I've still some people coming in, but we'll make a start. So good morning, everyone, and welcome to Macquarie's Financial Year 2024 Full Year Results Presentation. Good to see so many of you here. Before we begin today, I would ask that you turn your phones to silent. And I would also like to acknowledge the traditional custodians of this land, the Gadigal people of the Eora Nation, and pay our respects to their elders past, present, and emerging. As is customary, we'll hear today from both our CEO, Shemara Wikramanayake, and our CFO, Alex Harvey, on the results, and then we'll have an opportunity for questions at the end. And I'd also note that probably for the first time since COVID, we've got all of our EC here today in person, so that's great. With that, I will hand over to Shemara. Thank you.
Thanks very much, Sam. And I should also note that we have our Chair, Glenn Stevens, and the Chair of our Audit Committee, Michelle Hinchliffe, here in the front row with us, as well as the pleasure of having all of the executive committee with us in person for the first time in ages. As usual, before going through the result for this year, I'll just touch on the footprint that we have across our four operating businesses. As you know, we have very good diversification across those four businesses, with four deep areas of expertise that are exposed to structurally very well-growing underlying themes.
Those are our Australian digital banking offering, headed up by Greg Ward here, that group. Our global Macquarie Asset Management business, very strong in Private Markets but also Public Investments , headed up by Ben Way, here in the front. Commodities and Global Markets, which has strength globally, not just across Commodities but also Financial Markets , and very good runway to grow across all those areas. Simon Wright, Group Head there, sitting next to Greg. Then Macquarie Capital, which, as well as doing advisory and capital markets solutions, brings the balance sheet in our areas of expertise in equity and debt. Michael Silverton is with us here, the Group Head for Macquarie Capital. They're obviously supported by a very strong operating platform across our four operating groups.
And in terms of our very important risk management framework, the Risk Management Group headed by Andrew Cassidy, and sitting next to him, Evie Bruce, are head of our Legal and Governance Group . Also, the Financial Management Group , as well as our regulatory and financial reporting and tax, etc., and communication with stakeholders like yourselves, is dealing with funding capital liquidity through the cycle, which is very important for our performance. And Alex, our CFO, is here on the stage with me. And the Corporate Operations Group , where the platform's supporting us to invest, particularly in this area of technology moving so fast, but also covering HR, our premises, Strategy, Foundation , Nicole Sorbara, here in the front row. Now, in this last year, the split of contribution from the annuity and the market-facing businesses was 45/55. As you know, that varies depending on the external environment of the time.
So turning to the result for this most recent year, you will have seen we delivered a result of AUD 3.522 billion. That was down 32% on our very strong record year last year. And the two big contributors for that were in commodities and global markets. We didn't experience the external environment volatility, particularly in energy markets, that we had in both FY22 and particularly FY23. And then in Macquarie Asset Management, where we're transitioning our balance sheet green investment strategy to a fiduciary strategy, which we consider very important for the medium term, that impacted results as well. I would note the second half of last year was up on the first half, and it reflected that we had a better second half. It was down on the second half of last year where we had very strong commodities earnings.
I won't dwell on the details by half, but I'll just note that the operating group contribution was also up 35% on half, and year-on-year it was down 35% from the very strong year last year. Before turning to looking at each operating group, a couple of things I'd note. One is the assets under management have grown by 7% to AUD 938.3 billion. The big drivers there were in our Private Markets funds, the investments that we made, lifted AUM, and also market movements and foreign exchange contributed. That was partially offset by assets that we no longer manage as a result of reduction in our co-investment management rights. The second thing, apart from assets under management, I'd note, as usual, is the footprint globally in terms of diversification of our income.
This year, Australia contributed 34%, which is up a little bit due to the non-repeat of the big gains we had in North America and EMEA over last year. But more broadly, we expect to see this non-Australian earnings contribution continuing to grow, given our small presence in these big offshore markets. And this last year, we had two-thirds of our income come from those offshore markets. We also had more than half our 20,000-odd staff based outside of Australia. Now, that 20,000 staff number has grown quite materially over the last few years, particularly over FY2022 and FY2023, and Alex is going to give you a bit of a deeper dive into the headcount growth and the cost growth when he speaks. I won't spend ages on this slide in terms of the diversification. It follows the messages I gave by region.
