An introduction to Macquarie Capital

Transcript

00:00:05

Voiceover: Welcome to the Macquarie podcast series featuring Macquarie Capital.

00:00:10

Yusra: Hello everyone. My name is Yusra [Siddique]. I'm an Associate in Macquarie Capital, which we also called MacCap. I joined Macquarie in 2016 as a first-year Analyst after interning here the previous summer. I'm really delighted to host our special edition of the Macquarie podcast series featuring Dan Wong, who is the Global Co-head of our Macquarie Capital business. Dan is a member of Macquarie’s Executive Committee and at the heart of what is going on in the business. He has been with Macquarie for over 21 years. Dan, thanks for joining us today. I am excited to interview you to talk about the Macquarie Capital business and what your vision is for the future. But first, I think our listeners would love to know more about you and how you got to where you are today.

00:00:53

Daniel: Hi Yusra, and thanks for having me on this podcast. So I too, like you started at Macquarie at the very beginning, but actually I didn't start as a Graduate, I actually joined as a summer Intern as we called it at the time. So actually, as I was finishing my final year of university, I went into what was then our Bond Street office in Sydney and I joined the RMG division and worked there for three months in a summer Intern role. Then when it actually came to Graduate roles, I didn't join Macquarie, I went off to another firm called Bankers Trust (BT), where I worked on the trading floor in a derivatives role. And then after a couple of years there, I then applied to join Macquarie as an Analyst in what was then called the Corporate Finance division.

And the reason why I joined Macquarie and I wanted to move into Corporate Finance was twofold. I was really interested in corporate transactions and I wanted to be part of that. I'd read it in the newspapers, the Australian Financial Review in Australia. It's a bit like the FT here in London these days and I'd read about these deals and I wanted to be part of them so Corporate Finance was what that was and working in Australia, there was actually no other firm to join than Macquarie, it was back then even, a market leading firm and a fabulous business to join so I applied only to Macquarie when making the change from BT. But since then, as you probably guessed, I've been at Macquarie for quite a long time. It's actually over 20 years now and it's been quite a journey.

Some might say, it's not that imaginative, but actually during those 20 years plus, there've been a number of different chapters and it's always felt different. It's always felt fresh and the experiences have always been new. And in terms of where I went through those years, I started in our Melbourne office working in Corporate Finance, as I said, worked there for about five years going through different parts of the business. So advising clients on M&A transactions, we then started to deploy the firm's balance sheet into supporting clients into their transactions as well, which actually was the start of what we call principal transactions. And after five years, I thought you know what, it’s been great working here in Australia, I'd like to see what else the world has to offer and actually what else Macquarie might have to offer around the world and I put my hand up and said, I'd like to move to our, what was then a relatively small but up and coming, London office. I was excited about going to Europe and I thought I didn't speak too many other languages other than English and a bit of Chinese at the time, so I thought I'd better go to the UK. So I landed in London and started in what was then our utilities team in our infrastructure business, in all in MacCap as well. And that was the beginning of my infrastructure experience and infrastructure journey. And it started in utilities, we did a few renewable energy deals at the time, small ones and that's been a wonderful experience as well in terms of watching and being part of that business growing. And at that time we were what was an in-house advisory team working for new managed infrastructure funds that Macquarie was raising through what is now the Macquarie Funds business and we were working together with that team to raise money, deploy that money into what would be UK and European infrastructure businesses across utilities in my case but I was working with colleagues in other parts of infrastructure as well, who were focused on transportation infrastructure, such as airports and toll roads, ports, for example, as well as other forms of infrastructure. So anyway, that was maybe five years into that journey and then the financial crisis hit, which around 2009/10 when it really started to bite and our businesses started to evolve there. We separated Macquarie Capital from the Macquarie Funds business, which made a lot of sense and it's a good discussion in itself, which I won't get into. And I stayed with MacCap and in that case we needed to separate from the funds. We still look at the funds as a very important client, but we started to think about what we could do in terms of offering the skills and the services that we provided in terms of sourcing and advising clients on these infrastructure transactions, but offering that to the remainder of the market. And we started to externalise our financial advisory business at that point. And we set off on that journey and it was a slow start but we had one good client, which was the MIRA Funds, and we set out to go and find other clients. And I'm pleased to say after over 10 years of effort, now this is the market leading advisory business and infrastructure and energy in all of EMEA. And we're very proud of that journey and that is now led by a number of people who have come up through the business.

