MQG - Macquarie Group

[chilliaa]

Hi Stoxc,

I was thinking of removing myself from this thread before it turns unpleasant judging from some of the responses I am reading, but I will give it another go.

Let me say it out front - I don't own this stock, and I don't intend to own this stock. Neither am I shorting it. I am just expressing my opinion for those who may find an alternate view useful. That's all.

With regard to this: I do know if the financing structures for some of the other deals, and can say generally that the operational performance of the assets is modeled in detail and the financing repayments, while aggressive, are supported by the cash flows. And the lenders are quite diligent in ensuring this.

I think the danger with MQG and its myriad of funds lies in the recent developments. I am not sure whether the credit crunch has surfaced when you last went through some of their project financing. If it has not, may be you should revisit them.

I can only point out the demise with CNP and RHG - using the same argument, surely when they were presenting their projects to the lenders, the lenders would have run a fine comb over all the numbers. And yet, see how spectacularly they failed!

With credit crunch, funding is becoming harder and costlier. Asset price is dropping and making repricing or revaluation of asset higher a much harder thing to do, which will definitely impact the income and distribution of these funds.

The market reaction to the various Maq funds has not been that great in the last 4 months. Most of their stock price are in a declining trend and may accelerate depending on how well Bernanke is able to contain the credit crunch fallout and stopping the onset of recession.

The price target I have quoted may sound ridiculous or outrageous to the existing share holders, but back when MQG was selling at 77.00 and when I was sending out alert of it risking a drop to 60, I got the same kind of reaction I am getting here.

A simple chart observation will show you that MQG is under selling pressure. In August last year, it has made a low at 65.80. On Jan 21, it made a new low of 58.20. The 50 days average volume in the recent period is at around 2.275 million shares daily, at a stock price of 65, you are looking at a daily turnover of 147 millions - it comes across to me as some kind of big fund selling.

Why are they selling?

The observation above is not pure opinion but market data and fact plus my interpretation.

Looking forward, I am not saying for sure 42.50 will happen, but, as I have said earlier, I urge those of you who own this share to take precaution, do some digging and find out more about the company you are investing in, in view of what's happening to companies that are over leveraged and heavily burdened with debt.

Cheers.

In my opinion i think you will find in the medium to long term (ie at least 3yrs+) you will see why company specific attributes will positively differentiate MQG from the other finance companies listed on the ASX.
In a rising equity market, relaxed credit market, and low interest rate environment any tom dick and harry outfit could structure themselves to 'look good'.

Firstly let me state:
1) I am not debating that MQG could be VERY volotile over 2008
2) That less favourable investment environment could very well crimp their profit over the next couple of years.

However i think you need to also consider the following:
1) From their media release ' Holdings of cash and liquid securities “are currently more than three times normal liquidity levels'
2) The market forgot that MQG did a capital raising last year before the credit crisis really errupted (a bit like WDC great timing hey)
And thus if they are 'cashed up' MQG might actually benefit from this turbulance by picking up distressed assets when other finance companies dont have the finance to do it.

 

[haunting]

Chilliaa,

1) From their media release ' Holdings of cash and liquid securities “are currently more than three times normal liquidity levels'
2) The market forgot that MQG did a capital raising last year before the credit crisis really errupted (a bit like WDC great timing hey)

(My apology here to continue my negative view. This shall be my last.)

Thanks for raising that two points. I was looking around for more detail on their recent capital raising earlier on. If my memory is still okay, I believe there were various tranches of loans of different periods and rates. Some, if I am not confusing with other company seem to be relatively short term, of 1 year. The others are 3 years. (I could be wrong on these, correct me if you know the details)

The shorter term ones are the ones that will give them plenty of headache should and when they expire. If by then the credit crunch is still on, I believe they will have to provide some very good justification and explanation.

Quoting from that Fortune Mag write up again, here's something on MAQ's defence:

Specifically, Allen says that interest on the debt an asset may carry is sculpted to match the cash flows it will produce. Take a toll road, which may require heavy upfront capital expenditures - some $700 million in the case of the ITR.

