Macquarie Group Ltd S/Adr

Well, good morning, everyone, and welcome to Macquarie's full year 2025 results presentation. Welcome to those here in the room and online. Before we begin, I would like to acknowledge the traditional custodians of this land, the Gadigal people of the Eora Nation, and pay our respects to Elders past, present and emerging. If I could also ask everyone to turn their mobile phones off or onto silent, please. So today, as is customary, you'll hear from our CEO and Managing Director, Shamara Wickramanayake, and our CFO, Alex Harvey. We've also got, I think, all of our members of the executive committee here as well. We'll have time for questions at the end. And with that, I'll hand over to Shamara. Thank you very much.

Thanks, Sam, and welcome again, everybody. And I'd like to just note, as Sam said, that we've got all of our eight group heads here in the front row, so hopefully you'll get to hear from them. We've also got our chairman and our chair of the audit committee sitting with us in the front row, so thank you for joining. And as usual, I'll just kick this off by noting the business footprint that we have across our eight groups. First of all, those of you that came to the EMEA investor tour earlier this year would have seen that we've evolved the way we're articulating the description of the nature of our earnings. And we've got the annuity style income in the market facing, but we're also recognising between that that there's a whole pile of income that we generate. that has a very recurrent nature to it and may previously have been called market facing. Things like the client service revenues that we have in our commodities and global markets business or the performance fees in Macquarie Asset Management where given the scale of our business now we can be confident that they're consistently repeating. So you can see this year we had 54% from what we historically called annuity style, 17% from market facing and 29% of it was in this bucket of quite recurrent earnings. In terms of our footprint of businesses, operating groups and central service groups, we've got our four operating businesses, very well positioned in structurally growing areas. In Australia here we have our BFS digital banking, very client-focused offering. And then globally we have Macquarie Asset Management, a leader particularly in real assets areas, commodities and global markets in commodities, financial markets and asset finance. And then Macquarie Capital offering advisory and capital market solutions globally but also bringing our balance sheet to invest in credit and equity where we have deep expertise with the teams there. That's supported by our four central service groups and we have our risk management and legal and governance groups bringing second line analysis on everywhere we're taking risk and helping us also deliver on opportunity. Our financial management people and engagement group which is looking at our capital funding liquidity and our very important people, asset and engagement with stakeholders, and the corporate operations group looking at tech, data, digital, and also our business services. So that's the business that you should all be familiar with. In terms of what we delivered in this most recent financial year, FY25, you will have seen we delivered earnings of $3.715 billion. After tax earnings, that was up 5% on the previous year. Our ROE, which was 11.2%, was up 4%. Our earnings per share was up 7%, and that was because of the buyback that we'd been doing over the last year, which has reduced our number of shares. In terms of the contribution to that by group, I'll go into this in more detail soon, so just touch on the fact that we had increased contribution from Macquarie Asset Management and Banking and financial services, Macquarie Capital was broadly in line and commodities and global markets was down a bit because of the more subdued market conditions. Our assets under management are now at $941 billion and that's been driven by some increased fund investments and net asset valuations offset by divestments and some outflows in equities. We obviously you saw recently entered into an agreement with Nomura to transfer our public investments businesses in North America and Europe to them, and that will mean that this number will step down when that transaction completes. In terms of the diversification of our business by region, you can see here that we're still making roughly two-thirds of our income outside of Australia. There's a very good spread in terms of regions, North America obviously being a very large capital market playing a big role, and then EMEA, a large contribution, and Asia, a growing contribution. Our staff are now at 19,735, and more than half of them, just over half, are also internationally located. We have people on the ground in the communities where they're delivering services close to the clients and the markets, as well as a lot of central service group teams that are based outside Australia where we can access the expertise for good... terms and talent and quality. We also, I'd note, as well as our nearly 20,000 staff in the business, we have nearly a quarter of a million people who work for us in our funds around the world and our assets. So turning then to the operating groups and starting with Macquarie Asset Management and Benway's here in the front row with us in Australia this week, the earnings were up 33%, as you can see, to $1.61 billion. The public investments, as I said, we have entered into an agreement in relation to the North American and European businesses to transfer those over to Nomura. That is a very strategic agreement. move for our business there. Those public investments in North America and Europe we've been invested in for a long time. We think we have incredible quality teams there and delivering great solutions but we're needing to invest a lot into our private markets business as that business has to grow into other adjacent capabilities and channels and so this will free up capital but it will allow us to partner with Nomura to still have access to the public investments to bring to our clients, and equally will let us take our private markets offerings through the Nomura client platforms in Japan and outside of Japan. So we think that's strategically been a very important step for the business. In the private markets area where we're focusing a lot on growth currently, you'll see that our equity under management was broadly flat. We did raise about $18 billion. of new assets, but we realized about $19 billion of investment. So we were able to take advantage of the markets we saw around the world to have quite a good period of realization, also drove performance fees. And we're ending with over $27 billion of dry powder to continue investing. In addition to the Nomura transaction that I mentioned, we also realized our rotorcraft business in Macquarie Asset Management. Then turning to banking and financial services, Greg Ward also in the front row here, result up 11%. We've had an ongoing track record of growth of that business for many, many years now, delivered $1.38 billion this year. And basically that is all being driven by our digital banking offering, which is a very customer experience focused offering. We think we have ongoing momentum to keep growing there. in you know as you see the three business lines there personal banking business banking and wealth management personal banking we were up 19 business banking six percent and the funds on platform were up four percent so good ongoing growth across that driven by the big step up in really high quality deposit book, 21% growth, which is really supporting the growth of BFS. And we're very positive about the trajectory of that business. Commodities and global markets delivered a result of $2.829 billion. That was down 12% on the previous year. because of the environment in the commodities business that I'll talk about in more detail in a minute. I just did want to note, though, now that we're describing the nature of our earnings differently, only 16% of that business is what we would call market-facing, in that 22% is annuity, asset finance, leasing, etc., But a vast majority of that income, 62%, so nearly two-thirds, is this repeat client business. And I think over many years we've been showing you the consistency of delivery and growth of that business, particularly in asset finance that's fully annuity-like and financial markets where we've been consistently growing the client base and the earnings of that business again for a very long time. like BFS. Those two together, I think, contributed about 47% this year, because it was a more subdued environment for the commodities business that contributed 53%. And in commodities, we had basically decreased activity and risk management earnings in a mere gas and power and also in our global oil business, partly offset by resources, metals, agriculture, but particularly in the North American gas and power in the timing of income recognition in our inventory management and trading income business. That's where we had the step down. Simon Wright, who's taken over as group head in the last just over a year, I think, Simon, of that business is here in the front row as well. doing a lot of work across the team strategically and structurally and also investing in the platform there. So he's available for questions. And then Macquarie Capital, and again, Michael Silverton is out here from the US in the front row as well, broadly in line, down 1% at $1.043 billion. The increase that came through from the advisory income where we had greater activity around the world in advisory and capital markets, that was offset to some degree by lower investment-related income. And that was mostly driven by last year we had some impairment reversals that drove income up. But As you've seen, we're investing much more now. The credit book has grown and delivers very consistent earnings and continue to do that. This year, subject to ECL provisioning timing, depending on how we see the external market, but the underlying credit performance has been incredibly consistent for 15 years plus now. The equity book is growing quite a bit, so we are seasoning that book, and it will take, you know, the holds, it could take three years for those investments we've been making to start realising, but we hope after that we'll be getting consistent, albeit lumpy, delivery out of those equity books. So those are the four operating businesses. Turning to the funding capital balance sheet side, you've seen that our funded balance sheet remains strong. We did $32 billion of new-term funding over the period, and our term funding is comfortably exceeding term assets. Our deposits are also... materially up 20% at $177.7 billion. And also on the capital side, we're sitting with a $9.5 billion surplus. That was despite investing a lot in the businesses, which I'll go into. But we, through the cycle, constantly hold these very prudent capital funding liquidity positions. With the environment we potentially could be going into now, we think it's particularly important to have this position. So good funding, good capital, but still supporting the businesses a lot. So in Macquarie Asset Management, we were co-investing in new funds we raise and underwriting assets for the funds offset by divestments. BFS, ongoing investment of capital in these areas we know very well in terms of home loans, business banking. CGM increased credit risk, mostly driven by portfolio growth and derivatives. It was a subdued environment for commodities, but I know gold is one commodity that picked up and that drove increased credit capital being held. And then Macquarie Capital, the private credit book grew. The equity book had stepped up already quite a bit by the beginning of this year. We also finished the year with strong regulatory ratios, so you can see that all our reg ratios are sitting comfortably above the blue dotted lines, which are the APRA VAL3 minimums. And the last thing I'll do is mention the year-end dividend before handing back to Alex to go through much more detail of the result. But you will see the board has declared a second half dividend of $3.90, 35% franked. That takes the full year dividend to $6.50, 35% franked. up from $6.40 last year in a payout ratio of 71%. So with that, I will hand over to Alex, but I'd also note, as well as having Alex here, who's our Head of Financial Management, Planning and Engagement, the new name of the group, we've got Nicole Sabara in the front row as well, who's the Head of the Corporate Operations Group, Andrew Cassidy, the Head of our Risk Management Group, Evie Bruce, the Head of Legal and Governance, and also Stuart Green, CEO of Macquarie Bank Ltd. So hopefully they'll all be able to answer questions for you as well.