In the last say, five years, I've taken on a series of what I'd call managerial roles rather than these sorts of transactional roles that I guess would be the case for some of those other jobs that I held through the years. And these managerial roles sort of steps through the Head of Infrastructure Advisory in Europe, I then took on the Head of Europe role for Macquarie Capital, which was much broader than just infrastructure. We had a number of other businesses in a number of other sectors. We had other products such as ECM and DCM as well. So I took over that European role and then most recently I've taken over the Global Head of Infrastructure role, and I'm now the Global Co-head of all of Macquarie Capital alongside my colleague in New York, Michael Silverton. So I hope that's a helpful summary. I'm happy to go into any of that in more detail if you're interested.

00:07:19

Yusra: That's very interesting Dan. We're about 15 years apart in our start of journey at Macquarie, but it's there's some very similar themes there. I started in New York in the advisory business within the transport sector and then moved over to London about a year after. And I've been here since and got to see the business from a principal investment in renewable energy business. Obviously my journey hasn't evolved as much as yours yet, but many, many things to look forward to. Now you talked a lot about how the MacCap business has evolved since the financial crises, since our growing presence in EMEA and that global infrastructure, what would you say is the unique selling point for MacCap? What is it that makes it tick and why is MacCap different?

00:08:13

Daniel: I guess I'll come at that question from two angles. One is, what is the MacCap business now and why it's exciting? I think it's really, really exciting particularly on the energy and infrastructure side. And then, what is the DNA of the MacCap business, especially given it has evolved through the years? Why has it been able to evolve? Why does it continue to develop really interesting and successful businesses, many of which have gone on to become other business groups within Macquarie Group not necessarily housed in Macquarie Capital anymore. So I might start with that. The DNA of the Macquarie Capital business being a market facing business is that we fundamentally connect to the market and the clients and the participants in the market. And we're a fast moving business in that through those connections, understand what it is that the market needs and in return for that, we develop some deep expertise in some sectors. And as I said, in my case, it's been infrastructure and energy for the last 15 years or so. And with that expertise, we try to meet these client's needs and we try to help them do what they want. And in this sector, it's all about deploying capital, it's about creating assets, it's about evolving definitions of infrastructure and energy. And our business is about meeting that demand where capital wants to flow using our expertise to facilitate that. And in some cases, creating businesses and assets that that our clients want, or in in our corporate advisory business, which has been one of the stalwarts of the Macquarie Capital business, we advise our clients on the buying and selling of businesses in these sectors.

So fundamentally the DNA of what we are in Macquarie Capital is that we interface the market and we help our clients and capital deploy into situations that they're interested in. In terms of what the business is today, and again, I'll just focus on the infrastructure and energy side of the business, which I am closest to. What we are today is we're a global advisory business, corporate finance business, advising infrastructure funds, pension funds, insurance companies, and corporates on the buying and selling of what is an expanding definition of infrastructure and energy. And, as I hinted before we are the number one advisor in this space, it's a growing space as well. So it's a wonderful business to be part of. And it's a fast moving business. This team is out there at any one time advising clients on buying or selling really exciting and interesting businesses in this sector at a rate of at least one or two a week in terms of the rate at which these transactions are being announced.

Now, obviously there are many situations that are private and don't make it to completion, or in many cases, our clients are unsuccessful. So you won't hear all about that. But our teams are constantly working on these situations all the time. And in terms of what else we do. We also, on behalf of the Group, we deploy the balance sheet into situations where we can be useful. And obviously we in Macquarie Capital coexist with other parts of the Macquarie Group. And as I mentioned before, there's a very substantial funds management business that invests in existing businesses, mainly in large transactions. And that's that part of the business also in infrastructure and energy in terms of where we've positioned, the infrastructure and energy group in Macquarie Capital in the sector is that we tend to focus on asset creation.