Initially the road may produce little free cash. But as spending shrinks and the tolls rise, the cash falls straight to the bottom line. In the final years of the lease, the cash-rich asset pays off debt. Therefore, Allen argues, it makes sense to have the interest payments increase in later years. This is also the reason that he says it makes sense to fund distributions to shareholders out of debt in the early years.

Allen says that the ability to raise more money by refinancing debt is driven not by the capital markets but rather by the credit quality of the asset, which improves with time as risk diminishes.


I see there's a flaw(?) in this argument, again using MIG's Chicago Highway repayment of 480m on a 961m debt in 10 years time! I find this hard to swallow! How? Through more borrowing or through toll collection? It just doesn't sound right. Am I being cynical here?

Also, by paying out such large distributions at the early stage of the project life, I am questioning the QUALITY of the asset when it reaches middle age or old age, because by then, all it has is debt. An asset ladened with debt is not a quality asset as far as I am concerned.

Another point that in my view really tells a lot is the fact that most of the top managers are getting their bonuses in cash (75%) instead of shares or options. If they are so confident in their company and their ability to make big bucks, avoiding stock options, in my view, tells me they don't really believe in themselves or in their own company.

Is this a fair conclusion?

Cheers.

 

[nick2fish]

Re: MQG - Acquire Group

You have (reputedly) some of the finest financial minds in the industry in MQG... I think they would have a 100 ways to turn a buck into 2. So cash would be King to them.

You may be right about that MIG skyway deal but the short term looks okay for management fees and in 10 years time MQG may have a 50 other such management deals and won't feel the drop in returns as much. One thing that should be emphasized about those toll roads is the growth of fees and users coupled with declining costs.

6 billion dollars of approved capital on hand may stave the wolf from the door in the short term and provide slight growth if the credit crunch hits at its hardest which by the way is not guaranteed to happen anyway.(in its worst form)

Is the glass half full or half empty?

 

[stoxclimber]

Hi Stoxc,

I think the danger with MQG and its myriad of funds lies in the recent developments. I am not sure whether the credit crunch has surfaced when you last went through some of their project financing. If it has not, may be you should revisit them.

Yep - there are (I believe) two public announcements from MQG + funds relating to debt since November - Hobart Airport and the MIG debt. Financing details are confidential but given the $350m bid for Hobart Airport (when anything over $100m was considered good by the government at he time), one can see that project financing is still viable.

Macquarie also raised $9bn of debt when it completed its restructuring, at the height of the credit 'crunch' (initially $8bn, but strong demand from institutions raised it to 9).

Now, I ask you - when was the last time you looked at infrastructure project financing?

I can only point out the demise with CNP and RHG - using the same argument, surely when they were presenting their projects to the lenders, the lenders would have run a fine comb over all the numbers. And yet, see how spectacularly they failed!

Personal mortgages and shopping centers aren't of the same asset quality as infrastructure. Infrastructure assets have very predictable cash flows, and there's no way a bank (who would see Macquarie's model) would lend if its ICR and CFADS coverage ratios were not likely to be met.

Looking forward, I am not saying for sure 42.50 will happen, but, as I have said earlier, I urge those of you who own this share to take precaution, do some digging and find out more about the company you are investing in, in view of what's happening to companies that are over leveraged and heavily burdened with debt.

I don't doubt that there is a possibility that Macquarie can fall to 42.50..or 32.50 or 22.50 or 12.50 or even 2.50.

However, surely you would admit that you do not have a detailed understanding of Macquarie's business, and are assuming that all companies with high levels of debt (or leveraged upon companies with high levels of debt) should have their share prices fall. That argument is a massive generalisation.

If you do have a detailed understanding of the business, please use it to step out your previous points as I am not seeing your argument.