Thanks, Shamara, and good morning from me as well. As is usually the case, I'll now take you through a little more of the detail of the results for March 25. So maybe starting with the income statement, I'll just talk about the full year result. If you look at the operating income for the full year, up 2% at $17.2 billion. You can see some of the key drivers there. So fee and commission income this year up 9% to $6.8 billion. We had an improved contribution from our joint ventures and associate. That largely reflects the disposal of some assets through our funds business and from joint venture positions that we had on the balance sheet. The other you can see coming through the operating income line is the increase in investment and other income up $325 million from where we were this time last year. That includes the gain from the disposal of the Rotorcraft business. It also includes the gain from the disposal of the 39 Martin Place which was completed over the last 12 months. Net interest and trading income basically in line with where we were last year and we think that's a solid result. It's a solid result on the basis that obviously market conditions from a trading viewpoint were slightly less conducive across parts of Simon's business. We also saw some margin compression in some of our lending businesses offset by the growth in volume. So a solid result from that interest in trading income and obviously a big drive about just about half of the overall revenue coming from that part of the business. The other thing in the net operating income to note is the big turnaround in credit and other impairment charges. So credit and other impairment charges this year are up $730 million. And there's really three key drives there. Firstly, we originated more credit over the period of time, both in BFS, CGM and also in Macquarie Capital. Second thing, we're seeing a deterioration in the macroeconomic outlook, which is affecting our expected credit loss provisioning coming through the group. And the third thing is, as Shamara mentioned, we didn't have the same level of reversals as we saw in FY24, so a big $730 million turnaround in that component of income. So up 2% from a net operating income perspective. A strong result from an expenses viewpoint, flat on where we were this time last year, which I think reflects the discipline that we've showed in relation to cost management over the course of the last 12 months. It also shows the benefit that we're now starting to see in terms of the investment we've made in the platform, in the digitisation and the technology investment that we've made over the last couple of years coming through in terms of creating that scalability to support increased revenue growth. So they're good sort of strategic initiatives. More specifically, we saw, if you look at employment expenses, basically the underlying headcount is down, so underlying employment expenses are down, partly offset by wage inflation and partly offset obviously by increased profit share and share-based payments expense associated with the underlying performance of the group. The tax expense at $1.3 billion and the tax rate at $26.3 billion, basically we were this time last year. So bottom line, 3.715, up 5%, which we think is a solid result. So turning now to the operating groups in a little more detail around their performance over the last 12 months and starting with the asset management business, you can see the asset management business did $1.61 billion for the year, up 33% from this time last year. A couple of key drivers there. In the middle of the page you can see net other operating income up nearly $400 million. That largely reflects the disposal proceeds or the profit from the disposal of the Rotocraft business together with some underlying assets that were sold during the period. Strong period from a performance fee viewpoint, up $206 million. Performance fees coming from MAFE 2, from MAFE 4 and from MIP 3, as we talked about earlier in the year. And then finally, from a base fee perspective, you can see base fees up $51 million on a net basis. The main contributor there obviously is the private markets business where we had a $60 million increase in base fees, about 5%. That reflects the good period of investing we saw last year through 24 and continuing into 25. And I think it's a strong result, particularly in terms of the amount of capital that the team returned to limited partner investors over the course of the last 12 months. In terms of the drivers of the business, assets under management, obviously the key driver, and you can see what's going on here. So we're 941, basically where we were this time last year. If I focus on the private market side, to start with, really strong period of investing, $25 billion worth of investments, of equity invested over the course of the period, together with $19 billion or $29 billion of assets returned to investors in the fund. So a good period of both investing and realising over the last period of time. On the public investment side, you can see the continued drawdown for net flows and that's principally in our equity portfolios, consistent with what we've seen in recent periods and partly offset by the improvement in market conditions and also by FX that was benefiting that business at the end of the reporting period. So turning now to the banking and financial services business, I think a really pleasing result from BFS over the last 12 months. We saw growth in all the underlying divisions over the last 12 months. On the personal banking side, we're seeing average loan growth of 14% over the period, average deposit growth of 18% over the period, so strong growth in the underlying products, partly offset by... by margin compression in that business. The business banking also grew in terms of average loans and in deposit support in that business, but roughly a broadly in line result from the business bank, and an increase in the wealth management, the platform income associated with market movements together with NetFlow. So all those underlying divisions within BFS showing a positive result. Really pleasing, I think, one of the things that Greg and the team have worked on hard in recent times is the expense base, the platform that supports that business, trying to get that platform into a point where it's scalable to support the growth of the business. And we've seen the benefit of the investment coming through over the last 12 months. So expenses down $141 million. Partly that's a reflection, obviously, of the headcount that's come down over that period of time. but also importantly a reflection of the fact that we've invested in the data, we've removed manual processes, we're investing in the technology, we're investing in automation to support the scalability of that business. Underlying drivers all moving in the right direction. Obviously home loans, deposits, really strong period from a deposit viewpoint of funds on platform together with the business loans. Now car loans is not on this slide but obviously car loans were in the process of running off and that's at about $2.7 billion now and will continue to run off over the short term. Turning now to commodities and global markets business, it was down 12% for the year, so $2.83 billion in terms of net profit contribution for the period. I think one of the things that's interesting about this result, just reflecting the diversity, I think, that the business exhibits and the underlying client franchise, which I'll talk to in a moment. In terms of the divisions, you can see the commodities business down $496 million for the year. And the drivers there, risk management income down 13%. And we talked about this obviously through the course of the year, particularly in the gas and power business and particularly in the early parts of the year in the European gas and power business. We saw less client opportunity in that part of the business. We also saw less opportunity in global oil over the course of the last 12 months. Those two components were partly offset by improved performance in base and precious metals, improved performance in agriculture. So again, that client franchise is actually growing, providing some support, albeit that energy is still a significant component of commodities. The other thing we saw was a drawdown in terms of inventory management and trading. The underlying trading results were actually up slightly on where they were last year, but we had timing of income recognition on transport and storage contracts that was pulling down the net profit contribution for the current year. Pleasingly, again, a story that I'm sure is familiar with to all those that have been here, the financial markets piece, the FX interest rates, the credit piece, up again this year, a 9% increase in the contribution from that part of the business. And also on the equities derivatives and trading side, we saw good opportunity in equity financing, we saw good opportunity in equity trading, just given the strength of markets, particularly through calendar 24 and into the early part of 25. So I think that diversity of the business that we've been talking about for some time is coming through in this year's result, albeit that in parts of the commodities business, much more subdued environment in terms of being able to service clients. So on this, again, these slides are hopefully familiar. You can see the underlying client business on the left-hand side contributing the vast majority of revenue. And on the right-hand side, obviously, those client numbers over that period of time, the client numbers have grown at 7% or 8% per annum. And we're continuing to see opportunity to grow across commodities and financial markets. You can see the capital in the business at March 25, that capital had stepped up slightly. You can see it mainly stepping up in credit capital. And again, to the conversation we've had previously, that credit capital is consistent with the sort of services we're providing to clients. That step up is partly a reflection of the weakness in the Aussie dollar at 31 March and partly a reflection to the point that the Chair was making in relation to the exposures we have around some derivative contracts in metals through the end of the year. And then on the right-hand side, the daily P&L chart, I guess much more similar to over 24, 25 than that period pre-22, 23 when we saw the volatility in energy markets. Long and short of it, a narrow distribution of daily outcomes and a pretty consistent track record of profitability across the year, consistent with the fact that the group takes relatively little market risk in comparison to the credit risk in the business. And then finally, from an operating group perspective, Macquarie Capital. So Macquarie Capital's role for the year, $1.05 billion, roughly where we were this time last year. Some highlights through the year. Obviously, the fee and commission income, you can see up $252 million. So the advisory component of the business was up 21%. And in particular, the M&A business in ANZ and also in EMEA in Europe had a very good result. So we're pleased with the the growing customer base there. The other thing we saw coming through in fee and commission income was a 12% growth in brokerage from our equities business, largely related to the activities in Asia. So that's the fee and commission side. On the investment-related income, maybe starting with the income on the credit portfolio, you can see up $26 million for the year. A few things going on, a couple of drivers going on. So if you look at the book, in average terms the book's up $3.6 billion, so that's giving us additional net interest income coming through. But offsetting that, or partly offsetting that, are increased expected credit loss provisions. One of the things that the team did over the course of the last year, they originated a lot of gross originations of about $9 billion for the year, so there's a lot of new origination that creates expected credit loss provisions. The other thing we saw coming through that business this year is just the deterioration of the macroeconomic climate that's underpinning our ECR modelling more generally. So that's obviously pulling down that income over the course of the last 12 months. Investment-related income down $240 million, obviously a slightly more subdued period in time in terms of realisations, but the other thing that's affecting that part of the business is the cost of carry for the equity investments that we have alongside Macquarie Capital's clients. So we talked over the last couple of results sessions in Europe about the investment that we've made in Macquarie Capital. It's up about 40% over the course of the last 12 months or so. That investment obviously is seasoning in terms of producing returns, but for the minute Macquarie Capital is paying the funding costs associated with that capital, so that's drawing down the investment-related income. And you can see that story from a capital viewpoint here, from 5.4 up to $6.6 billion at 31 March. The main component is their debt. You can see the step up in the equity we've got associated with our private credit business. You can see the increase in equity exposures to digital infrastructure and technology, so core areas that the team has invested in for a long period of time. And on the right-hand side, obviously, the distribution of of private credit capital exposures, again pretty consistent with what you've seen previously, good strong defensive sectors we think and cash flow generating businesses and typically we're providing senior debt to these clients. So both that capital position and obviously the debt underpinning the annuity like income coming through Macquarie Capital. So turning now to more of the foundational pieces of financial management over the years, so you can see the regulatory compliance and technology spend. So reg compliance for the year, basically where we were this time last year. We are seeing the benefit, I think, of the investment that is being made across the group in data, in technology, in automation, in control environments. All of that's coming through. We've obviously seen a little bit of a tapering of some of the projects that were where there was a significant expenditure over the last few years, so a little bit of a tapering on that. So a reg expenditure, roughly flat from a technology viewpoint, again, broadly in line with where we were this time last year. And we continue to invest, obviously, and we're seeing the benefit of the investment we're making in upgrading the platform and the capabilities of technology and automation to support the scalability of the group around the world. Technology spends about 20% of the overall group expenditure as we sit here today. In terms of the balance sheet highlights, $32 billion of term funding raised, split pretty evenly between the bank and the non-bank. Obviously the market conditions were very conducive through 24 and into the early part of 25. Market conditions remain open although it spreads a little wider in more recent times, but a good period of raising capital and we appreciate the support obviously of investors all over the world in terms of enabling our business to continue to grow. We continue to diversify the issue and strategy, looking at new markets and new investors and telling the Macquarie story across the world. And obviously we tend to fund the organisation quite long term, so four and a half year average weighted life in terms of funding, supporting the group. And that's obviously a good position to be in, particularly as we look at the outlook over the next little while. The deposit base story continues to be a good one, up at $178 billion. 87% of those deposits are now in transaction and savings or more regular way type of accounts, which is great. That deposit base is supporting the growth of the BFS business and I think reflects obviously the diversity and the quality of the digital offering that Greg and the team have out there in the out there in the market. And the deposit base is now about 48% of the funded balance sheet. So a big component of our funding now coming from deposits. The loan portfolio at $206 billion, you can see the growth really in home loans at the top of the page there and corporate and other lending which is the Macquarie Capital activity at the bottom of the page and those loans obviously should be invested well, should augur well for performance going forward in terms of net interest income. And then on the equity investment side you can see basically in line with where we were this time last year. There's a couple of things to draw out. You can see the green energy exposure gone from $2 billion down to $1.3 billion. So we're able to realise some assets that we had on balance sheet over the course of the last 12 months. And you can see that coming through in the investment income line in Macquarie Asset Management. The other thing we did is we've increased our exposure to aligned capital alongside private market funds within MAN from $2 to $2.6 billion. Largely that reflects the drawdown of capital to support our renewable investing fund and our energy transition fund within MAN. The other thing you'll note there is in Macquarie Capital, a big step up in growth and technology in venture capital, It's the work that Michael and the team do to invest in things like enterprise software and tech-enabled government services. So we saw some good opportunities over the last 12 months there, together with some increase in the infrastructure exposure that we have, digital infrastructure exposure that we have around the world. And finally, just to draw the attention to the other column, just at the bottom from 1.5 down to 900, that's largely the completion of the disposal of 39 Martin Place that I talked about just a little earlier. In terms of the regulatory update, there continues to be a lot of activity from a prudential viewpoint here in Australia, very focused on HIPRAS. There's obviously been some work done on that over the course of the year, and HIPRAS is very focused on interest rate risk across the sector, so we continue to work on those topics amongst others. We obviously continue to invest in the remediation plan that we've spoken about before, uplifting our capabilities, uplifting our control environment, uplifting our data that supports our prudential regulations, and we're making good progress there. We note obviously the announcement that was made by ASIC earlier in the week on the 7th of May. Obviously, as Shamara said, disappointed about that. Nonetheless, obviously, it focuses around our futures business and our over-the-counter derivatives trade reporting. We will set up a program of work, a program of remediation. Plainly, these are important obligations and we need to make sure that we're investing appropriately to make sure that we're meeting those obligations. In terms of the capital ratio, very strong from a bank viewpoint, 12.8% consistent with where we were at September 24 and plainly important to make sure that we remain very well capitalised going into the next period as is always the case. Strong liquidity position consistent with the discussion I was going through just earlier. And finally, from a capital management viewpoint, just a couple of things to point out. Obviously, the Board has resolved to open the dividend reinvestment plan at a zero discount to the share prices. We'll obviously buy any applications under that DRP shares we bought on market to satisfy those applications. Similarly, the Board has resolved to purchase shares to satisfy the 2025 MIRAP requirement, just under $700 million, and those shares will be purchased on market. And finally, I just note in relation to the buyback, obviously the board announced in November, we announced the extension of the buyback, the $2 billion buyback for another 12 months. So we're partway through that. Plainly that buyback we think gives us flexibility to be able to return capital to shareholders via the buyback. We're obviously balancing that between the needs of the groups. And you saw over the course of the last six months, net of FX, a $1.6 billion increase in capital usage for the group. So the teams are seeing good opportunities to deploy that capital. As a result, we haven't bought any shares back, so we've still bought back just over $1 billion worth of stock at just under $190 per share. And with that, I'll hand back to Shamara. Thanks very much.