I'll turn now to going through each of the operating groups, and starting with Macquarie Asset Management. The result, as you will have seen, was AUD 1.208 billion, contributing 18% of Macquarie's earnings. That was down 48%, and as I said, the big driver there was, as we discussed at the half-year, that we had meaningful realisations of about AUD 800 million a year in FY22 and 2023 in our green investments, which were a balance sheet strategy. This year, we've held those assets to seed a fund, which is called the Macquarie Green Energy and Climate Opportunities Fund, but MGECO for short. You saw we launched that fund and transferred six of the seed assets across to that.
As we transfer assets to the fund, they're typically later stage ones, and we're transferring them at pretty close to the investment we've made in them, which we're typically expensing in DEVEX and OPEX each year, compared to the more mature assets on the balance sheet, which were being realized, as I said, for gains of about AUD 800 million a year. This year, in contrast, we had a AUD 200 million negative number due to the OPEX and DEVEX on those numbers, so about an AUD 1 billion turnaround in Macquarie Asset Management. I would also note, going forward, Macquarie Asset Management still has a portfolio of more mature green assets that will be realized over the next few years, but unlikely to be at the scale of contribution of FY 2022 and 2023 because we're no longer pursuing that strategy.
So over the next while, we'll gradually realize the balance sheet assets but raise the funds and build the fiduciary income. Now, as well as launching that MGECO fund, we also, over this year, had very good fundraising. So equity under management is up at just over AUD 222 billion, and that was after nearly AUD 22 billion of raising. It was a very challenging fundraising year, but investors were doubling down on their core managers. And so the seventh in the series of the European funds, MEIF7, was the second-largest raise in infrastructure funds globally, being just a regional fund at EUR 8 billion and subscribed above its hard cap. We also, as well as MGECO, as I mentioned in the half as well, have the Macquarie Green Energy Transition Fund, the earlier stage fund, MGETS raising.
That's at $2 billion, and interestingly and materially, it's the first of our Private Markets funds that's distributed its capabilities via the very big U.S. wealth channel, which is not one MAM has previously done distribution into. We've really worked with big institutional investors, but areas like insurance and Private Markets wealth are becoming bigger sources of funding. So also, we're ending the year with over $37 billion of dry powder in MAM. That's also a record dry powder in the Private Markets . In the Public Investments , the assets under management, they were up 6% to just over $567 billion, mostly driven by market movements, but pleasingly, 69% of the strategies. It's a multi-boutique approach, beating their benchmark on a three-year basis.
Then turning to Banking and Financial Services , the result there, again, you will have seen AUD 1.241 billion, up 3% and contributing 19% of the operating group income this year. There, our digital banking offering continues to gather market positioning and grow the franchise. So we had good increases in the home loan portfolio, up 10%, the business banking portfolio, which was up 22%. Now, that's off a low base, so a material percentage growth for us, and the funds on platform, which are up 15%. That was supported by the deposit growth of 10%. In terms of volumes, we did announce just recently that we would cease new car lending through our broker and our direct and our novated leasing channels, so that will see runoff slightly. The other thing that impacted the results, obviously, is the competitive dynamics and margin pressures, as well as ongoing investment in the platform.
Then turning to the market-facing businesses, Commodities and Global Markets, AUD 3.213 billion, which was down 47% but still the biggest contributor at 47% of the group. That middle column there, the commodities area, is where we saw the meaningful step down, and that was basically, as I said, due to the market environment where we didn't have the European and North American volatility we saw in FY 2022 and 2023. That impacted both the income from risk management services, which depend on how active our clients are, and also the inventory management and trading. Alex will take you through in more detail where this played out, but in the risk management, it was really metals, gas and power and resources, to an extent, offset by agriculture where we continue to grow our franchise. And in the inventory management and trading, it was North American gas and power.