 

[Miner]

Extract from Eureka Report for your information

Its hard to tell whether the weakness in Macquarie Group’s (MQG) share price last week was a considered response to the surprise departure of chief executive Alan Moss or just a reflection of the malaise affecting the world’s investment banks. The group reaffirmed profit guidance for the second half of 2008 saying it would be stronger than the $773 million made in the previous corresponding period but weaker than the $1.06 billion projected for the first half of 2008. The bank remains unscathed by the sub-prime mess and is currently holding three times more cash than it usually does to take advantage of a distressed market. Real estate is one such area where most investments are currently below book value, however if the losses were realised then the impact on net profit would be about $70 million. Given that management is projecting another record profit, of about $1.8 billion, one publication considers this loss as immaterial. Macquarie Group offers good exposure to a pipeline of deals and considerable fee flows. Avoid trying to pick the bottom and build your stake in instalments. Buy Macquarie Group at current levels.
(this recommendation is ridiculous double edged sword)

 

[haunting]

I will admit this - I have made a mistake in overstaying my welcome in this thread. My apology if I have offended anyone in any way in the course of our discussion. Cheers.

 

[stoxclimber]

No need to have a tiff when the questions get tough, haunting.


Please, by all means, post some responses to the questions raised - the conversation is of benefit to all ASFers

 

[chilliaa]

I will admit this - I have made a mistake in overstaying my welcome in this thread. My apology if I have offended anyone in any way in the course of our discussion. Cheers.

There is no need to appologise. As with another posting i made to another member of this forum who became sensitive when 'negative' posts where made on a stock he liked, constructive debate is healthy.

So long as the posts dont become personal.

Hehe afterall, do you think the market will applogise for moving a stock up or down.

 

[chilliaa]

Chilliaa,



(My apology here to continue my negative view. This shall be my last.)

Thanks for raising that two points. I was looking around for more detail on their recent capital raising earlier on. If my memory is still okay, I believe there were various tranches of loans of different periods and rates. Some, if I am not confusing with other company seem to be relatively short term, of 1 year. The others are 3 years. (I could be wrong on these, correct me if you know the details)

The shorter term ones are the ones that will give them plenty of headache should and when they expire. If by then the credit crunch is still on, I believe they will have to provide some very good justification and explanation.

Quoting from that Fortune Mag write up again, here's something on MAQ's defence:

Specifically, Allen says that interest on the debt an asset may carry is sculpted to match the cash flows it will produce. Take a toll road, which may require heavy upfront capital expenditures - some $700 million in the case of the ITR.

Initially the road may produce little free cash. But as spending shrinks and the tolls rise, the cash falls straight to the bottom line. In the final years of the lease, the cash-rich asset pays off debt. Therefore, Allen argues, it makes sense to have the interest payments increase in later years. This is also the reason that he says it makes sense to fund distributions to shareholders out of debt in the early years.

Allen says that the ability to raise more money by refinancing debt is driven not by the capital markets but rather by the credit quality of the asset, which improves with time as risk diminishes.


I see there's a flaw(?) in this argument, again using MIG's Chicago Highway repayment of 480m on a 961m debt in 10 years time! I find this hard to swallow! How? Through more borrowing or through toll collection? It just doesn't sound right. Am I being cynical here?

Also, by paying out such large distributions at the early stage of the project life, I am questioning the QUALITY of the asset when it reaches middle age or old age, because by then, all it has is debt. An asset ladened with debt is not a quality asset as far as I am concerned.

Another point that in my view really tells a lot is the fact that most of the top managers are getting their bonuses in cash (75%) instead of shares or options. If they are so confident in their company and their ability to make big bucks, avoiding stock options, in my view, tells me they don't really believe in themselves or in their own company.

Is this a fair conclusion?

Cheers.

At the end of the day you have to calculate who bears the risk. For example with AIO the risk is internalised within the company. For MQG as 'manager' of the fund, do they bear the risk or does the fund bear the risk.

 

[reece55]

The major problem is that a lot of people just don't understand infrastructure as an asset class.