Thanks very much, Alex. And so, as usual, I'll take you through the outlook now. And as we always do, I'll start with a short-term outlook by operating group. So kicking off with Macquarie Asset Management, and this is excluding the Nomura transaction and arrangement we've just entered into, but we're expecting the base fees to be broadly in line and also the net other operating income broadly in line. subject of course to market conditions and the timing of transactions. Then in banking and financial services, we're expecting ongoing growth in our loan portfolios across the home loans, the business banking and the platform volumes. But the result will of course be subject to market dynamics and the portfolio mix, how those impact margins. And we've seen other banks announcing in terms of what they're seeing on margins, but that obviously changes with market conditions. But we will have continued investment in our digitisation and automation, which has been the key thing driving BFS's world-leading digital bank positioning and growth. And then for Macquarie Capital, subject to market conditions, as always, we're saying that we expect the transaction activity to be broadly in line, but the investment-related income we're expecting to be up, and that's supported by the ongoing growth in the private credit book, but also some realisations in the equity books, predominantly in the second half of this year, and will continue to deploy in the private credit portfolio as that turns over. Commodities and global markets are also subject to market conditions. We're expecting the commodities income to be slightly up and then we're expecting a consistent continued contribution from both financial markets and asset finance. Our compensation ratio and our effective tax rate, we're expecting to be broadly in line with historical levels consistent with those. outlook statements are obviously as always subject to a range of factors and particularly at the moment market conditions including the global economic conditions, the inflation and interest rate impact of that, volatility events and the impact of geopolitical events. Also the completion of transactions and period end reviews, the geographic compensation and the FX implications and tax and regulatory uncertainties and changes. So given this, we continue, as I said, to maintain our cautious stance on our conservative approach to all of capital funding and liquidity that we think positions us well through all cycles, but particularly at a time like this. Over the medium term, we think that we are positioned to deliver superior growth as ever. through our very diversified capabilities that are positioned for structural growth. As I said, the customer-focused digital bank, the asset manager in private markets and public investments going forward in Australia, where we have deep expertise. Commodities, financial markets, asset finance, and in Macquarie Capital, our advice capital markets and investing solutions through patient adjacent growth. supported of course by very strong second lines. So our proven risk management frameworks, our conservative funding and balance sheet, our very strong operating platform where we continue to invest greatly, and our culture of empowering people. The last thing I'll touch on before going to your questions is just the return on equity. As I said, we had a return on equity of 11.2% this year. That was after the $9.5 billion of surplus capital that I mentioned at the group level. And the underlying businesses, Macquarie Asset Management and Banking and Financial Services, delivering a 15% return. And that was compared to a historical... 19-year average of 21% and that was brought down this year by the fact that we have a large portfolio of assets that we're transitioning in Macquarie Asset Management that we transferred across into that group over to a fiduciary strategy and then the market facing businesses delivered 13% compared to a 19-year average of 17% and again that was brought down in the short term by the fact that we have increased our equity investments in Macquarie Capital and that seasoning. So with that, I will hand back to Sam to take your questions.

