Macquarie creates ‘Principal Investment Area’

Australia’s Macquarie Group, the biggest manager of infrastructure assets worldwide, has created a team of dedicated professionals to look after its principal investments, or money invested on behalf of Macquarie’s balance sheet capital.

Termed the “Principal Investment Area,” the group is headed in North America by managing director Kevin Charlton. Charlton left private equity firm Investcorp last summer to become regional portfolio manager, North America, at Macquarie Capital, Macquarie’s investment banking division.

Charlton’s team is charged with providing a central point for the management of Macquarie’s principal investments once they are acquired and placed on Macquarie’s balance sheet, according to a person familiar with knowledge of the team’s role. Macquarie frequently uses its balance sheet to temporarily house assets until they are sold down or transferred to another entity, like a Macquarie-managed fund.

The Principal Investment Area’s focus will be on managing the existing portfolio of balance sheet assets, according to the person. They will also have a say in making new investments, which, depending on the sector, may involve the participation of industry specialists from other areas of the investment bank.

The group’s creation signals a move away from a previous practice where those assets were managed by Macquarie investment bankers from the industry groups that sourced the investments.

Under that approach, Macquarie’s industry groups have been given responsibility for managing a diverse set of investments over the years in North America. These have included ski and sportswear manufacturer Rossignol and Microstar Logistics, a US beer keg leasing and logistics business.

Overall, Macquarie Group had A$5.9 billion (€3.6 billion; $5.2 billion) of equity investments on its balance sheet worldwide as of the end of September, according to a November interim results presentation.

But not all the investments have been faring well. In October, one Macquarie principal investment –Texas-based oil and gas servicer Express Energy Services – filed for bankruptcy, leaving Macquarie with a 2 percent equity stake in the business that was gifted by Express’s senior lenders. Another, Spirit Finance, an Arizona-based real estate investment trust that a Macquarie-led consortium acquired in a 2007 transaction valued at $3.5 billion, was written down as a loss in Macquarie Group’s May 2009 annual results presentation.

The Spirit write-down came during a year when Macquarie recognised A$2.5 billion of one-off costs and write downs on its balance sheet across all its business, according to the presentation. These equity investments and co-investments, Macquarie’s stakes in its managed funds, loan impairment provisions and trading positions.

It is unclear whether the Principal Investment Area was built-up in response to these developments. However, Macquarie has long had a prudential division, which approved and monitored balance sheet investments. The Principal Investment Area, officially known as the “Prudential and Principal Investments Group”, is a continuation of that, the person said, adding that it makes sense for Macquarie to have a dedicated principal team of individuals in North America because so many of its assets are in this region.

Macquarie Capital, the investment banking division, has also been busy expanding its advisory business this year.

Charlton was one of 50 managing directors Macquarie Capital added in the US in 2009, many of whom have been focused on Macquarie’s advisory business. Sectors such as industrials and utilities have each seen senior hires this year.

Macquarie Capital has also been bolting-on boutique investment banks to expand its coverage of other industry groups. In May, it agreed to buy Tristone Capital Markets, a Canadian investment bank specialising in the energy sector, for C$116 million (€77 million; $110 million). In October, it agreed to acquire  Fox-Pitt Kelton Cochran Caronia Waller, a  US investment bank specialising in the financial services sector, for $130 million.