People, on this site, and the media commentators you refer to, seem to be worried by the following (reasons why its not a problem in brackets):

High levels of debt (cash flows are incredibly predictable for most infrastructure)

Asset level debt (project finance is the norm in infrastructure and theres no recourse to the fund as a whole. There are scale advantages in corporate level financing (e.g. Babcock's recent refinancing of its project finance debt) but with minority investors its not an option)

Increasing debt service commitments over time (step-up swaps help debt service commitments mirror cash flow profiles - you really think lenders are lending to projects without being convinced that theres sufficient cash flow cover on debt payments?)

Liquidity dry-up in debt markets (infrastructure probably the safest asset class to lend to, infrastructure deals are still getting done - e.g. Hobart Airport)



If you read Matthew Davison's & Merrill's latest infrastructure sector research (December 07), you'll find they are singing a different tune on infrastructure funds - quite fond of MAP and MIG. And they love SKI. If you have access to a Bloomberg terminal you can grab them for free.

I know this has already been discussed, but stoxclimber I thought I would bring up a few issues that I personally have the MQG, particularly with their infrastructure side. I think most here on this forum appreciate I dislike the Mac Model vehemently.

For the record, your right, infrastructure is not like property for instance, where yields and capital appreciation are highly variable and susceptible to business cycles. I think we all appreciate, that come hell or high water, we all have to drive on roads. The theory in principle is also sound that using a DCF valuation model, the investment will have a positive NPV due to the increasing tolls.

That being said, the key problem with Mac Bank is disclosure - I can't test if I think MQG assumptions are right because we don't have access to their assumptions. With long life assets such as this, whilst I am happy that tolling increase provisions provide protection against inflation, the NPV of the asset is extremely susceptible to changes in traffic patterns 5 - 10 years down the track. So my question are as follows:

* How do the Mac geniuses know what the growth of traffic will be in perpetuity? Have they factored in the rapid increase in the price of crude and the likelihood that people are moving towards alternative means of transportation (i.e. bike and public transport)?

* How do the Mac geniuses know what the cost of capital repairs are likely to be on the toll in 10 - 15 years time. Engineering costs have gone up significantly, as well as raw materials.

The point is they don't! So we have a very sensitive equation and I just have to trust MQG that they are right. On top of the high gearing in the actual trusts and companies that own the tolls, then MQG gear this up again. I did a check in 2006 on MIG's share of gearing in one of their large tolls - it was about 200x! So no matter how reliable, you gear something 200x and you don't need much of a change to have it all come down on you.

When you are baring in mind that we have a sensitive equation of which we are not aware of the key variables and we are gearing the **** out of it, lets think about the related party issues.

MQG earns a management fee on the market value of their unlisted instruments. MQG does not get external advice on this valuation, the auditors simply sign off on its reasonableness. Every year MIG has had a steady increase in the mark to market value of its tolling assets - funny that, isn't it.

I also note that there is a huge shift in MQG at the moment to move their infrastructure to unlisted vehicles. Why - it's simple, even less disclosure and more free rides.

As for the analysts, I think Merrill's et al have a vested interest in stating that the infrastructure models are ok - they are huge fee earners and every investment bank worldwide is trying to get a slice of the pie.

My point, in summary, is that we are expected to believe in the model on blind faith, a model that is relied upon at extreme gearing levels using assumption proposed by MQG that we are not able to review, where MQG has a huge conflict of interest. My conclusion is that fundamentally this equation is flawed - there is a reason that we separate the revenue collectors and payable staff in finance - fraud. In the MQG model, the revenue collector and measurer and the person paying the cheque is the same. No matter what the sales pitch, I'm not a believer.

Cheers

 

[reece55]

At the end of the day you have to calculate who bears the risk. For example with AIO the risk is internalised within the company. For MQG as 'manager' of the fund, do they bear the risk or does the fund bear the risk.