Great. Thanks, Shamar and Alex. So we'll start in the front row. John, would you like to put a microphone just in the front? Thanks.

No surprise question about guidance. If you look back, Macquarie's actually downgraded guidance on seven of the last eight trading updates and market conditions are pretty challenging and it's hard to have confidence with what's going on around the world. You've seen a lot of companies pull guidance, especially in the US, a lot of companies have completely walked from there. So I wanted to get a feel for what market conditions are actually embedded in the guidance that you're providing. Are you basically going through and, you know, go to Michael's business? Are you haircutting your M&A? Are you pulling back on your potential gains on sale? So how should we think about how optimistic you are in the market conditions in this guidance to ensure that we don't come back at another three, six and nine months and just see that continue to get watered down, the guidance watered down, if market conditions change? continue to be challenged.

Thanks, John. And, you know, the guidance that you're talking about, this is quarterly guidance and we've been going through a period where we had some very high earnings in commodities and global markets and those external environments started moderating. And so we always say our guidance is subject to market conditions. In areas like banking and financial services, I think we can have more confidence around the guidance because the market conditions don't play as big a role. Same with the base fees in Macquarie Asset Management. But where we look at things like net other operating income in Macquarie Asset Management, we obviously feel comfortable that we have a range of ways we can deliver that net other operating income, both through realisations of balance sheet and performance fees, but it will depend on the environment and what we want there. And also with Macquarie Capital and realisation of equity positions, is to realise at the point where we can get the best return for the investment we've made and not short-term timing focus on things. So we could, if we don't see conducive market environments, hold on to the assets, and that's why we sit with the very strong capital funding liquidity so that we can time our realisations. In commodities and global markets, as I've been saying, the asset finance and the financial markets business we can be more confident of because basically, especially if there's activity, there's more volatility. But generally, those businesses have been very steadily growing earnings year on year. It's the commodities business in there that's over half of the business, sometimes up to two-thirds of it, where we do have to see what plays out in market conditions. because the volatility does impact activity levels of our clients and our earnings. So you've seen underlying the earnings are growing like that, but we can have periods where it picks up a lot, where we've had either the Russian, you know, EMEA gas crisis with TTF or winter storms or other events that have happened that can cause the earnings to step up. For now, we're forecasting based on what we expect market conditions to do, but it will always be subject to market conditions. And I think that's what's driven the change in guidance. Principally, it's been CGM. When you say seven out of eight, I think six out of the seven was CGM market-related.

Sorry, just following on. So you're taking a more cautious view than you have in previous beginning of the year?

I would say the areas that we say are subject to market are the net other operating income in MAM, where we feel we have a range of ways we can deliver a result consistent with last year. But if the market gets terrible, I mean, ultimately the way we're getting a lot of that is through performance fees where we've had years of driving operational uplift. And that's what's driven the performance there. And we haven't had to change guidance on MAM a lot. MACAP, there could be, if the environment is not as we hope, we've said we expect the services side to be broadly in line, we could end up with people very subdued depending on uncertainty levels. And also the realisations, which are predominantly, as we said, second half, there may be delay of that. And then in commodities and global markets, especially in commodities, we're subject to market conditions. So we will, as we do, update every quarter as things play out. I don't know if any of the teams have anything to add. No, they're saying okay for now.

We'll go to Andrew first, then to John.

Thank you, Sam. Just a question back on Macquarie asset management guidance. I previously talked more directly about what's expected for green investment group realisations. Is anything assumed for the sale of CERO and Coria Generation? And as part of that, there's been some sort of press around and maybe an announcement from Macquarie around a change in tact in terms of perhaps developing more of those assets. In the case of Corio, they're very large projects, quite capital intensive. What implication is there for the balance sheet or otherwise from actually proceeding with building out these assets?

Yeah, I mean, first what I'd say for context is, as I was just saying to John, we've got very strong funding and capital positions, so we're not going to press ourselves to exit in a disrupted market. We'll probably look more to invest in if we see dislocation in markets. Second, I'd say you saw the numbers on Macquarie Asset Management. It has 6.7 billion of balance sheet. The green assets are now only 1.3 billion of that. And it has many ways that it can generate the net other operating income this year that we've guided you to. So we don't feel any pressure to exit either CERO or Corio. There are three main assets left now. We have been exiting assets like Very recently, we exited the East Anglia UK wind farm. We exited Formosa II in Taiwan. So we're finding we're able to get decent prices for our renewable assets, and we made gains on all of those. But ultimately, we are looking at what is the best time to exit. So looking at CERO, which is a solar portfolio, we were in a five-month exclusive last year with a very high-quality counterparty that, at the end, decided for their own reasons they wouldn't proceed. That had taken the asset out of the market. We've been developing it, I don't know, eight, nine months. It's now getting close to operation. So I think we're taking a view that with CERO, we may as well now see those assets through to operation because that does step up. The market for solar assets is strong. We're still seeing a lot of portfolios change hands. Construction costs haven't rocketed. It's a very competitive alternative source of power. So we could realise CERO, but we will be looking at Can we get the best return for it? And if it makes sense to hold it a bit over into next financial year, because we'll have uplifted the operational aspects even more, that's a call the MAM team will make. With Corio, we have offshore wind. That sector has been more challenged. As I said, we managed a couple of realisations and got decent returns last year. Those assets are spread around the world. We have a New York, New Jersey couple of assets. Those we may hold, waiting to see what happens. But we're basically streamlining and focusing that platform. You may have seen that we've brought in the footprint of what we're doing. And we are expensing our OPEX and DEVX as we go on that. So we're not really putting a lot more money in. So I guess the short answer is we will be patient and disciplined on what we do with those renewable assets to get for investors the best return for the risk and investment we've made. It won't be a timing issue. And I think for MAM, Ben's here in the front row, but we have a range of things that could drive the net operating income, including performance fees on really well-developed assets that we have in the portfolio. So I think – Ben, did you want to add anything? No, he's saying fine.

Alex, is anything assumed explicitly for GIG asset sales in the guidance?

Yeah, so maybe just to sort of extend the point that Shem was just making before, the way we – I guess the guidance that we give is sort of the way we look at it, Andrew. So when – I sit down with Ben and the team and we think about that net overall operating income. The judgements we're making are things like what do we expect to achieve from a performance fee viewpoint. Obviously we've got guidance there in terms of the 50 basis points of VUM, but when Ben and I sit down we can obviously be more specific around the sort of things that we think might be divested this year, but there's a portfolio of opportunities If you think about equity-accounted income, so one of the things that came through this year, if you look at MAMS P&L, you'll see better equity-accounted income. That's because we had some disposals. We obviously sold some assets in joint venture. So we have some view on that. Then we take a view on things like... like disposals that might occur and look at the portfolio of opportunities. So the reason we've sort of aggregated all that together is that when I think about it, we sort of, if you like, probability weight these things. And so rather than one specific thing, obviously in the context of a portfolio of opportunities, you know, we think that the guidance we've given, you know, we'll be able to meet based on some of those opportunities coming up rather than others. And so we think that's a better way to to think about it. We certainly run the business in more of a portfolio than the specifics of one particular asset needs to fall in or out. And to the point the Chair was making, you know, we feel like over time, you know, we've been, I think, rewarded well for making good decisions about whether we sell something at day dot or we continue to invest and wait for the market to derail as you take it through construction into operations. And we're constantly making that judgment.

And maybe just a quick one on commodities income. How much of the lower performance is with the absolute volatility and how much of the sort of the entrance of new competitors in the market with more capital coming in? I think Simon's talked about in the past.

Well, I'll have a go and then Simon, you probably can talk as well. So what we're seeing there is, as we've talked about over the course of the year, I think it's useful, Landry, not to sort of generalise too much. So what we saw over the course of this year is we saw more subdued conditions in part of the CGM business. So particularly over the course of the early part of the year, The European gas and power business had a more subdued environment from a client perspective, so that meant there was less client business, there was less opportunity to trade around those client positions. So that was in the early part of the year. Oil, for the sake of the example, sort of low volatility and then has sort of drifted lower over the course of the year. By contrast to that, obviously in areas like agricultural commodities, in areas like precious and base metals, you've seen some very good opportunities that the team has been able to service clients on. So I think it's useful not to generalise. I mean, the predominance obviously of that commodities income continues to be client-facing income. It's basically providing hedging solutions to clients. We then, to the extent we hold those positions on our balance sheet, we manage those within market risk. I mean, obviously, in the course of the current year, you've seen a lower contribution on the trading side because volatility, you know, in some of those bigger components like energy has been lower. So, you know, as a proportion of the income coming out of commodities, the trading component is lower. And you can see that, obviously, in the point that Shem was making around inventory management and trading, which is a reflection of our ability to make a return from volatility. The predominance, I think, was much more around the volatility markets. Plainly, there have been new entrants into the markets, and those new entrants, maybe I'll let Simon talk about how they've affected the business.

