News: MQG Macquarie quarterly profit boosted by strong commodities business , page-13

Talking about green energy, I read this article back in Dec from the AFR quite interesting and found it quite exciting as a shareholder. I don't know if it was ever posted or discussed but I have included it below.

Inside Macquarie’snew green strategy.

Nobody paid that much attention in April when Macquarie shifted its Green Investment Group from one part of the empire to another. But they should have.

There was a change in Macquarie’s organisational structure this year. Administrative reshuffles don’t normally make headlines, so it was easily overlooked. But it signalled a significant strategic shift. Last April, the flagship Green Investment Group, which emerged largely from Macquarie’s £2.3 billion ($4.2 billion) purchase of Britain’s state-owned green bank in 2017, collectively popped its desk toys in a box and moved from within Macquarie Capital’s aegis to that of Macquarie Asset Management.

Before you stifle a yawn, this looks to be a change that profoundly transforms how GIG is doing business. And given GIG oversees 85 gigawatts of Macquarie’s 100GW-worth of green energy projects in 25 countries, it will transform how Macquarie will look to ride the coming energy-transition juggernaut.

As part of Macquarie Capital, GIG’s primary modus operandi was to use Macquarie’s balance sheet. Drawing on that, it would fund or take equity stakes in renewable energy developers, particularly wind and solar, and other transition plays.

As time went on, GIG began trying to boost its returns by getting involved at an earlier stage, helping to steer the projects’ development – to get hold of these investments at valuations that reflected the cost, rather than somebody else’s exit price.

In effect, GIG was working largely like a private equity player: it would take on potentially high-growth, higher-risk opportunities then, once the green goose was fattened, it would sell them to more risk-shy pension funds or other institutional investors.

Becoming a fundmanager.

But that playbook is changing. The question the GIG bosses started asking themselves was: Why relinquish the assets, when they still had more to give?

Now, GIG wants to hold onto them for the longer term, as a patient fund manager would. And that means basically becoming a fund manager and joining MAM.

“Most of the time when we exited something from the balance sheet, we were putting assets under management into some other managers’ hands, which was always a bit frustrating,” says Mark Dooley, the London-based Aussie who heads GIG.

“Now we’ve moved to a business model where we can be making those assets that we’ve created available to our investors long term. For the future, it’s very simple: everything we look at is looked at through the lens of us as a fund manager.

”That has had a knock-on effect on how GIG does business. If the group is accumulating a large stable of projects or assets, it needs to run them in a different way.

“If you’re going to do this at scale, then we as a fund manager shouldn’t be doing that within our team,” Dooley says.

“We should be creating portfolio companies, development platforms, you might call them, that can do this with dedicated focus to given markets, with the right kind of industry leadership, the right kind of blend of industry skills.

”Building the stable

Over the past 18 months or so, the stream of announcements from GIG has illustrated how this policy is playing out.

As GIG was shifting under the MAM umbrella, the group announced the creation of Corio, a standalone company that aggregates Macquarie’s worldwide portfolio of offshore wind assets and will lead the hunt for more.

It’s wholly owned by Macquarie, a clutch of GIG people have joined it, and during a transitional phase, it is still sharing a few back-office functions with its parent. But the idea is that Macquarie stands back from it, as any asset manager would.

Dooley says Corio doesn’t – and shouldn’t – operate as if it were part of Macquarie, because a financial services company and an energy project developer are not built on the same kind of processes or culture.

“Insofar as they continue to use our capital, then our approach to risk and our disciplines around risk continue to govern the capital that is ours, or that we manage. But we want to create businesses that have the right identity and culture for what they’re all about,” he says.

“We still try to keep the key things that we love about Macquarie and GIG culture in there, but I’ve seen [Corio CEO] Jonathan Cole create a corporate identity and culture that is best tuned to his mission, which is different from my mission.

”The latest such corporate launch is Eku Energy, a utility-scale battery-storage company that GIG unveiled at the COP27 climate summit in Egypt last month.

Ex-Tesla recruit Greg Callman has launched that business out of Macquarie’s San Francisco office, but again it will be a standalone vehicle, with its own CEO, agglomerating the projects already under way worldwide. Macquarie’s influence is, formally, via the boardroom.

“[We’re not involved in] every decision they make at all. But when they want capital that we manage, then we’re pretty involved in that,” Dooley says.

“We’ve got projects under construction in Australia and the UK, and lots of near-term pipeline. We really like a couple of markets in Asia, being Japan and Taiwan.

”Another company that has emerged from San Francisco is Fleete, which was launched in September, to manage the investments in electric vehicle (EV) charging infrastructure.

It is headquartered in Britain and focused on Europe. The target market is smaller fleet management companies that cannot set up their own infrastructure or optimise the charging of the fleet.

“It’s an unusual one: we will incubate it for a little while on the balance sheet, then it’s destined for a fund,” Dooley says.

“It’s a start-up that is out there securing its first contracts. Until it gets a little bit further than that, we don’t want to serve it up to our investors. Once it has got contracts and revenues will follow from that, then we’ve got something.

”‘Find’ versus‘create’

The incubation option is always there, but GIG’s preference is to “find or create things that are fit for purpose for funds, kind of right out of the box”, Dooley says.

He emphasises the “create” side of the strategy – the likes of Corio, Fleete and EKU. But “find” is also a path they have used.

One example is HyCC, a 50-50 green-hydrogen joint venture launched a year ago with Dutch chemicals company Nobian. The Dutch company had already spun the business out, but needed a financier to give it heft.

“We love HyCC because the big issue with hydrogen is finding the use case. We know we can deal with green hydrogen, we know it’s going to have a declining cost curve through this decade and beyond; the question is who’s going to buy it?” he says.

“If we find ourselves in an industrial chemicals context, and the Netherlands has these massive industrial estates, then we’ve got people who’ve been using hydrogen for decades, and they just want to switch from grey to green. That’s why we were very excited about that opportunity.

”There will probably be more announcements of standalone vehicles. Dooley says investors are keen to sign up for mandates based on the next generation of transition technologies.

“I’m not saying we have to get something that’s principally a mandate to do wind and solar, and maybe we can get some of this [new technology] in on the fringes. I’m saying we can get support for a mandate that is exclusively about those new technologies. Isn’t that amazing?” he enthuses.

He reckons most of the technologies now on the drawing board will flourish – “we need all of them” – and “it’s just a question of choosing the right moment to get behind them with meaningful capital”.

Dooley name-checks hydrogen, biogas and carbon capture as areas GIG is keen to move into.

“We’ve put a lot of effort into different opportunities,” he says of carbon capture. “We don’t see it as being an ‘if’, it’s just a ‘when’. But we haven’t been able to get our hands on something yet that quite satisfies our need for a feeling of assuredness. But we will: there is enormous need in the future for carbon capture.

”On the face of it, managing a set of arm’s-length companies may look more complex than simply funding and guiding projects in-house. But Dooley reckons the opposite.

GIG does have to put a big effort into making sure the companies have the right management, processes and controls, but “we want to help those companies to get that right – and then we want to let them do it”.

“Our experience has been that that’s the rightapproach: we set them up so that we’ve got confidence in their fitness forpurpose, and then we will help them to get on with it.”