Macquarie fund values bounce back

Six months after disclosing A$417 million (€255 million; $375 million) of write-downs across its managed funds, Macquarie Group has bounced back, claiming A$414 in gains from buy-outs and internalisations from several of those funds. But other adjustments over the last six months wiped out these gains and resulted in another, though smaller, set of write downs for the Australian financial services giant.

The period was also marked by a continuing decline in headcount for Macquarie Capital, its investment banking division, and a decrease in equity fund-raising and investing, according to Macquarie's half-year results presentation for its 2010 financial year.

Macquarie said in the presentation it would recognise A$414 million in gains from three funds – Macquarie Airports, Macquarie Communications Infrastructure Group and Macquarie Leisure Trust – that have parted ways with its investment bank in the last six months.

Macquarie Communications was bought out by the Canada Pension Plan Investment Board at a 101 percent premium to its trading price before its initial offer. Macquarie Airports and Macquarie Leisure each made arrangements with Macquarie to internalise their management in exchange for severance consideration of A$345 million and A$17 million, respectively.

The buyouts and internalisations were part of a wider strategy by Macquarie to close the gap between its listed funds’ market valuations and their net asset values. Through March, falling equity markets had hit Macquarie’s stakes in those funds, resulting in the aforementioned write-downs and fanning speculation that Macquarie would have to raise capital to cover the losses.

But since the March lows, recovering equity markets have buoyed Macquarie’s positions in its managed funds. For instance, in May, Macquarie reported that its stake in Macquarie Airports, carried at a book value of A$1.1 billion, only had a market value of about A$640 million. Now, the investment is carried at a book value of about A$1 billion and has a market value just A$3 million below that.

Other funds to show significant recovery include the Macquarie Infrastructure Company. That fund was carried at a book value of A$66 million in May but only had a market value of A$6 million. Now, Macquarie is carrying its investment in the New York Stock Exchange-listed fund at $38 million, only $4 million above its market value.

Overall, Macquarie is now carrying investments in its listed funds at A$2.37 billion – about A$335 million above their market value.

Despite these developments, the A$414 million in gains becomes an A$414 million in net write-downs for the period after other equity investment impairments, adjustments and mark-downs are taken into account across all of Macquarie Group’s activities.

That’s still below the levels of write-downs announced by Macquarie for its latest full financial year. In May, Macquarie said its total write-downs for the year ending 31 March topped A$2.5 billion.

Macquarie chief executive officer Nicholas Moore had previously indicated that the Group’s 2010 fiscal year “was likely to be characterized by fewer one-off items”, according to a statement.

Overall half-year 2010 results for the firm showed a 21 percent decrease in net profit after tax to A$479 million versus the same period last year.

Macquarie Capital posted net profit of A$331 million for the period, up 8.5 percent from A$305 million for the same period last year. Macquarie said it advised on 182 deals valued at A$57 billion for the six months ending September 2009, versus 164 deals valued at $83 billion during the same period last year.

The resources sector was a major driver of dealflow for Macquarie Capital. It advised on 61 resources deals valued at A$8 billion. The only sector to come close to that was real estate, where Macquarie Capital advised on 34 deals valued at approximately A$15 billion, according to the presentation.

Infrastructure, the sector most commonly associated with Macquarie’s investment banking business, showed a large drop in deal value. For the same period last year, Macquarie Capital advised on 38 deals valued at A$51 billion. This year, it advised on 31 deals valued at only A$13 billion.

Macquarie said this discrepancy was caused by the A$34 billion refinancing of BAA included in last year’s figures.

The results presentation also indicates that Macquarie Capital has sharply reduced its personnel. At the end of September, the division counted 2,403 employees in its ranks – 646 less than at the end of September 2008.

As previously reported on InfrastructureInvestor, Macquarie has gone through at least two rounds of layoffs since September 2009 – one in November 2008 and another in early 2009.

Macquarie Capital’s funds management business also showed a slow-down in activity. That division manages various unlisted Macquarie-branded funds, such as New York-based Macquarie Infrastructure Partners. Macquarie said the division raised only A$1.4 billion in equity for the period, down from A$2.9 billion for the same period last year. It only invested $1 billion in equity, down from A$3 billion for the same period last year.