Yeah, I think, Alex, they are all fair and true comments. With regards to the trading aspect of the businesses, the lower volatility was obviously very apparent over the last 12 months. What was pleasing for the business is that whilst I think European gas and power markets were subdued. We saw actually an improved trading performance in our North American gas and power business who adapted well to change conditions. There was, as Shamara and Alex mentioned, a timing difference in some of that income. With regards to the competitors, yep, we have seen a real proliferation of extra risk capital deployed to these markets, trading houses and hedge funds. That has changed the nature of the markets for the short term, but perhaps if we reflect upon the last six weeks, eight weeks of markets where things are not trading to fundamentals, we've seen markets behaving erratically on a non-fundamental basis, and that is affecting all market participants, but perhaps more of those new market entrants. So it'll be interesting how that plays out. When we look at the business, most of the business is coming out of our client-facing, client solution-originated business. What is true, if we have lower prices and lower volatility, there are just less percentages to make and there are less opportunities. But if you look at the growth in clients and the amount of business we're doing, that continues to increase. So the platform continues to grow. And as we get that volatility, as opportunities arise, we are increasingly... well-placed and improving our placement in markets. So we're optimistic about what will happen as market conditions change, but the trading income is dependent upon that market volatility.

Great. We'll go to John Storey first, just behind you. Thanks, Sam.

Thanks, Sam. Shamara, I've got two questions. The first one is just on the man business and the sale of the public markets, investment business, North American, European business. The capital that comes out there, You mentioned this morning in your presentation that private credit is obviously an area that you're looking to deploy it into. I just wanted to understand kind of the private credit dynamic. I appreciate it's third party and it's off balance sheet, but just the ROE kind of dynamics moving from, you know, more of an annuity style income stream, I guess, within public markets to into private credit, how does that impact in terms of ROE guidance and just the economic difference between those two businesses?

Yeah, so answer that first question first. In terms of private credit as an asset management offering, it should be as good ROE if we grow it organically as any other asset management business. The times the ROEs get impacted is if we're putting a lot of capital in. So in Macquarie Capital, We do private credit ourselves on the balance sheet. It's still very high ROE because the capital you hold against those credit positions is little. So we're sitting there with about 20 odd billion of balance sheet, but the capital allocated to it, because it's quite resilient credit, is not high and we're earning 7% pre-funding costs on it. But what we're talking about in MAM is doing it as a fiduciary offering where the ROEs should be much higher. Now, the private credit doesn't have as high a base fee as equity and it doesn't have performance fees. But subject to that, it should be a very, very high ROE business. Others are doing it by buying the liability side, insurance books, et cetera. That's more capital intensive. What we're doing is looking to take the matcap capability in direct lending in mid-market, upper mid-market out as a fiduciary offering. So that aspect of it, it's got 25 billion, it could do 100 billion of capacity we're looking to raise. And then in other areas like say infrastructure debt, we do private credit work. There our ROEs are very high because we have very little co-investment capital in our funds.

And then just on the second question, just also with regards to MAM, and maybe Alex could just help me here, just in terms of the gain on sale of the Rotocraft, in terms of the type of gains that you'd have to make on a half-yearly basis to offset, and you could see the run costs, I guess, just around the green investment groups, how they jumped up. One, I'd be interested to understand what the size of the gain is on Rotocraft, and then would the gain that you saw in this half basically be commensurate with the jump that you've effectively seen in the run costs and I guess the capex costs on those green investment assets?

Yeah, so, I mean, obviously the, we haven't announced specifically what we made on the road of assets for obvious reasons, but if you look at the P&L, you'll see investment income and you'll see investment income up, yeah, call it 250 million, something like that. And there are a couple of contributing factors there. Obviously, the step up is Rotorcraft. It's also the gain we made from the disposal of the building just behind me here. And so you could probably, by virtue of that and the disclosure in the corporate segment, which is where the building was held, you could probably work out roughly what the rotor business made. That'll give you the answer to that question. And so I suspect if you look at that answer, you'll probably find that's a relatively small amount. In terms of the expenditure associated with green, again, to the point I was making to Andrew before, we haven't disaggregated this year because it's not really the way we think about it. But obviously, as you know, we have, I think, the general view is that we've been spending about $500 million a year associated with development and OPEX expenses from the Corio and Cero platform. Plainly, some of those expenditures in CERO as you get towards more operational assets, you tend to start to spend a little less. And to the point that I think Andrew was alluding to before, we've obviously made some decisions around the strategic investments that we're going to make in Corio so that you should see those numbers come down over the course of time as we focus on those areas where we think we can make a decent return.

And I was just going to briefly add, we had a materially bigger balance sheet of green assets. So I think actually, John, in fairness to your point during FY24, we did also have, due to the green assets, downgrades in MAM because the green assets were a much bigger proportion of MAM. We've realised a lot of that now. So as we look forward now, certainly over FY24, we were able to deliver analysts' expectations at the beginning of the year in MAM because we have so many other places we can realise assets will generate performance fees, and the green proportionately had become smaller. Where we are this year, it's even smaller as a proportion of man. As I say, there's 6.7 billion of assets, and there's 1.3 of green and falling at the moment. There's also performance fees that are a huge part of that net other operating income, and we've got some quite mature assets around the world that we could realise this year.

Great. We'll go to Ed, and then Matt, I'll come to you.

Thank you for taking my questions. Can we just circle back to CGM and your guidance of slightly up? Can you just talk about what's driving that slightly up? It's just the gross and the customers that you're seeing and also within the guidance, are you anticipating any headwinds in part of that business?

Yeah, and I don't know, Simon, if you want to comment, but basically it is the ongoing growth in our customer franchise regions. Simon's also focusing a lot now on cross-sell across the desk. Did you want to elaborate a little, Simon? We'll just get you a mic.

yeah i think um the guidance up um over the two years is driven by two things firstly this previous year we did see substitute volatility historically and also some timing differences so if we adjust for that potentially not being the case although some of that's hard to predict but we've spent a lot of time building the platform and so we are seeing increased client activity And so we are confident if we look at our financial markets business that will continue to grow in line with what it has done over previous years. And if we reflect upon the commodities businesses, we are foreseeing increased volatility because of macro factors. That's a two-edged sword, of course. We can get fundamental-driven volatility versus announcement-driven volatility, but we assume a return to fundamental-driven volatility. We are well-placed. We are growing all three of our businesses, both across asset finance, financial markets and commodities. We've made a lot of strides ahead in the last 12 months around strategic review and positioning the business for the future. So we are... optimistic and confident that we'll start to see some green shoots of that unfold this year, obviously subject to those market conditions.

Thank you. Can I ask a second question on the BFS business? You had a good result on the cost side. Can you just talk about the outlook for the costs in BFS, please?

Yeah, and again, I might let Greg talk to that because there's ongoing opportunity. Greg, did you want to?

Yeah, no, we were pleased with the cost improvements this year. And as Alex said, it's the result of many years of investment in the digital and our data and so forth, and that's coming through. So it's mainly from operational improvements. Obviously, we exited the car loan origination, so there is some benefit from that as well, which is a sort of one-off benefit. But the rest of it is... Along the lines of the sort of benefits we should continue to see in coming years is there's still lots of operational improvements we can see in the platform business. That is one of the higher cost of income parts of the business. So we think there's big operational improvements there. And probably the biggest product we have from a deposit perspective, which is the CMA, is the most operationally inefficient part as well. So there's some benefits to come from that over time as well.

Go to Matt. So maybe Greg, if you could pass the mic to Matt. Thanks.

Thank you very much. Matt Unger from Bank of America. If I could just ask a follow-up question on CGM and the returns within that business. You've obviously continued to deploy capital. You're looking for CGM contribution only slightly up and just wondering how you're thinking about some of the, whether these are structural or cyclical challenges from the surplus capital that's in that industry and commodities. How are you thinking about improving returns? Are there any actions you can take?

Yeah, I mean, I'll briefly say, Simon, that we have a target return for everything we do in CGM. So as we deploy capital, we have an ROE hurdle that we want. And if we're not doing that, we're not in the business. Our business is typically higher ROE and more consistent than a lot of our peers because we're very focused on the client service side and then catching upside through small amounts of trading. But I might let Simon comment on that.

