Macquarie Bank started out in the early 1970s as the Australian offshoot of British investment bank Hill Samuel. For its first 20-odd years it remained privately owned, until the stock finally debuted on the ASX in July 1996 with a modest market capitalisation of $1 billion.

Fast forward 10 years and today we are looking at a global juggernaut valued at $15 billion, but with a staggering $140 billion in funds under management – more than any other Australian-based investor.

The key difference between Macquarie and its more passive rival fund managers is that the Millionaire Factory likes to buy direct assets, such as tollroads, airports, power stations and media companies and then stick them in one of the 26 different satellite funds that it manages around the world.

The model relies on investors tolerating Macquarie’s huge base and performance fees, something which is coming under increasing pressure as some investors face losses.

Macquarie Bank has now grown too big for the Australian market. The full list of its global empire is listed elsewhere in this edition, but it includes 33 major tollroads, 296 industrial properties, 321 supermarkets and other retail properties, 7 airports, 17 energy distributors and utilities, 40 office buildings and 85 commercial radio licences.

However, the story of today’s record $916 annual million profit is international expansion, because 48% of earnings are now coming from offshore. Having cornered the Australian tollroad market, global infrastructure investment is now at the heart of the Macquarie growth story because 73% of its infrastructure and property assets are now offshore.

The most breathtaking deal of all might yet be a back-door takeover of Eurotunnel, the embattled operator of the $24 billion, 51km train tunnel linking France and England.

Eurotunnel isn’t such a bad operating business with a gross margin of $700 million on revenue of $1.3 billion from the 2 million cars, 1.3 million trucks and 77,000 buses that travelled on its 25 trains under the English Channel in 2005.

However, there is the small matter of $15.5 billion in debt costing about $1.3 billion a year in interest, so if Macquarie is going to invest $500 million it will need to completely shaft shareholders and other creditors and leap up the queue.

Given its preparedness to go over the top buying everything from Taiwanese cable companies to American tollroads and European airports, don’t be too surprised if Macquarie pulls this one off, although its failure to land either the London Stock Exchange or Patrick Corp has blotted its copy book in recent months.

All up the Macquarie story should be celebrated as it has created enormous wealth from Australia, which is increasingly coming from stitching up clients, customers and counter-parties around the world rather than the traditional model of out-negotiating dopey Australian state governments.

However, successfully managing such a sprawling global empire will become increasingly challenging, especially if the infrastructure asset bubble starts to deflate. Then again, managing director Allan Moss gloats that he stress tests the bank regularly to make sure it could survive a 40% slump in world equity markets. If that happened, we’d all be in trouble, let alone the outfit in Martin Place which has generated up to 1000 millionaires over the years.

Peter Fray

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Peter Fray
Editor-in-chief of Crikey

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