So we develop and we build new infrastructure and energy projects, including green energy projects, which I'm sure we'll touch on a little bit later, or we back new companies in these sectors with management teams that need growth equity. In some cases, they might even need venture capital. And we work with them with our capital and expertise to grow their businesses, to eventually become these larger businesses that we know will appeal to these infrastructure pension funds and insurance companies that tend to like to focus on, I guess, more stable and substantial and larger company or project transactions. So what we do is because we're at the earliest stage or at the growth stage, we tend to be more hands on in what we do than just simply deploying capital. So the balance of who we are in the infrastructure and energy group these days is that we have a lot of the financial people who are experts at making deals happen, but we've got about, if you look at it on a headcount point of view, it's about a 50:50 balance. We have a lot of other technical people, industry experts who are expert at the construction or the design or the development of these projects and they work hand in hand alongside our financial people to make these situations happen.

00:13:30

Yusra: It sounds like there's quite a diversified approach from MacCap when it comes to corporate clients, as well as our own asset creation principal investing approach. I can tell that even from my own experience in transactions, just because at the end of any transaction, I think the best thing to do is always compare what we expected MacCap's role to be at the beginning when we started approaching that transaction versus the end. And part of that is just because Macquarie is just able to change its position so well as it hits each obstacle, rather than just being on the receiving side of a transaction. Obviously a lot of that is related to an innovative approach with regards to approaching any kind of opportunity. Can you give us an example of an innovative thinking instance and how that materialised?

00:14:10

Daniel: Yeah, sure. Look, Yusra, I'll provide you an example in a moment, but I think what's important to just remind ourselves of is at the end of the day, our business is to support our clients in what they do. And we also have a balance sheet to support our clients in what they do. And we can never lose sight of that because it's our clients and partners who bring these opportunities through the door and that we engage with that makes our business interesting and hopefully successful and profitable as well. So by being flexible and being, I guess, more expert at the subject matter or having deep expertise in the subject matter, what we find is that we are able to evolve with the situations as the, you know, in many cases, problems arise. And we try to adapt to that. And when we're able to do that successfully, we like to call that being entrepreneurial and being innovative. And as a result, what we find is that when we initially engage with some of our clients, they start with saying ‘we'd like to raise some capital’ or ‘we'd like to buy’ or ‘we'd like to sell something’ that we have an interest in. But as the situation evolves, they might find that they need some capital and can say, well there's many sources of capital out there, but Macquarie is also got a source of capital, or we've got this team that is an expert at doing the development of this sort of asset, or we've got a team that can help you sell some of the green power to the extent it's a renewable energy asset.

And we find that sometimes our relationship with the client evolves as they move deeper into a more collaborative or a partnership situation. There's a myriad of examples that I can point to in terms of where the team has been particularly imaginative or innovative. But there are a couple that that jump out at me at the moment, one in Spain that we've recently invested in and one in Australia a couple of years ago, both principal transactions. The first one is a company called Onivia, which is actually a brand new company, brand new company that the team has created in Spain that is a fibre to the home network. And it actually is Spain's first wholesale fibre to the home network. And what the team did there was it engaged with what was a large or what is a large Spanish telecoms company called Más Móvil. And this company having a number of different businesses also owned some fibre to the home and had about a million customers that it was putting through that network. But these million customers in Spain were only a small percentage of all the potential customers that there are in Spain, and it was a dedicated network. And it made sense for this company Más Móvil and it also made sense for us given that we know that infrastructure investors are always looking for these sorts of core infrastructure assets, including digital infrastructure, such as these networks. And what we said to them was ‘hey, rather than you own it and only put your own customers through it, why don't you spin it out as a new business and sell it to us, we'll buy it, we'll create a business around it.’ So we hired the CEO, where we put a team around it, and we said, and now we own your network. Why don't you become our first customer? And Más Móvil became our first customer and bought some capacity on this network. So they continued to be able to service their customers the way they wanted to. But now we have independent wholesale network that we could take to other customers around Spain who could connect their various retail customers across their portfolios. And now this business is a growing business with plenty of capacity offering independent capacity to the customers out there. So really interesting, we've created this business called Onivia. We raised some infrastructure capital against it, both debt which wouldn't have been available to Más Móvil as a, I guess, an industrial retail business. We were able to raise infrastructure finance that was able to achieve lower cost of capital for this business to then go and continue to invest and expand the network. And we've since brought in a co-investor, an infrastructure fund, who has come in for a minority position. And we together continue to build this business out, hopefully growing it over the years to come.