That argument is like saying that fund managers don't have any risks because they don't own the shares they invest in, the super funds do. MQG relies on it's funds management fees for revenue, for instance MIG's management fee is about 4.5% of MQG's net profit...... If MIG goes bankrupt, do you think MQG has no risk?????????

 

[chilliaa]

That argument is like saying that fund managers don't have any risks because they don't own the shares they invest in, the super funds do. MQG relies on it's funds management fees for revenue, for instance MIG's management fee is about 4.5% of MQG's net profit...... If MIG goes bankrupt, do you think MQG has no risk?????????

Sorry maybe i should have said degrees of risk. Of course MQG would be effected through loss of managment fees.
But at the end of the day which risk is greater, loss of management fees (if you own MQG, or loss of capital in the event of bankruptcy (for the fund itself)

 

[reece55]

Sorry maybe i should have said degrees of risk. Of course MQG would be effected through loss of managment fees.
But at the end of the day which risk is greater, loss of management fees (if you own MQG, or loss of capital in the event of bankruptcy (for the fund itself)

Now that I do agree with, if you add reputation loss (and boy hasn't that been evident in the financials in the last 3 months)....

For all those who think that MQG has reached a bottom, bare in mind it's annualized return for the last 3 years inclusive of dividends is still about 8% - if there is a prolonged bear market for financials, it could still fall further, much further.....

Cheers

 

[nomore4s]

Well I don't really know much about the fundimentals of MQG, just know they make plenty of money, whether that changes in the future I don't know but what I do know is that today has provided any opp to get in at $49.50 for a short term trade with a stop at $47.99 (allowing for some slippage due to it being prone to gapping on open).

The stock is at long term support and if this support is broken I want to be out anyway, maybe even short, and with my first price target of $55 it gives me a fairly good chance of a good return with a low risk set up.

Sorry at work can't attach a chart.

 

[nomore4s]

Well I don't really know much about the fundimentals of MQG, just know they make plenty of money, whether that changes in the future I don't know but what I do know is that today has provided any opp to get in at $49.50 for a short term trade with a stop at $47.99 (allowing for some slippage due to it being prone to gapping on open).

The stock is at long term support and if this support is broken I want to be out anyway, maybe even short, and with my first price target of $55 it gives me a fairly good chance of a good return with a low risk set up.

Sorry at work can't attach a chart.

Obviously on something this afternoon, add $10.00 to all prices mentioned above

Weekly chart attached

 

[barnz2k]

Obviously on something this afternoon, add $10.00 to all prices mentioned above

haha I was going to post and thought hang on I better check the day's chart incase something crazy happened - you scared me that they had dropped below $50!

 

[Fab]

Sounds like it should bounce back strongly today. The problem is that in the current market you never know what will happen

 

[stoxclimber]

Sorry for the late reply, reece.

That being said, the key problem with Mac Bank is disclosure - I can't test if I think MQG assumptions are right because we don't have access to their assumptions.

Well, to be fair, you don't have access to assumptions for any company for good reasons - if MQG publicly released its models, its competitive advantages would disappear. For example, if WOW buys some NZ supermarkets, do you really expect them to publicly release their models and 10 year strategy documents for the acquisition, so that shareholders know their money was well spent? That's pretty unrealistic.

the NPV of the asset is extremely susceptible to changes in traffic patterns 5 - 10 years down the track. So my question are as follows:

* How do the Mac geniuses know what the growth of traffic will be in perpetuity? Have they factored in the rapid increase in the price of crude and the likelihood that people are moving towards alternative means of transportation (i.e. bike and public transport)?

Its fair enough to say asset values will fluctuate. As they do with every class of asset. However, I do think you are way overemphasising the revenue risks - traffic patterns are very stable. There's a few reasons why factors you mention aren't really a problem - I can elaborate in more detail if you wish (typing this up before hitting the gym!).

* How do the Mac geniuses know what the cost of capital repairs are likely to be on the toll in 10 - 15 years time. Engineering costs have gone up significantly, as well as raw materials.

