the sydney sage

All hail the sage of Sydney
At Macquarie Bank, his word is gospel. But Allan Moss’s halo has slipped of late

October 30, 2005



TO the uninitiated eye, it looks like some kind of latter-day pagan ritual. On a few select occasions every year, a small group of City eggheads gathers at the palatial world headquarters of Australia’s astonishing Macquarie Bank in Bond Street, Sydney. In hushed silence, they await the arrival of its even more cerebral chief executive Allan Moss. As soon as he enters the room, they put down their Diet Cokes and the ceremony begins. One by one, the analysts fire off the most obscure imaginable questions about the most far-flung outpost of Macquarie’s ever-expanding empire – in the hope of catching out the revered Moss. They might throw him something on pay scales at the Isle of Wight ferry or on the intricacies of Chinese property regulations. But no matter how broad the empire gets, they have never caught him out.

“Alan is the smartest person in the universe,” one awe-struck analyst from a Sydney bank told The Business. “His understanding and his lateral-thinking ability is amazing. Macquarie Bank has become this sprawling empire and I have yet to ask him anything about any of it that he didn’t know. He is more on top of his business than any chief executive I have ever met.”

Infrastructure like airports, toll roads and utilities still form its staple diet, but Macquarie and its funds are now buying something, somewhere, practically every day. Last month it moved into the glitzier end of industry, setting up a dedicated media fund. One day, perhaps within weeks, it may buy the London Stock Exchange. And it is hard to find anyone covering the stock who has not converted from analyst to fan. “He’s as close to a genius as you’ll find,” gushes one. “He’s quite unique: the intellect that’s there is amazing,” says another. And yet another: “The confidence he inspires of being on top of the job: no-one else comes close.” That’s four out of the 10 main analysts covering the company. Judging by the recommendations of the other six, they’re not critics either.

The cult of Allan Moss has yet to spread outside Australia, but at home Macquarie’s chief executive appears to have undergone the kind of corporate canonisation only achieved by the likes of the legendary Warren Buffett, the billionaire US investor and Sage of Omaha. This summer, the 54-year old Moss was crowned Australia’s most admired chief executive by business magazine BZW and the bank that he has built was voted its most admired company.

Whatever it is that has brought Moss this status, it’s not good looks and smooth-talking charm. Balding, quietly-spoken, bespectacled, Moss comes across more as a university professor than an investment banker. “Inside the company, he has a reputation for being clumsy, he knocks over water glasses, spills coffee during presentations,” says one of the analysts. “He’s personally very understated, very unlike a highly-paid investment banking leader. When investors ask him a question, he gives thoughtful and considered responses. He puts more thought into answering questions that they put into asking it.” One of his colleagues from the early days has told the Australian press: “He is ego-less. He doesn’t see why he is important; he just sees the bank."

The only part of Moss that doesn’t gel with the image of a monkish renunciate is the staggering size of his salary. Moss is Australia’s most highly paid executive, picking up at least $14m (£7.8bn, E11.6bn) last year. Macquarie has been dubbed the Greed Club, because of the sheer number of millionaires among its top executives. But where Moss spends his millions is a mystery. Macquarie is tight-lipped about his private life.

His wife Irene, one of Australia’s most prominent public officials, has a far higher profile. She recently stepped down as New South Wales’ anti-corruption tsar, and spent five years chairing the national commission against race discrimination. The couple were together at Harvard (where Moss topped the class in his MBA). Since joining Macquarie back when it was an outpost of UK investment bank Hill Samuel back in 1976, Macquarie has been Moss’s professional life. Since 1993, he has been running it. The couple have no children. Indeed, the closest thing to them, at least in Moss’s office life, is the growing tribe of Macquarie funds, which are spun off from the bank and listed individually as separate businesses on the world’s stock exchanges. Macquarie takes management fees and serves as the funds’ investment banks, collecting fees – they don’t own the funds.

Macquarie had the idea of these funds in the mid-1990s with the building of Sydney’s M2 motorway. The bank decided to finance it by floating a special-purpose company. At around the same period, Australia began a wholesale privatisation programme. It also came up with a pioneering pensions scheme which forced all employees to invest a part of their salaries in cerain safe funds.

Macquarie’s genius was to match the three. Regulated utilities, toll roads, and airports offer near-guaranteed returns that beat inflation over long time scales, making them a perfect home for the exponentially expanding pot of Australian retirement money. And Macquarie’s listed fund idea was the perfect vehicle. The company bought practically everything that came on to the market. Earlier this year it reported $68bn of assets under management in its funds, a 42% surge on the previous year. Judging by Macquarie’s European buying spree, that should leap still more next year.