So, if you look at the growth in the capital usage of CGM over the last 12 months, you will obviously note it is up probably around 10%. That has been driven by a couple of factors. One is the FX effect. So, as the Australian dollar was substantially lower, about 10% lower over the course of the year, and particularly in the last quarter, that drove the capital usage number up. Secondly, the increase in that client business, that as we grow that base, we're seeing those exposure positions also grow as, firstly, the Australian dollar has dropped, but also things like, as Shamara alluded to, the gold price rallies and those sort of things. We have greater credit exposures, which are all fine from a health perspective. perspective, but it does drag on the capital a little bit. So that will normalise. We've also started investing in all of our growth strategies, and that did happen a lot in the last quarter. And so we would start to see, one, that bear fruit over the next 12 months, but we'll also start to see some normalisation around FX and those client capital exposures.

Or if the FX stays where it is, it should show in the revenue line as well.

That's right. Maybe just to add, Matt, just from my perspective, I mean, the business, obviously, you know, we categorise Matt Capp and CGM together. You looked at that sort of long-term mid-teens return on equity. I guess the way I think about it, there's obviously differences across CGM's business. If you think about the lending business, it'll have one return. If you think about the financial markets business, which is... relatively light from a market risk viewpoint and have another return. But overall, the point is that it's principally a credit business. And so if you can deliver a sort of a mid-teens return on equity consistently through the cycle with the optionality to better results at times where market conditions are more conducive, We think that's a really good use of capital and certainly a good use of capital across the group more generally. I mean, plainly back in 22, 23, we saw really conducive conditions, particularly in the commodities business, and the business earned well over that. But through the cycle, I think the ability for CGM to continue to adapt and drive that return has been really encouraging. I suppose the other thing that Simon and the team are thinking about is just the investment in the platform. and making sure that the platform is keeping up from a scalability viewpoint with the opportunities that the team sees. So one of the things we saw this year is you obviously sort of step up and you look for the P&L, you see a step up that the team's making in things like the data asset that supports it, removing manual processes, using automation, using technology. And, you know, I would think into the medium term that the scale opportunities for that business, you know, are significant. And that essentially enables us, I think, to, you know, provide a platform which, you know, allows us to service a whole range, a larger number of customers in different markets around the world to drive that top line result as well, so.

And that went off on me. Thanks. I'll just follow up with one more around Macquarie Capital and private credit deployment. Alex, you mentioned the ACL. Just wondering if you could talk about what assumptions you're making around the ACL and why you think that has increased. Is it the macro versus the mix of the bulk changing?

Yeah, so the principal driver there is really twofold, Matt. One, we've obviously had a look at the change in the macroeconomic climate from September until March and taken that into consideration. And one of the interesting things about the judgment there, of course, is that it's not always easy to foretell the future. The reality is that the underlying exposures across the group are performing really well. So I think, like a lot of other organisations, we're not seeing exposures or stresses in the credit. But we're anticipating with the uncertainty out there that some of that uncertainty might manifest itself into lower growth rates, perhaps more persistently high inflation. And so as we model the ECL, we've obviously work with our economics team to uh to sort of try and try and anticipate what the future looks like um that's one thing so it's you know around growth rate and and sort of persistence of inflation and things like that the second piece is really the other element of that ecl is um is just think about how much weighting you put to the upside and the downside in the base case, and we put slightly more weighting to the downside, or more symmetry between the upside and the downside, maybe I'll put it that way, away from the base, just to reflect the fact that, again, that uncertainty exists, I think, in the market. So those things are really driving the ECL.

Can you give us a number on what you're assuming in terms of credit losses?

No.

Good try, though.

Go do it. Andre.

Good morning. Andre from Morgan Stanley. Can I ask two questions? Firstly, on MAM, the fund raising about $18 billion on the private market side was relatively resilient. Can you talk about the outlook going forward and also how might your strategy in terms of fundraising change going forward with private markets becoming a bigger focus for MAM?

Yeah, and I'm going to let Ben comment on that because he's here with us. But just briefly, I'd say the fundraising at the moment is heavily focused in the infrastructure funds in terms of the percent of it because they're our biggest funds. And in the years where the big European and North American funds are open, we're having quite large things that we're raising for this year. We didn't have one of those. The 18 bill is particularly good. But the big thing I think Ben can talk to is we're diversifying the fundraising from infrastructure much more into real assets of private credit, which was mentioned previously, real estate, agriculture, infrastructure like private equity, and then a big thing, Ben, you and the team are driving now is the channels that we're bringing our services and offering to the wealth, the insurance. So over to you, Ben.

Thanks, Shamara. Thanks for the question, Andre. I think we feel pretty good about the outlook for fundraising. A lot of it often has to do with the vintage of the fund we have, the type of vintage of the fund we have in the market at any one time. We currently have the fourth Asian fund, which is infrastructure fund that's building on some very good performance, including air trunk. So we feel good about that fundraise. we also have more open-ended funds in the marketplace than ever before that are constantly raising capital whether it be for our global core infrastructure fund or for our renewables open-ended fund and those again seeing good support from investors irrespective of the macro backdrop so that's positive and as shamara then said we are you know continuing to move into other areas, whether it's infrastructure, PE, opportunistic real estate and also credit. And again, even allowing for perhaps the last few months, I think a lot of our institutional investors are really taking a medium to long term view. And so where you've got very good investment performance and where they see that there's a big thematic to match that capital against and we can do a good job, they're continuing to make those allocations, albeit maybe just taking a little bit more time than they may have six to 12 months ago. I think the other thing that we're doing then to augment that is moving into the wealth channel to take our private markets businesses into the wealth channel. And that's proving to be a good source of capital. It's still early days, but over the medium term, that will be a meaningful contributor. and we've also just secured our first book of business for our reinsurer in Evo, and that, again, also will allow us to start to make allocations to our various credit funds. So I think from a fundraising point of view, we feel positive about the year coming because we have the right vintages, but we also have a more diverse offer. And as we've spoken about before, our clients are really looking to do more with fewer managers. And so that diversification and the track records that we're building on, I think, make sure that we're in good stead.

Thank you. My second question, maybe more for Alex and Shamara. Just in terms of the ROE, can you talk us through some of the key planks, appealers, how you see the ROE stepping back up towards the mid-teens and better range that you saw Rickley Macquarie can deliver?

Yeah, and I'll let Alex go into more detail. But again, just a high-level response from me is that BFS is certainly meeting the ROE targets that we have for BFS. And I think CGM is as well, as we were just saying in answer to Matt's question, the two places where we are at the moment investing that have impact on ROEs in Macquarie Capital where we're putting a lot of equity to work and seasoning the book, and could let Michael comment after Alex does, but also in Macquarie Asset Management where with our balance sheet invested in things like green assets, even the aircraft finance that we're all brought across into MAM. We're still taking those to a fiduciary strategy. We've had very good raising in the fiduciary offerings in Macquarie Asset Management, the Energy Transition Fund, the core renewable more mature asset funds. And the fiduciary side is growing, but we have to run off the balance sheet. And as we said, there's still $1.3 billion there with a lot of OPEX on it as well that's bringing down short-term ROE. So those are the two main contributors, I think, that currently we are consciously investing to drive back ROE but grow earnings. And I'll let Alex comment more.

Yeah, I'll just add just a couple of things. Andre, for me, I think Shem's covered those two drivers. I mean, the other thing, obviously, is we're putting... As we grow the client franchise, you're growing return on equity-rich businesses. So if you think about Ben growing the assets under management or raising more equity, deploying that equity, that's obviously... return-rich equity. If you think about Simon Glang, the client franchise that we've been doing over the last few years in CGM and stabilising the cost base, that obviously generates better return on equity. If you think about Michael in the private credit business, which he'll talk about in a second, obviously one of the things about private credit, apart from the fact it's putting annuity-style income into that more traditional market-facing exposed business, is private credit generally, you generate a good return on equity from the moment you originate the loan. And one of the things that I'm sure Michael will talk about is just the seizing of the equity portfolio, which takes some time. In the intervening period, you've obviously got the drag of the cost of equity while you're building into that seizing book. But maybe hand over to Michael.

And also, Michael, I think you could talk a little bit about the equity strategies you're in and where they are on their journey.

Sure. So in terms of, I guess there are two factors, both firstly the transaction activity generally, whilst it's improved in the current period, is still somewhat depressed and we'd hope to see greater activity pick up there which will play through to to fee revenue but really it's the the topics covered in terms of high funding costs in the portfolio and and the and and the market environment not being as conducive to realizations means that we've seen a whole period sort of move out in the industry to closer to six years from where they've historically been sort of four or five and we're seeing that impact us also. We have four equity strategies. We have our infrastructure and development strategy where we've seen a substantial growth in the last two years, and those assets take three to four years to get to maturity, so that's in part the seasoning that Shamara refers to. We've seen good opportunity in growth and tech investing, as Alex mentioned before. All those investments are performing very well, but if we look to sell those assets, it may not be the best time right now, so we may decide to hold them a bit longer. And then we also in our principal finance business, we have a number of private equity investments alongside partners. And we've been investing heavily in areas like managed services, which is really a digitization play. And we've made some add-ons there to existing platforms. And also we just look to take them to market at the right time. So as we've said before, The back end of this year, we've got a number of realisations on the docket that we're looking at, but they're quite lumpy and they could shift into subsequent periods and then we'd start to see, we would hope, a more sustained level of performance akin to what we've seen historically, which is around 23%.