Now, either side of that, the two businesses, Financial Markets , another good year and growing of the franchise there. In foreign exchange, we had strong client activity globally, and we also, in the fund financing, had good growth in the book in North America. And in futures as well, we saw improved commission and interest revenue. And the Asset Finance business, and I should say that Financial Markets in a more normalized year like this, we're getting sort of two-thirds from commodities and a third from Financial Markets and Asset Finance , with Financial Markets being a big contributor at nearly 30%. Asset Finance , again, we were able to grow the total portfolio by 5% to AUD 6.5 billion. Then Macquarie Capital, the result of AUD 1.051 billion, was up 31%.
Apologies, Michael, I got it wrong by percent when we were speaking earlier, but that's a good result for Macquarie Capital improvements and step-up-wise, 16% contribution from it. The big driver over this year was the investment-related income, where we continue to grow that private credit book, so it's up AUD 4.5 billion now at AUD 21.5 billion, and also in terms of lower impairment charges for our equity positions. On the fee income side, last year you saw across the industry, again, was a more subdued year, so the fee income was down, but we had higher broking fee income. Then turning from earnings to balance sheet and funding, our funded balance sheet has ever remained strong, with our term funding comfortably exceeding our term assets over the year.
Alex and the team were able to raise another AUD 21.1 billion of term funding in what were quite conducive markets, and our deposits grew across the whole of Macquarie Group by 10% to AUD 148.3 billion. Our capital as well has ended the year stronger at AUD 10.7 billion, up from AUD 10.5 billion. The big contributor there was the earnings, offset by the dividend. We also did AUD 600 million of buyback, which again, Alex can give more details of, and the businesses absorbed about AUD 600 million, which I'll elaborate on in a moment, but I just wanted to note that our CET1 ratio is at 13.6% at the end of the year. In terms of that AUD 600 million of absorption of capital, the biggest area was in Macquarie Capital, where we were growing both the private credit book and equity deployment, and that was in areas like technology and in infrastructure and energy.
We also had CGM, particularly in the second half, increase credit capital driven by portfolio growth and client service, and in BFS, we had ongoing growth in home loans, business banking, partially offset by the runoff in car loans but consistent absorption of capital. Then in Macquarie Asset Management, particularly in the second half, you saw that reduction of AUD 700 million just in the second half due to divestments, predominantly driven, as I said, by this agreed acquisition of the six renewable investments by the MGECO fund. With that, we remain very comfortably above our Basel III regulatory ratios, as you can see here. The last thing I wanted to touch on is the dividend before handing over to Alex. The Board has declared a second-half ordinary dividend of AUD 3.85 a share. That takes the full-year dividend to AUD 6.40, and that is a 40% frank.
It's at 70% payout at the higher end of our range. We have mentioned that we feel we have surplus capital at the current stage. We're mostly addressing that. The most effective way for shareholders is via buyback, but we also are doing it through dividends. So with that, I will hand over to Alex to take you in much more detail through the financials.
Thanks, Shemara, and good morning, everyone, from me as well. As Shemara said, I'll now take you through a little more of the detail of the financial results for the March year-end. Starting with the income statement, I might focus initially on the second half and then draw it together for the full-year result. So you can see, as Shemara said, a stronger second half relative to a pretty subdued first half of 2024.
Operating income for the second half was up about 13.5%, and the main drivers of that, you can see at the top of that stack there, an AUD 417 million increase from net interest and trading income. We also had an AUD 203 million increase in fee and commission income. We had an AUD 252 million reversal through the P&L of credit and other impairment charges. We also had nearly a doubling of the investment income as the climate for realization the second half was better than we saw in the first half. From an operating expenses viewpoint, you can see the operating expenses up about 4% on the first half. Largely, that reflects the increased profit share expense we saw coming through the group in the second half, consistent with the performance of the group, partially offset by lower underlying salary costs as the headcount is trending down.
