March.