Maybe if I could just add just a couple of other things, Andre, for me, maybe with a slightly more broader perspective. We're, I think, pleased with the cost control over the last 12 months. Greg made the point that there's opportunities, we think, going forward as we get our data asset in good shape, as we think about automation, use of technology to drive more efficiency, operational efficiency through the organisation. So that's something that I know the whole management team is pretty focused on. The second thing, of course, is that we've been working for some time with our Prudential Regulator, with APRA. We're still sitting on, as you know, a Level 1 penalty and NCO outflows. Those things, as we make further progress, we hope to make progress on removing some of those overlays as well. It's obviously subject to... the discussions and meeting the standard. And then finally, obviously, the buyback. So you can see, Shem made the point before that the earnings for the group were up 5%, but the EPS is up 7%. So as we think about the amount of capital, we've obviously got the flexibility that the board's given us to undertake a buyback where it's appropriate to do so. That'll obviously have an effect on return on equity should we execute that as well.

Great. Thanks, Andre. We've got two callers on the line with questions, so I won't go by phone lines. Thanks.

Thank you. Your first question comes from Matthew Wilson from Jarden. Matthew, your line is now live.

Good morning, Tim, and thanks for the opportunity. Just to follow up to Maudie's question on guidance, understandably, it's very sensible and careful. Now, what are you and the management team looking for in terms of fundamental signposts to be more constructive about growth and return opportunities? Obviously, in the world at the moment, there's lots of headlines, U-turns and political rhetoric, but it does look like we are witnessing a sort of generational realignment of geopolitical alliances and capital flows. AMZ yesterday talked to opportunities that presents. What opportunities does it present to Macquarie? And I've got a second question on private credit, if I may.

Yeah, so what I'd say, Matt, is that it's early days now in terms of what's playing out in the geopolitical situation. We've seen the new US administration make some quite dramatic changes that could cause a fundamental rethink in terms of world order on things like trade and what that will mean for supply chains, the potential inflationary impact on it. what it's doing for geopolitical blocks and how they trade, what it will do for exchange rates, and then also security where on defence people are having to realign and spend. At the moment, we don't know how that will play out because the administration's made some quite strong positions, but then others are negotiating. Then we saw the US-UK overnight handshake, which doesn't seem like a dramatic change. I think the UK, like Australia, they're running a deficit with the US and still seem to have their 10%. underlying tariff in but have made some changes on steel and autos. So we'll see probably smaller changes. A big one obviously is the US-China situation. What we do in a situation like this is first of all we sit with, as we've said, big amounts of surplus capital, termed out funding, liquidity, and our capital position should step up as we go through this year. And then what we do is we empower our teams on the ground to be saying, in each of your areas where we do have deep expertise and we see structural change happening, you come and tell us where you see the opportunity. So things like, say, the constellation acquisition, we didn't drive that from the centre. The teams on the ground will say, we see dislocation here, we can really step up our franchise in gas and power in North America. Or when I was heading up the asset manager around a similar time, we saw that getting the footprint in the US market was critical to having scale in back then our public investments business. So we came to the centre and said, we see this opportunity, insurers and banks need capital at the moment and have to divest these assets. So let's proactively approach them. So we will be relying on our teams that have all the expertise. And I think you're hearing the answering of questions today that there is a level of expertise as you go down into the business. that we would be foolhardy to override and we rely on a lot to bring us the insights and the opportunities. We challenge them strongly, but that's how we plan to respond. There's no urgent plan at the moment to go out and reposition things. I think all our businesses... The digital banking here should be probably one of the most resilient. The Australian economy should be at the more resilient end. But all of our global businesses will be watching and thinking about how we are best placed to take advantage, you know, the opportunity as well as managing the risks as well. There's a strong focus on that. You know, Andrew sitting here in front of me, our head of risk management, we're running a lot of scenarios on potential impacts of tariffs, et cetera, and making sure we reverse stress test where we could get hit and whether these things could cause that to happen.

Thank you. And then secondly, private credit, like obviously very good growth, up 21%. How should we think about the size of that opportunity? How do you think about the change in the shape of the book? You know, I note that IT's gone from 28 to 35% of the portfolio at the moment at the expense of financials and healthcare. Can you add some colour to that? And on digital infrastructure, is there a risk that we're replicating the excitement that we had back in the 2000 tech boom about telco infrastructure?

Right. So I think, Ben, couldn't quite hear that. There was a question on telco infrastructure. On private credit, I think there were two aspects to it. One, you were asking about the current book, which Michael can speak to the quality of that book through this cycle. And we've certainly looked at what percent of it is exposed to things like tariff solace. Michael, answer that, and then maybe transition to Ben, because when you ask about the size of the private credit opportunity on the balance sheet, we're probably capping out around 25 bil for concentration risk, the mid-25s to highs. After that, the growth opportunity really is MAM partnering with MatCap to take this offering to the global market, where private credit is a massive opportunity at the moment. Not only are institutions, but also high net worth wealth individuals and insurers are under-allocated to private credit, and you see a lot of our peers trying to move there. And then Ben can also talk about telco infra. I think he was saying in 2010 that became a thing. We're constantly evolving where we invest in infra. At the moment, Ben, it's a very big percent the digital infrastructure out of our portfolio, but we'll go first with Michael on.

So, first of all, I'd say the historical loss rates, which we've communicated, continue. We're very happy with the performance of the book. In terms of the mix, it's predominantly services and software-related businesses. We don't really traffic in goods and industrial activities so much, so we've... Clearly, given the changes that were referred to geopolitically, we've looked at the impact of Doge on the portfolio or the impact of tariffs, and it's a very low percentage of the book, say about 5%, we would say, and those businesses we track closely and continue to perform well. I would also mention, I mean, we see growth in the book, but these assets have around a three-year weighted average life, and so you need to keep originating in order to stand still. That is part of the private credit business. That's why a level of integration with the client base and connecting with them is very important. We do a lot of add-on activity with existing businesses, and that's supporting the growth as well. so we see growth along with the growth in the balance sheet size so as a proportion that's how we look at the risk and then beyond that i think there's a big asset management opportunity that ben can speak to but it's not just in mid-market sub-investment grade corporate and real estate it's also investment grade which is a large scalable opportunity that's supported by those insurance liabilities and and so in terms of the growth in the industry that we're seeing that that's a big part of it as well so We continue to see growth on the balance sheet along with the size. We continue to see good opportunities and the portfolio is performing well as we see it today.

Thank you for that question. I'd say the first thing for us is that credit remains a key focus for MAM, both fixed income leverage credit and private credit, and we're seeing good support and also the ability to continue to deploy capital or invest capital responsibly on behalf of our investors. You would have seen we've done 19 private credit positions this year, including... you know, being more active in the US and that's clearly a long runway for us. We actually priced our first CLO overnight for our leverage credit business and, you know, our fixed income business continues both to perform unbelievably against the benchmarks, particularly here in Australia, which is a business that we're keen to continue to invest in. So I think... Credit for MAM is a very significant opportunity. In terms of digital infrastructure, I mean I suppose in 2024 it was the hot thing and it had its time in the sun and now people want to write a different story. I think the lived experience is there is still massive opportunities in digital infrastructure. Our underlying digital businesses are growing very well. So the portfolio companies we have today continue to find opportunities to continue to be well supported by clients. We're also seeing continued strong interest in those assets from counterparties and so we feel very good about the opportunity set there, not only our expertise in the portfolio we've already built, but when it comes time to realise those opportunities, we think those are privileged assets in many markets. They will be at scale and that they will ultimately deliver very good returns. And I think it might sort of come back to the point that Andrew was asking very politely before about the outlook for MAM. I think the good thing is when we look at the outlook, it's not dependent on one green investment sale. You know, we have an array of options within the MAP portfolio given the strength and the diversity now of the platform. And so, whether it's a performance fee, whether it's a sell-down of one of our balance sheet assets that may be green, it may be in the leasing area, you know, we have a lot of options. And we know that many of those positions are privileged assets and high-quality assets. given the amount of dry powder out there amongst the asset managers, particularly those who are asset accumulators, there is a real appetite, it appears, irrespective of where we find ourselves in the macro. So, you know, we feel good about that.

Thanks, Tony. Very comprehensive.

One more. Thank you. Your next question comes from Brian Johnson from MST Marquis. Brian, your line is now live.