On a total basis, that was AUD 2.107 bottom line, up just under 50% on where we were for the first half. Now, if you bring those two halves together and look at the full-year result, you can see net operating income at AUD 16.9 billion, down 12% on where we were this time last year. The main drivers of that were a 16% reduction in net interest and trading income following the very strong conditions that CGM experienced through FY23. We also saw a 49% reduction in investment income coming through particularly Macquarie Capital and Macquarie Asset Management.
Partly offsetting that was a AUD 235 million release in the P&L from some impairments that we'd taken on a small number of equity positions across the group in prior periods, and a AUD 134 million release in the P&L from credit impairments, where we see the macroeconomic climate improving, and we've changed our weighting of scenarios that are impacting our expected credit loss provisioning. If you look at the operating expenses, operating expenses were broadly in line with where we were for FY23. There's a couple of things happening there. In terms of underlying average headcount, average headcount for the year was up 8% from where we were in FY23, and we're seeing ongoing, albeit slowing, wage inflation through the year. We've continued to invest in data and digitalization efforts across the group, and we had some unfavorable foreign exchange movements as a result of the depreciation of the Australian dollar.
Partly offsetting that were lower profit share expenses consistent with the underlying performance of the group. The effective tax rate for the year at 26.8%, up from 26.1% last year, so an increase in the effective tax rate. Really, the nature and the geography of income coming through this year. And so the bottom line of AUD 3.522 billion, down 32% on the record result that we saw in FY23. Now, given the increase in the operating expenses that we've seen over recent periods, we thought we'd add a new slide to the deck, which really shows the composition of operating expenses and, importantly, the movement in average headcount over the course of the last few years. I thought I'd focus on the period from FY21 to 2024. Obviously, that's where we've seen the significant step up. That's also been a period of time of significant growth across the group.
So from a revenue viewpoint, in FY21, we did AUD 12.8 billion worth of revenue. In FY24, we're doing AUD 16.9 billion worth of revenue. Commensurate with that, I guess, is the increase in the operating cost base. The operating cost base in FY21, AUD 8.9 billion in total, now just over AUD 12.1 billion. In terms of the underlying drivers of that increase in the cost base, you can see average headcount over that period of time increased 29%. There are three main drivers there. We've invested in the growth in the business that we've seen over the course of the last several years. We've increased our focus, our headcount associated with regulatory and compliance obligations in many jurisdictions around the world, and we've also undertaken some acquisitions. So we've increased our headcount as a result of those acquisitions that the group's done over the last few years.
In addition to that, we've seen a 50% increase in non-salary technology expenses, things like market data, things like software licenses, programs of data and digitalization across the group that are intended to scale what the enterprise is able to do on a global basis, and, of course, investment that we're making in data and digitalization to support our important regulatory and compliance obligations around the world. So that's a 50% increase in non-salary technology. And we've also seen a nearly AUD 500 million increase in other expenses. And there's a few components there, obviously, but a couple of things that are worthy of note in this period in particular is that we saw travel and entertainment expenses up quite considerably from 2021 to 2024, mostly because 2021 was actually a low period, as people recall, in COVID.
But in addition to that, we've seen a significant step up in the amortization of intangibles consistent with the sort of businesses that we bought over the course of the last few years. You can see from 2023 to 2024, the operating expenses are fairly flat, and what we're really seeing there is, while the averages have been going up over the last three or four years, we're now starting to see that headcount trend flattening out and, in fact, coming down. If you look at the ending balance of staff at 31 March, it's pretty consistent with where we were at 31 March 2023, albeit the average for the year was up that 8% that I mentioned previously. A slide that I think people are, no doubt, familiar with, the regulatory compliance and technology spend.
