We note your article Roads Take A Toll on MacBank - published today which again demonstrates a misunderstanding of the relationship between financial accounts, revaluations, distributions and fees paid to Macquarie for the management of the listed Macquarie Capital managed funds and more specifically MIG.
Valuations and fees
- Changes in valuation, up or down, have no bearing whatever on fees paid to Macquarie.
- Specifically, base fees are a percentage of MIG's market capitalisation and performance fees are only payable once MIG's security price exceeds a benchmark, further, underperformance must be made up before outperformance of the benchmark results in a performance fee
- Similarly, valuations have no impact on the distributions paid to investors. Distributions are derived from operating cash flows and from MIG's cash balances
Valuation methodology
- MIG's accounts are compliant with IFRS
- MIG elected when it listed to use fair value accounting for non-controlled assets, i.e. currently all tollroads within its portfolio other than the M6 Toll, which is consolidated as you've noted. It reconfirmed that choice from the outset of IFRS.
- MIG is obliged by IFRS to continue with that practice.
- MIG chose fair-value accounting because its independent directors believed it was the best way to illustrate the performance of the portfolio.
We note that if MIG had chosen to equity account its non-controlled assets, the debt relevant to those assets would still not be consolidated within the balance sheet as they remain non-controlled assets regardless of the methodology
- MIG calibrates its valuation models by benchmarking the valuations they produce _ including risk premiums and its application of the discounted cashflow method _ against prices achieved in recent market transactions.
- The reliability of the valuations are evidenced by the prices paid by third-party acquirers in the Cintra IPO, the SRG IPO and the recent sale of MIG's interest in Lusoponte, all of which were divested at or very close to MIG's valuations.
- SRG was a standalone entity when it was acquired by Transurban (TCL), so it is not correct to say that MIG sold Sydney toll roads to TCL. Incidentally, why MIG ``reduced its Australian holdings'' was set out in some detail in the ASX announcements made at the time.
Macquarie Group and MIG
- MIG does not feature in the Group balance sheet except as an investment because it is a separate listed entity
- Fees paid by MIG to the Group do sit within `fee and commission income', as referred to in your piece, but they have nothing to do with revaluations
- It is wrong to say that the Group's remuneration is in any way impacted by ``upfronted'' profits from MIG. First because, as set out above, there is no link between valuations and fees paid to the Group and second, because the Group equity accounts for MIG - i.e. the Group's profit does not contain any of MIG's asset revaluations