So there's just one example of an interesting situation that I think is pretty innovative. Another situation which came from the team in Australia relates to, again, a newly created a company called Quadrant Energy. This is upstream oil and gas, and it was an opportunity that came about when a US company called Apache was looking to exit Australia and in so doing it wanted to sell its Australian assets. And these were producing extremely high quality, producing oil and gas assets with a team of over 600 people. So it was a real business. And what Macquarie did and the team did was we assembled a consortium between Macquarie and Brookfield, and we created a consortium that acquired this business.

In terms of what we did once we acquired this business, we set about de-risking it by contracting a significant amount of the volumes coming out of these oil and gas assets. We took some costs out of the cost base. Importantly, we really focused on health and safety and uplifted the culture in the company to create a much-improved environment in terms of the company. And we also worked hard to unwind some litigation in the company that was somewhat hanging around as a bit of ballast. So over a number of years it was probably about three or four years we were able to transform this company into what, by the time we exited it, was a high performing company, one of the best companies in the sector in Australia. And we sold it to Santos which is one of the large listed oil and gas companies in Australia for over $US2 billion. So it was actually a huge transformation in terms of value creation, as well as the culture and the quality of the assets in the business. So really interesting situation here, again, in terms of creating a new company based on assets, improving it, and then eventually selling it onto in this case, an industrial customer that is continuing to develop the business.

00:21:00

Yusra: Those sound like two very, very interesting and innovative approaches for sure. Switching to the global interest for a second, one area where there's a lot of focus right now is renewable energy. Speaking just about Green Investment Group (GIG) in particular, who are slowly, as we see them, becoming the global leaders in green investment and development. Can you talk about the relevance of GIG and the impact we are having on that side of the business?

00:21:31

Daniel: The GIG as we call it, the Green Investment Group is now in IEG, the green energy investing business for the Macquarie balance sheet. And it focuses on the development and construction of renewable energy projects across all the technologies, whether it be onshore wind, or offshore wind, or solar, or waste to energy, or battery storage, they're the more mature batteries is a bit less mature, but they're the more mature technologies. And we're also very focused on the new energy technologies, such as hydrogen, carbon capture, biofuels and all of the other things that are coming our way in hopefully the not too distant future. So this is the business that develops and builds these new projects and businesses. Now, five years ago, we didn't really do this, certainly not at this scale. The one thing that really catalysed the business, that really took our business from maybe transactional to this level of commitment and a platform the size of the GIG is that in 2017 we acquired the Green Investment Bank from the UK Government, which at that time was a company also relatively new, five years old at the time, was a creation, really pioneering concept by the by the UK Government to create what was a state sponsored investment bank that had the objective of crowding in private investment into what were then relatively new technologies, and those new technologies being offshore wind as the main one, which was a real priority for the UK Government, given the resources that were available around what is essentially a really windy island and also the jobs and all of the other follow through that would come from a vibrant and thriving renewable energy industry. So this business is now our global platform for making all of these investments.

The mission for the Green Investment Bank is very simple, and it's just a continuation of when it was under Government ownership. And, that is simply to ‘accelerate the energy transition of the world’. And this means something different to different people so when we're interfacing with clients who are investors, what that means is that they want to deploy more capital into sustainable infrastructure, including a low carbon energy generation, which obviously leads to these renewable energy projects.

It also means something different to our corporate clients who increasingly want to decarbonise their business models. And in that case, they might need to buy green energy, but there are many other things that they could do to decarbonise their business models, such as sourcing more energy efficient products in their supply chain, which they then put through to create the products and services that their customers want or just simply changing the way they source the materials around the world when they create their products. So that's a corporate and then importantly what we've also found is that it means something different again to the people that we employ to come onto the platform. And what we're increasingly finding is that our staff and the people that we work with in the market as partners or clients, increasingly we're finding that the people want to marry up as best they can a purpose and a mission which is to contribute to a sustainable future, as well as their business which, in this case, when you're creating important assets and businesses like we do in the GIG, they are actually profitable, economic transactions and to be able to marry those two up we're finding is an increasingly important part of what we do at the GIG.