Thank you very much. I want to push my luck with three questions, if I may, and I'm going to make one of them really, really short. A question for the good-looking Mr Silverton. Silver, in the European briefing, we were told that the private credit business you're running has got a 10 basis point kind of long-run loss rate last three years. So over three years, you'd lose 30 basis points. We were also told that the stage one, stage two provision was about 2%. And then on top of that, you reserve the upfront fee you normally take, which is 1.5%. So you end up with 3.5% provision coverage against something that you'd normally have a loss rate of about 30 basis points over three years. Does that math still hold true?

Still holds true. The calculations for the 0.1% are over the life of our investing activity and the losses that we've sustained, and what you describe holds true.

Fantastic. Second question, if I may. And I want to preface this one by acknowledging the fact that Macquarie's made some great acquisitions. If I think about Constellation, Cargill, Green Investment Bank, but to be quite honest, there's been some that haven't been so flash. If I was to think about Asanda, perhaps with Dellen Reed, and perhaps even Delaware. I think, personally, I think I can understand the Macquarie Capital private credit business structurally has got a competitive advantage because the person is coming to you and then you basically raise the funding. Just going back to what Matt Wilson was saying, I suppose it worries me a little bit that the opposite holds true if we think about where private credit is at the moment. There's a bit of a mania, and to be quite honest with you, in a world where asset values are always rising significantly, There's no miserable blokes left apart from me. Wouldn't matter what you lend on, you'll always get your money back. I'd just really like to understand what is the competitive advantage that Macquarie has in private credit, particularly should you make some kind of acquisition in the US.

Yeah, so shall I take that one? Yeah, Brian, look, as we've said, we're very disciplined, especially as we make larger acquisitions. So some of these acquisitions, we're able to bring capability and incredible synergy and take a lot of the costs out. So when we bought Waddle and Reed, where we paid a headline double digit multiple, there was a whole bunch of surplus cash we took out. We sold the wealth to LPL. But then we basically took out all the costs except for the portfolio managers. So we're ultimately able to buy that on a three to four times EBITDA multiple. Other times where we're buying where we don't have synergies, we're pretty disciplined on the multiple. We pay, so you may know more about Delaware than I do, but certainly from my experience, we paid it. six times EBITDA multiple for that because of the situation playing out at the time. The revenues on that went up dramatically because we bought it in the GFC and the EBITDAs had tripled within a few years. I don't know, I think an implied couple of times every day is a good buy, but we may have different views on that. But we try to be very disciplined. I completely agree with you that there are acquisitions where we have learned lessons from and we haven't done well enough, and we do a lot of work to evaluate those. They tend to be smaller ones. If we're doing very large ones, we try and set a very high bar. I think Waddle and Reed is the biggest thing we would have bought so far inorganically. Constellation as well. BT, going back to the days you'll remember, we basically bought that at a discount to net asset values, ING, stockbroking. We bought it at discount to net asset value. So the bigger the check, the more disciplined we'll be. Private credit, I completely accept your point that there are very high multiples being paid at the moment. And we're going to have to have a look at whether if we're buying something, we can deliver the growth. We're going to have to assume to pay a high multiple or we're going to have a synergy where we can take costs out and bring that multiple down. But we'll wait and see. And you're completely right. As you know, over the years, we have done acquisitions that haven't worked out. There are particular Lessons we've learned and we keep evaluating them to see what did we learn, how can we protect against it. We'll never end up being at a point where there's mistakes that are yet to be learned that we will know in advance, but we're trying to make them small ones, the patient adjacent growth approach.

So, Shamara, just going back though, as I say, I really stress, I think private credit, Macquarie Capital, you can call it private credit, but to me it looks more like structured finance. I actually think it's actually quite low risk. But I'd just like to understand, in MAAM, what would be the competitive advantage that you've got in private credit?

Ben, do you want to? I mean, we've obviously built a world-leading infrared platform, so I think we've had areas, but you go, Ben.

So just to level set, we've been doing private credit in MAM for 15 years. I think we've deployed capital in close to 140 different positions now. We have incredibly competitive... loss rates. So very good performance on behalf of investors. We continue to have investors give us capital for that. And, you know, we've been quite focused on areas where we did have a point of difference. So while we have very clear lanes about where Macquarie Capital operates, you know, MAM has generally done investment and sub-investment grade, and we've done it around sectors where we had real institutional knowledge, in particular infrastructure. So in that period of time as Shamara said, we've built the third largest infrastructure debt provider from a private capital point of view. So I think you would be well familiar, that's an area, that's a sector that we're incredibly skilled at globally. We've got a team that is very experienced and continuous. And we've also got really good relationships to be able to find appropriate opportunities. And that's why clients continue to give us capital in those areas. So I think I do take your point about There has been a private credit mania where people have done acquisitions. There have been some very significant multiples. If we look at the overall M&A activity in asset management around the world, certainly probably the highest priced franchises have been bought would have been in private companies. And that's where we have been disciplined. We have looked at those and where we don't think it makes sense for shareholders and where we don't think that at the price gives us some sort of further competitive advantage or skill set, we've said no. And we've done that collectively amongst the senior team. And I think that's a good example of getting the balance between an opportunity but also what we're willing to do from a risk point of view.

And Brian, I'd just briefly add that private credit is a very broad church. So as Ben said, we're one of the world leaders in infrared debt. We're a very strong player in mid-market direct lending. We also, in Simon's area, have areas in asset finance where big ship finance participant fund finance settlement solutions. All of these things where we have capability in-house and we're reaching balance sheet scale, we could also look to bring to third parties. And Silvo is very keen to say something to you, Brian, so I'm going to give him the mic again.

No, I just wanted to add to say we've got great investment teams across a whole range of sub-asset classes within private credit. It is such a broad term and I think... Talking to clients about opportunities, they're coming to us when talking about infrastructure, debt, investment grade. That's a big theme. Obviously, very well placed to pursue that given our relationships and the expertise in areas like MAN. And then in the ABF world or ABS world, as it used to be called, we've got a range of investment teams that are deploying on the balance sheet currently and where we could expand into. And we've got very strong investment teams in many of those subgroups.

Okay, and then if I could just ask one final one, Shamara, and this one is very esoteric. If we have a look at the slide on the median term outlook, slide 45, but slide 44 and 45, they never seem to change much. And Macquarie has been a tremendous generator of long-term shareholder value. But if we have a look at the, and it really comes back to what Matt Wilson was asking, but if we look at it, we've got, ports struggling in the US where the volumes are collapsing. We've got basically... And you own some ports in the funds. We've got global travel into the US is absolutely collapsing. You guys in the funds own some airports. We've got some weird kind of dynamics where we could see inflation basically rising. We've got this extreme exchange rate volatility. What I'd like to understand is just does this... strong positioning, you've got a global business. Can you be confident that we've actually got this great, strong positioning if we head into a world that becomes much more insular and this slowdown in capital velocity isn't just like for one year, two years, three years? What if it's for 10 years?

Yeah, so Brian, what I'd say is, you know, I've been working, I guess, 37 years now. We've been through a whole lot of cycles where lots of different things happen. We've been able to navigate through all of them. And, you know, as you've seen, our earnings have continued to grow. We've had periods where they've spiked up, where the markets have been particularly exuberant. but generally we've been able to keep delivering constantly growing earnings and at solid average ROEs over that time. But what we do is, as we said in those pages that you said we never change, and sorry, but that is how we approach things, is we sit with huge surplus capital, we sit with termed-out funding, we sit with a lot of liquidity, we sit with a very strong second line in terms of risk and review of things, we sit with a very strong operating platform that we're constantly investing in to upgrade and make sure we have the funding to do that and we sit very importantly with diversified businesses where we do see structural growth and we empower the people in those businesses to come back and tell us what to do. So we could have had this sort of dire outlook on the world when the global financial crisis happened, but actually as we just discussed, we did the Constellation investment then, we did the Delaware investment. So if there is dislocation, It actually has turned out historically to be a time of quite good opportunity for us. You may recall being back here in the days when we had the tech bubble burst and we bought Broadcast Australia from NTL and everyone thought we'd paid too high an EBITDA multiple, but we managed to get a fantastic Towers portfolio that was servicing ABC and SBS government-rated off-takers. AAA-rated credits that grew into a 30% IRR. So I think we're going to be relying, as we always have from those couple of boring pages, on the strategy we've had since day dot, which is positioning our teams close to the action to be watching how this plays out. And as I said, there's multiple ways this can play out. So in the short term, probably too early to go out and make a big acquisition or anything, but we'll watch this, we will watch this space and react in a sort of cautious, disciplined way to protect downside and capture opportunities.

Thank you, Shamara. Appreciate it.

Thanks, Brian.

Okay. Well, I think we've exhausted the questions on the line. If there's no further questions in the room, thank you very much for your interest and your support, and we look forward to catching up over the next few weeks. Thank you.