As it stalks plentiful business opportunities with a lower dividend payout ratio, Macquarie Group is still putting out a number of operational and reputational spot fires.
At the group’s annual general meeting on Thursday, investors rightly peppered Macquarie chairman Peter Warne and chief executive Shemara Wikramanayake about the company’s involvement in the disastrous ASX trading of Nuix.
Shares in the analytics and software player are trading at around half their IPO issue price of $5.31, and it has been mired in controversy given missed earnings forecasts and revelations of poor executive conduct.
Macquarie investors, particularly those that had backed the float due to the investment bank and asset manager’s involvement and ongoing shareholding, were rightly angry.
It became apparent that Macquarie has undertaken an audit, but any accountability for the failures around Nuix, its governance and readiness to join public markets, is still unclear.
Warne highlighted a “full review” of the IPO process, while also delving into a separate team that looked after the Nuix investment where Macquarie had been a majority investor.
“We went through all the normal processes that we would normally go through to a very high standard,” he said. “We’ve done a full review of that and there have been no corners cut … In the actual IPO process nothing has come out that is beyond our normal standard. In relation to the investment itself, that’s something else that we’ll be looking at over time.”
Wikramanayake said the Nuix situation was one she regretted but Macquarie “remain aligned” as a customer and the largest shareholder of the technology firm.
“At the time of the IPO we all had no reason to believe that the prospectus forecast would not be achieved. It has clearly not gone as expected and the external environment is very, very challenging,” she added.
But Wikramanayake defended the team of bankers, lawyers and accountants involved in the float, and said she still believed in the underlying business of Nuix.
“We are comfortable that our process, with a very large team involved, was up to our usual standard in terms of undertaking the IPO.”
She also said Macquarie ended a consulting arrangement with former Nuix chairman Tony Castagna in 2013. Australian Federal Police are investigating Castagna over potential breaches of the Corporations Act.
Macquarie booked bumper profits from selling down its Nuix holding to 30 per cent last year, from more than 70 per cent, as part of the listing. The role several of its executives have played in the saga should still be the subject of more scrutiny.
Macquarie’s Daniel Phillips sits on the Nuix board and was chairman between 2018 and November last year. He and David Standen were involved in Nuix for years and backed management to take the company public.
Macquarie will need to do more to address the fallout of the Nuix IPO and the reputational fallout, including ensuring accountability.
It was a joint lead manager on the float alongside Morgan Stanley, and pocketed fees from the listing.
The Australian Securities and Investments Commission has launched a probe into Nuix’s prospectus and accounts. They are also separately taking action against the company‘s former finance boss for alleged insider trading.
The Nuix issue is just one of several regulatory and operational issues plaguing Macquarie’s otherwise stellar earnings performance. It posted a record profit of $3.02bn for the year ended March 31.
On Thursday, Macquarie talked up the opportunities it was seeing and could deploy capital into to grow. That sparked a cut in the target dividend payout ratio to between 50 and 70 per cent of earnings, from a prior range of 60 and 80 per cent.
The Nuix issue isn’t the only sensitive one Macquarie is dealing with.
In Germany, a Macquarie portfolio company is reeling from the explosion at a site managed by Currenta.
The explosion and fire on Tuesday led to two deaths, with 31 people injured.
Macquarie’s funds unit Macquarie Infrastructure and Real Assets owns Currenta, which is the operator of the Chempark site.
Wikramanayake said Macquarie was firstly focused on the response to the tragedy, as people remained unaccounted for and hospitalised.
Following that, the company would seek to understand and investigate the “root causes”, to ensure such an incident didn’t happen again.
On the run-in Macquarie has had with the banking regulator, the company is also seeking to rectify an embarrassing situation.
Former Reserve Bank governor and Macquarie board member Glenn Stevens, who is chair of the risk committee, said the board was “very involved” in engaging with the Australian Prudential Regulation Authority.
He stressed that Macquarie wanted to fix reporting issues within the bank in the “near term”.
The company was earlier this year hit with a $500m capital charge and threatened with further action, after APRA uncovered unacceptable and “multiple material breaches” of prudential and reporting standards.
Macquarie is a great Australian success story and its track record of regularly over-delivering on its earnings guidance means it can navigate challenging environments. However, it does need to double down on its risk management frameworks and even rethink the sorts of companies it backs.
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Ballooning assets
Will Macquarie crack $1 trillion in assets under management? That was an investor question put to the board at the AGM, and with organic growth and acquisitions, it seems that’s a real possibility over the next five to ten years.
Macquarie’s biggest division had assets under management of $693.2bn as at June 30, which was up 23 per cent on the prior quarter and buoyed by the acquisition of Waddell & Reed.
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Forum update
Bids for solar firm Autonomous Energy are due Friday as administrator McGrathNicol attempts to salvage the operations out of the broader Forum Finance demise.
Sources said offers were due by close of business on Friday, with details for a sale to be negotiated swiftly after that.
The Australian revealed earlier this week AGL was weighing a tilt in competition with more than ten interested parties, including a bid led by Autonomous Energy‘s management team.
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