Sure - but same with every asset. However, infrastructure is not very susceptible to cost variations - EBITDA margins are usually massive, its the cost of capitals and capex schedules that drive the value.

The point is they don't! So we have a very sensitive equation and I just have to trust MQG that they are right. On top of the high gearing in the actual trusts and companies that own the tolls, then MQG gear this up again. I did a check in 2006 on MIG's share of gearing in one of their large tolls - it was about 200x! So no matter how reliable, you gear something 200x and you don't need much of a change to have it all come down on you.

But the thing is, the equation is not that sensitive. Of course, the more gearing you add, the more sensitive it is. However, I'm not sure how you calculated the figure of 200x gearing, and what that number represents (is that a debt-equity ratio?). If it's a D/E ratio, I can assure you you must have made some mistake in calculations - these assets are not 0.5% equity.

MQG earns a management fee on the market value of their unlisted instruments. MQG does not get external advice on this valuation, the auditors simply sign off on its reasonableness. Every year MIG has had a steady increase in the mark to market value of its tolling assets - funny that, isn't it.

It's not really that funny because the value of these assets has increased every year (e.g. look at AIX, which is valued by the market). That's like saying its funny that the value of my bank account goes up when they pay interest. The value of all infrastructure assets (save some exceptions, like Sydney's tram/monorail network) has been rising. Depending on the financing structures, we might see some downward revisions this year.

I also note that there is a huge shift in MQG at the moment to move their infrastructure to unlisted vehicles. Why - it's simple, even less disclosure and more free rides.

Is that your speculation as to the reason or you have some information to support that? As far as I know (which is to a pretty good detail), the shift to unlisted vehicles is driven by demand from clients - they don't want equity market volatility for assets which aren't really bearing equity market risk. Additionally there's few natural retail investors in infrastructure so it doesn't make sense to a public offering.

As for the analysts, I think Merrill's et al have a vested interest in stating that the infrastructure models are ok - they are huge fee earners and every investment bank worldwide is trying to get a slice of the pie.

I agree, and feel that price targets and recommendations by research analysts are generally to be ignored - it was just a counterpoint to the person who quoted Merrill saying in early 06 that Macquarie was a house of cards, and that they are singing a different tune now.

 

[reece55]

Sorry for the late reply, reece.

No problem mate, thought we had lost all the MQG's bulls to the market of late!!!!

Well, to be fair, you don't have access to assumptions for any company for good reasons - if MQG publicly released its models, its competitive advantages would disappear. For example, if WOW buys some NZ supermarkets, do you really expect them to publicly release their models and 10 year strategy documents for the acquisition, so that shareholders know their money was well spent? That's pretty unrealistic.

Why not? Babcock and Brown distributed their model for BBW a while back in excel format, which was thorough. Surely there is a way of doing this without losing it's competitive advantage i.e. discount rates applied, revenue increase assumptions, etc. I refuse to believe that we can't achieve a medium here...

Its fair enough to say asset values will fluctuate. As they do with every class of asset. However, I do think you are way overemphasising the revenue risks - traffic patterns are very stable. There's a few reasons why factors you mention aren't really a problem - I can elaborate in more detail if you wish (typing this up before hitting the gym!).

Sure - but same with every asset. However, infrastructure is not very susceptible to cost variations - EBITDA margins are usually massive, its the cost of capitals and capex schedules that drive the value.

Infrastructure is not susceptible to cost variations??? Well, I can only tell you that in the last 2 - 3 years working in the mining sector, the cost of building plant and equipment infrastructure has more than doubled. Now whilst there are far more revenue risks in building say a mine than a road toll, what they have in common is that due to long life (well, good mines that is), the initial and ongoing capital requirements are critical to the return. Are you really telling me that Mac Bank can control these outside influences???? High EBITDA is great, but if the underlying DA is wrong in long life assets, it doesn't matter how big the EBITDA is yo uwil lbe f$%&#!