Just taking the UK, it has bought South-East Water, West and Wales Utilities, the M6 toll road, Bristol and Birmingham airports, the Isle of Wight and Isle of Man ferries, BBC Broadcast and NTL’s transmission business. Last week it bought Copenhagen airport, it is bidding in the massive multi-billion euro auction of a group of French toll roads, and the Netherlands looks likely to put the flotation of a 49% stake in Schiphol airport on hold in anticipation of a more lucrative sale to Macquarie. Given the lower returns its pension fund investors require it to make, Macquarie Funds can comfortably outbid just about any competitor.

The beauty of the model for Macquarie is in the fees it levies at every stage of the process. Macquarie takes a management fee for overseeing the funds, pays itself investment banking fees for making each transaction and even takes a large portion of any outperformance on the relatively low return targets it sets itself. The more assets its listed funds have under management and the more acquisitions they make, the more fees come Macquarie’s way. All it it has to do is make sure it doesn’t bid so much that the listed entity can’t achieve the target for returns.

While still an arts and law student in Sydney, Moss railed against the way Australia was being bought up by foreigners. He reportedly wrote: “The people who currently control Australia do not consider foreign investment a problem. By the time the crunch comes, most of them will be dead anyway. Unfortunately, the majority of us who will still be alive may wake up in a foreign country.”

His genius has been to reverse the trend, taking Australians’ savings and using them to buy great chunks of the rest of the world and it has made him a national hero. Within Macquarie, he is regarded as a sage. His philosophy is centred on the concept of “freedom within boundaries”, which he believes allows Macquarie to “maintain that smaller busines entrepreneuarial culture within a much larger organisation”.

Macquarie assesses key risks – such as credit, market, operational and brand risk – centrally and then leaves individual bankers and fund managers in London, Chicago, Shanghai and the rest, to decide what to buy. Moss has said: “I give very few black and white directions.” Instead he pushes his advisers to look for assets isolated from what he calls “the full rigours of competition”.

Moss is fond of talking of the onerous stress tests he carries out on the bank’s portfolio and says he is confident the bank would survive even if world markets collapsed 40% in a single day. The reason investors believe him, apart from his uncanny ability to know what’s going on in every corner of the business, is the expertise he gained in the first part of his career running Macquarie’s risk management division.

Even so, Moss’s halo has wobbled a little of late. Over the past month Macquarie shares have fallen 13.5% (though this still leaves them 40% up on the year).

The problem is that Macquarie has invented a glamorous business model and has helped transform one of the the world’s dowdiest sectors into one of the most exciting. But there are obviously dangers in buying assets at over-inflated prices and then keeping employees highly incentivised and motivated with huge pay checks. Apparently, Macquarie is so confident it will outbid anyone apart from its most direct rivals that it even phones private equity firms ahead of a bid to warn them not to waste their time.

It has been accused of over-bidding time and time again. Back in 2002, when it was accused of paying too much for Sydney airport, its share price halved within a year. Investors’ latest quibbles are around the sheer scale of the business and the new and unlikely sectors the bank’s funds are starting to enter. Is the London Stock Exchange really a utility comparable to a toll road? Are media companies? Analysts make a convincing argument that there are similarities. The LSE and a lot of radio stations have more or less captive customers. But it’s hard to argue that either are as insulated from the business cycle as a toll road.

Three years later, even critics concede Sydney airport has been a good investment. Even though there is no such thing as a free lunch, Macquarie constantly seems to spot hidden value in assets the markets have overlooked.

But is Moss, sitting in the firm’s Sydney offices, really so omniscient that he can be sure the same is true of NRE, the Dutch utility firm Macquarie bought this year, when the price yet again drew gasps from its competitors?

In just over two weeks, Moss’s 10 followers among the Sydney analysts will once again come before him. Since last May’s ceremony, Macquarie has launched countless new funds and bought countless assets. Doubtless they are already scouring their spreadsheets for a fact or potential problem that Moss may have missed.

When the questions come, Moss will pause, leaving each analyst just enough time to think he may have found the chink. Then calmly and precisely, he will answer, demonstrating a total and detailed understanding.

Eventually, however, even a genius like Moss may stumble, given how fast the company is growing. But until then, he will remain the sage of Sydney.