That's obviously been a large component of what's been going on from an expense viewpoint over the last few years. While you can see from this chart that both the regulatory compliance spend and the technology spend continues to trend up, a couple of things that are worthy of note, and we mentioned this last year, our expectation. In relation to the regulatory compliance spend, the growth rate is actually lower than the growth rate we've seen over the last five years, and that's really consistent, I think, with the work we've been doing in terms of preparing the organization for the change that goes through in regulatory and compliance in an organization like ours, but also the conclusion of some of the projects that we've had that have been influencing that spend over the course of the last couple of years.
In relation to the technology spend, the growth rate's still pretty consistent with the average. It's about 14% over the last 12 months, but importantly, we're now spending 35% of that technology spend on change the organization initiatives and 65% on run the organization initiatives. That percentage has changed. It used to be a smaller proportion on change. An important thing there, of course, is it's setting up the organization to meet our obligations, but be also able to support the growth of the business that we expect in years to come. Turning now to the operating groups, a little more detail of the financial results, and I'll start with the Macquarie Asset Management businesses, as Shemara mentioned, down 48% from where we were for FY23, ending result of AUD 1.208.
If you look at the movements there, you can see base fees across the group up AUD 92 million, and the two components there. On the private market side, base fees up 11% at an additional AUD 143 million worth of base fees, and that really reflects the investing the team's been doing, not just this year but in prior periods, and also the fundraising that we've seen, the good fundraising we've seen continuing in that business over now many years. On the other side, partially offsetting that was a reduction in the base fees coming through from our Public Investments business, and that's largely consistent with the story we've seen over time, where we've seen a shifting of exposures, our client exposures, from equity portfolios toward fixed income portfolios, and that's really driving what's going on from a base fee viewpoint in that part of the business.
As Shemara mentioned, and we've been talking about during the year, if you look at in the middle of the chart there, you can see the reduced contribution from green investments during the year, down AUD 823 million. People recall we had a very strong period of investment in 2023. We didn't see that repeat into 2024. And we're also continuing, Ben and the team are continuing to invest in the renewable and development activities we're undertaking across many markets in the world, and that resulted in increased expense going through the P&L of AUD 212 million. Assets under management over the year up, as Shem said, 7% at AUD 938 billion. Importantly, AUD 38 billion of dry powder to invest after another good period of capital raising, so the team's been busy raising capital and is well-positioned to deploy that in the coming periods.
Turning to the Banking and Financial Services business, you can see up 3% from where we were this time last year, and some really strong and important volume growth this year. So 13% growth in average home loan balances this year, really strong 20% growth in the business bank, which is really pleasing to see given the focus the team has had there, and supported by a 14% growth in terms of average deposit balances over the course of the last 12 months. Now, net interest and trading income you'll see coming through the P&L up 5%, so that overall volume growth has been partially offset by margin pressure and funding costs associated with that business.
If you sort of break down the component parts a little more there, from a personal banking view, up AUD 23 million in terms of contribution, so we're seeing increased volume, but competitive pressure from a margin viewpoint and funding costs that are dragging down that result. Business banking, as I said, benefiting from the volume growth, but also we saw the benefit of the interest rate environment coming through our business banking deposits over the course of the last 12 months. Credit impairment, there was an increased release of AUD 49 million in the P&L this year. Again, that was reflective of the fact that the macroeconomic environment is much improved from where we were 12 months ago, and we reweighted the portfolio to a more balanced view between our upside scenarios and our downside scenarios.
We've continued to invest in the business with expenses up 12% this year, and in that other column at the end, you can see the drag that's, among other things, but the drag that's occurring from the rundown of the car loan portfolio over the course of the last 12 months. Underlying products, volumes all heading in the right direction with home loans at, I think, now 5.3% of the market and deposits just over 5%.
In terms of the first of the market-facing businesses, the Commodities and Global Markets business, as Shemara mentioned, I think a really pleasing result, particularly in the context of the subdued environment that the business experienced over much of the last 12 months, and I think reflects the point we've been talking about for some time, that the underlying drivers, the franchise drivers here are the growth of the client franchise and the provision of services to those clients, and we saw that coming through over the course of the last 12 months. If I break down the movement a little bit, so the end result was AUD 3.2. You can see on the Commodities side, Commodities income down AUD 2.6 billion from where we were in FY23.
