As the creator of the Macquarie Model of listed infrastructure funds, Australia’s highest paid chief executive Nicholas Moore is the last person you’d expect to admit there is a problem. Dead parrot? No way.

And so it was at yesterday’s Macquarie Group AGM in Melbourne where Moore and his chairman David Clarke, a co-founder of the Millionaire Factory, remained implacably in denial. The key undeniable facts are as follows:

  • The board and directors of Macquarie Airports claim it has net tangible assets of $5.08, yet this morning it is trading at $2.73.
  • Similarly, the claimed NTA for tollroad giant Macquarie Infrastructure Group is $4.59 yet the stock is now at $2.48.
  • In round terms, Macquarie is claiming these two funds should be worth $20 billion and the market thinks it is closer to $10 billion. Houston, we have a problem.
  • Macquarie Group is the largest shareholder in both funds, but the market is presently valuing these investments at $2 billion, close to book value, but the directors and auditors claim it should be $4 billion.

Clarke and Moore maintained yesterday that it was wrong to say the market had a different view on internally and externally managed listed funds and the real debate should be between listed and unlisted funds. This is bollocks. It took four different goes yesterday to complete the debate on the Macquarie Model, but it was very illuminating:

Round One: How much are the investments in all the listed funds under water?

Round Two: C’mon, don’t be evasive, give us some specific numbers on the likelihood of big write-downs.

Round Three: Go ahead and prove these claimed valuations by selling Sydney Airport for more than $12 billions.

Round Four: Time to ditch Bermuda, clean up governance and internalise the management of MIG and MAP? This parrot is dead?

Fairfax’s Michael West and Business Spectator’s Stephen Bartholomeusz have provided the most in depth coverage on this model debate, but it is also hard to ignore the surging Macquarie share price which has now rocketed almost 14% to $52.95 since yesterday’s presentations to the AGM.

Ironically, this is partly because the market believes Macquarie will eventually move to do something about the MAP and MIG discounts and both stocks have bounced more than 25% from their recent lows.

This recovery means the size of Macquarie’s overall book losses from its listed fund investments is now back below $150 million, suggesting further big write-downs won’t materialise.

The recent Risk Metrics report attacking infrastructure fund governance belled the cat on Nicholas Moore’s baby. Tax havens, poison pills, poor governance, impotent independent directors, undisclosed management contracts, conflicts of interest, debt funded distributions, excessive gearing and egregious fee gouging have all combined to cause a capital strike.

You just can’t extract billions in fees from poorly governed structures and then pretend the market isn’t fed up with the concept when share prices hit 50% discounts to NTA.

*Today’s Mayne Report video borrows from Monty Python’s dead parrot sketch to explain Macquarie’s attitude yesterday.

Peter Fray

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Peter Fray
Editor-in-chief of Crikey

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