But the thing is, the equation is not that sensitive. Of course, the more gearing you add, the more sensitive it is. However, I'm not sure how you calculated the figure of 200x gearing, and what that number represents (is that a debt-equity ratio?). If it's a D/E ratio, I can assure you you must have made some mistake in calculations - these assets are not 0.5% equity.

I was quoting D/E, but to be honest I hadn't looked at the financials in some time. Re-reviewing, we are looking at between 4- 12 in the investments themselves, add 50% gearing in MIG itself, so between 8 - 24 - still, that I think most will agree is fairly aggressive gearing. Don't know how I got that one wrong, perhaps I was looking at par capital and not factoring in share premium accounts (why oh why haven't the UK and US abolished the notion of par value and authorised capital???).

It's not really that funny because the value of these assets has increased every year (e.g. look at AIX, which is valued by the market). That's like saying its funny that the value of my bank account goes up when they pay interest. The value of all infrastructure assets (save some exceptions, like Sydney's tram/monorail network) has been rising. Depending on the financing structures, we might see some downward revisions this year.

Well, AIX principally is an investor in Airports, which I haven't been attacking. I am specifically talking about road tolls here. Plus, unlike MIG and MAP, AIX funds it's distributions from operating cash flow. Plus, unlike MQG they provide an analyst pack to back up their valuations. See a pattern here - a lack of MacBank transparency.

As for infrastructure being like money in a bank account.... hrmmm.... I think that argument is severely flawed....... Look, I will give a good example here about what I think is complete crap - in MIG's 30 June 2007 financial accounts, they declared a 1 Bil AUD revaluation on a 540 Mil investment, APRR. Reason given, to quote, "The risk premium applied in the valuation of APRR at 30 June 2006 was 18.0%, reflecting the acquisition price of the
asset. The risk premium was revised to 12.0% at 31 December 2006, reflective of the fact that the asset was in a transition phase operationally, and to 8.0% at 30 June 2007, bringing it more into line with the risk premiums used in valuing MIG’s other assets." Wow, not bad for two years return of in excess of 100% per annum because, oh yeah, the risk premium was too high. If infrastructure is so safe, how are they achieving such an excellent return - I subscribe to the notion that high risk = high return - are you telling me Mac Bank worked out how to get super duper return without any risk?

Is that your speculation as to the reason or you have some information to support that? As far as I know (which is to a pretty good detail), the shift to unlisted vehicles is driven by demand from clients - they don't want equity market volatility for assets which aren't really bearing equity market risk. Additionally there's few natural retail investors in infrastructure so it doesn't make sense to a public offering.

Demand by clients, or investment managers that manage money for clients? I would think it is the later. I just don't think that unlisted vehicles provide for a better model because it removes the transparency away from us, the people whose money will end up in this crap.

I agree, and feel that price targets and recommendations by research analysts are generally to be ignored - it was just a counterpoint to the person who quoted Merrill saying in early 06 that Macquarie was a house of cards, and that they are singing a different tune now.

Fair comment, wasn't aware of the context.

In summary, still not convinced mate....... But perhaps I never will be and you are.... it makes for an interesting debate.

Cheers

 

[Rainmaker2000]

Interesting read guys.......let it be known that I dislike Mac Bank as much as the next guy......they are not bad at what they do which is a way of saying MFS is bad at what Mac does....Mac has pioneered many of their forms of asset exploitation which is at least some badge of honour for Aussies in global markets.

Even though Macs performance and even its funds has been consistently okay, the more I conclude that it's a bubble situation....Mac has done so well to date since they created many of the asset classes and its taken a while for others to jump on board boosting up these 'asset' values.

Macs not a house of cards since they've been smart so far to keep the parent largely debt free, but it is a very, very cyclical player.....

It's assets only outperform when one adds copious amount of debt.....they are capital intensive assets with high fixed cost bases.....in general, I can't think of something more cyclical with their only saving grace being they are often local monopolies with steady traffic or planes or whatever