Importantly, as people know, we're up on FY22, AUD 200 million up on where we were from FY22, which, again, reflects that client franchise point I was making before. In terms of the drivers of the move between FY24 and FY23, we saw a materially lower contribution from our North American gas and power business, which experienced very strong conditions in FY23. We also saw a reduction in the contribution from our EMEA gas and power business and our resources business, partly offset by opportunities the team saw in the agricultural markets, particularly sugar and cocoa, I think, over the course of the last 12 months.
Great to see the Financial Markets business continuing to grow AUD 166 million, and I think people will recall, over many years now, that business has been ticking up at a nice rate as we grow the client franchise and we extend some financing opportunities to clients in that market. So really pleasing to see that continuing to grow, and that business this year represented 29% of CGM's overall result. And you can see the expenses coming through there, up AUD 400 million as we continue to invest in the data and digitalization opportunities in CGM. And importantly, CGM has many obligations around the world from a regulatory and compliance viewpoint, and we continue to invest to ensure we can meet those obligations. Hopefully, reasonably familiar slides now for everyone, but we've set them out again.
The operating income and the client numbers, the only point to make here is the strong correlation between client numbers going up and client-related business also heading up. This business is all about more clients in more jurisdictions and more often, and that's what the team's been doing for many years and has continued, obviously, over the last 12 months. In terms of the capital position, the capital position is pretty consistent with where we saw it at March 2023, still very exposed to credit capital or predominantly exposed to credit capital, consistent with a client service type of offering. Then on the right-hand side, you can see the daily P&L chart, which, again, we've produced this year, and I guess the shape is, hopefully, what people were anticipating.
We saw more subdued conditions, so we see the distribution of daily P&L slightly skewed to the right, consistent with the growing client franchise and far fewer outlier days than we saw in the prior periods where we were experiencing much more conducive trading conditions. Then finally, turning to Macquarie Capital, I think a really pleasing result in the context of quite a difficult market for investment banking and merchant banking type activities around the world. So up 31%, AUD 1.051 billion of contribution. You can see the drivers there. Investment-related income up AUD 487 million. The returns from our private credit portfolio up 406%. This reflects the fact that we're able to grow the book in terms of average balances by AUD 3.6 billion during the year, and margins were pretty consistent in that business, which is great to see.
We also saw the release of expected credit loss provisions in that part of the business as well. The underlying book is performing very well. In addition to that, we see an improving macroeconomic climate relative to where we were last year and, obviously, the reweighting of the scenarios. We had increased investment-related income. Partly, that's gains on revaluation of assets on the balance sheet and some disposals that the team undertook during the year, but we also saw the reversal of a number of impairments or a small number of impairments on equity investments that we'd taken in prior periods coming through this result. Fee and commission income down AUD 155 million. I think everyone's probably pretty familiar with the level of activity around the world being more subdued over the last 12 months, and Macquarie Capital saw that as well, and operating expenses up AUD 82 million.
In terms of the capital, partnered with Macquarie Capital clients around the world, you can see up AUD 1.2 billion. So the team has seen some good opportunity to invest over the course of the last 12 months. You can see the growth in the private credit book there coming through, but in addition to that, key sectors of expertise, technology, energy transition and adaptation, digital infrastructure, all those areas are providing really good opportunities for Macquarie Capital to deploy over the last 12 months. And on the right-hand side, you can see the private credit book, as Shemara mentioned, the closing balance, AUD 21.5 billion, a pretty diverse book, about 160 positions, typically defensive type underlying borrowers and good cash flow generation, so really pleased with that book's performing.
So if I now turn just to a few more aspects of the financial management of the group, just starting with the balance sheet, another good year from the team, over $21 billion worth of term funding raised in the last 12 months. About 75% of that's been in the bank, and about a quarter has been in the group. Pleasing to see the ratings upgrade from Moody's that came through in March this year, and that'll, obviously, help us continue to diversify the source of funding and raise the most cost-effective funding that we can. As I said, we have diversified the issuance strategy. Really important. We've been doing this for many years now, and we continue in the last 12 months.
We now have over 2,000 investors that actually own Macquarie Paper around the world across a whole range of different programs, and we added another 100 new investors or new-to-organization investors over the last 12 months. And the weighted average life hasn't changed much from where we were before. Now, at four and half years. Deposit base, super important, obviously, from a BFS perspective, largely providing the funding that's supporting the growth of Greg and the team's business in BFS, so up AUD 14 billion this year. And really pleasing, I think, to see the increasing diversity of that deposit base, in particular, the work the team's done around the transaction and savings accounts over the course of the last few years and the traction we're getting with clients because of the product we're actually out there providing in the marketplace. The loan and lease portfolio up 11%.
You can see the main movements there at the top of the page. You've got home loans and business loans up, and at the bottom of that page, you can see the growth in the Macquarie Capital business from $17.1 billion to $19.8 billion drawn at 31 March 2024. In terms of the equity investments, obviously, quite a big step up from $9.6 billion to $13.2 billion. Some of this is a bit transitory because we've on this page, there are, for instance, the assets that Shemara mentioned that have been sold from the balance sheet into the Green Energy and Climate Opportunities Fund, so they sit there as held-for-sale assets at the balance sheet, and they'll settle in due course. But in addition to that, we've seen quite a bit of investing across the group.
So the AUD 3.6 billion of growth, obviously, we've continued to invest in our Green Energy portfolio, particularly in Corio. We talked a lot about the offshore wind asset in the U.S. that we were successful in tendering for at our half-year results. So you're seeing continued investment through our Green Energy portfolio. You're also seeing, particularly from a Macquarie Capital viewpoint, as I mentioned before, an increase in digital infrastructure, an increase in cell towers, fiber optic networks, IT services type businesses that the team have been investing in for many years and were successful over the course of the last 12 months at achieving some completion of those transactions. In terms of the regulatory update, obviously, the environment here in Australia continues to evolve.
The near-term focus, I think, as everyone is probably aware, is around operational and cyber resilience, obviously, two really important topics, liquidity, interest rate risk, and, obviously, the ongoing conversation about bank hybrids. The capital position of the group, the bank at least, at 13.6% CET1 ratio, so a very strong capital position and, similarly, a very strong liquidity position. We still have nearly $60 billion of unencumbered cash and liquids on the balance sheet. Obviously, the LCRs come down a little bit to 191%. That's a deliberate strategy to bring that back closer to the target level for liquidity. And just finally, from a capital management viewpoint, just a couple of things. Shemara mentioned the dividend. Obviously, the board has also opened the Dividend Reinvestment Plan at a 0% discount for the final dividend. Any shares issued under that DRP will be acquired on market.
In relation to the Macquarie Group Employer Retained Equity Plan, the board has also resolved to acquire shares on market to satisfy the issue of MEREP grants for FY2024. Just finally, in relation to the buyback we announced as part of our half-year result, as it balanced out, we bought back AUD 644 million worth of shares at an average price of AUD 183.26. With that, I'll hand back to Shemara.
Thanks very much. Thanks very much, Alex. I'll take you through the outlook, and then we'll open for questions. As usual, we'll start with the short-term outlook, looking at it by each of our four operating groups. First of all, Macquarie Asset Management. As we've been saying for the last five years, we expect base fees to be broadly in line.
But in relation to net other operating income, our expectation is that it should be significantly up, and this is mainly due to higher investment realizations from our green investments. Now, having said that, I mentioned we will continue to have a portfolio of green assets on the balance sheet, and our net expenditure in the green portfolio companies that are operating on a standard loan basis, we expect to remain broadly in line. Turning to Banking and Financial Services, we are expecting continued growth in all of our loan portfolios, funds on platform, deposits, but that is, obviously, going to be impacted by market dynamics, which will continue to drive margin pressure. And also, as has previously been the case, continued investment for digitization and automation across the platform, driving scalable growth and ongoing monitoring of provisioning.
Then turning to the market-facing businesses, Macquarie Capital, subject to market conditions because it is a market-facing business, we're expecting transaction activity to be significantly up on what has been still another challenging year. And in relation to investment-related income, we're also expecting that to be up because we expect continued growth in our private credit portfolio, and we also expect increased revenue from asset realizations, and we will continue to deploy balance sheet capital in both equity and debt investments there. And then Commodities and Global Markets, again, subject to market conditions. In the commodities division, our income is expected to be broadly in line, subject, of course, to volatility that could create opportunities. And in Financial Markets and Asset Finance , we expect a continued contribution from those as we grow our franchises.
The compensation ratio and the effective tax rate, we expect to be in line with historical levels, and all of this short-term guidance remains, of course, subject to a range of factors, and those are market conditions, which would include the global economic conditions, inflation, interest rates, any significant volatility events, and the impact of the geopolitical events we're seeing, completion of period-end reviews and completion of transactions, and the geographic composition of income and impacts on foreign exchange, and lastly, any tax or regulatory changes and tax uncertainties.
So given all of that, as we've often said, we continue to maintain our cautious stance to all of funding, capital, and liquidity to position us for whatever environments we may face, and that's been the case, of course, over the medium term, where our guidance there is that we think we remain well-positioned to deliver superior performance because of the diversification of our capabilities across these four operating business lines and, indeed, within them, so that even in a Macquarie Capital, we have the private credit and more annuity-style income with the more market-facing advisory and fee revenue. But they're importantly areas in which we think we have deep expertise, special expertise, to deliver better return and to see ongoing structural growth we can respond to.
Now, that's, of course, supported by, as Alex has mentioned, our very strong operating platform that we continue to invest in for defensive and opportunity-driven reasons, our very conservative approach to our balance sheet, and our proven and prudent risk management framework and culture. And that has allowed us, over the medium term, to deliver returns, over the last 18 years, on average, of 14% across the business, 22% in the annuity-style and 17% in the market-facing. This year, those figures were 12% in the annuity-style as we transitioned to this green investment strategy that we think is a very medium-term important one for us, and 16% in the market-facing, giving us 10.8% overall. So with that, I'll hand back to Sam to take your questions.
Shemara, so we'll start with questions in the room, and then we'll go to the line.
I'll start with Ed Henning just in the second row there. Thanks.
Thank you. Ed Henning from CLSA . I've got a couple of questions on MAM, please. The first one, in the short-term outlook, you talked about the net expenditure from the green portfolio being basically broadly in line. Can you just run through that in a little bit because you've been developing, you've been using the development expenses, going through the P&L? Why isn't there a saving there as you've sold those assets and rolling that forward as the first one?
Yeah. And, Ed, I might actually take both questions because I'll briefly answer them both, and then we've got Ben here, so Ben can elaborate if that's okay.
Yep. No worries. The second one was just on the other operating income in MAM. It was just under AUD 600 million in FY24.
Now, I understand the line can be volatile, and a few things go through there. Can you just talk about how you think of, as an average year, is 2024 below, and also now as you have less green investment gains going through? Should that line go down a little bit, or that'll be offset by performance fees coming through? But any guidance on that would be helpful.
Sure. So brief comments on the OPEX and DEVEX that we're having in the green portfolios. We still have some meaningful portfolios left there in solar, wind, etc., and they're continuing to invest and build up, and we'll, at the right point, be realizing those separate portfolios that are at a point where there should be accrued gain in them.
So rather than exit them to a fund where we could have questions later on on the pricing, we're looking to exit those from third parties, but we're continuing to incur OPEX and DEVEX that we typically expense there, so that will run for a bit longer. In terms of the realization of the assets and the offset from performance fees, we do expect this year to have more because last year we were really focused on the fund. Now, I think the MAM team will be focusing on, in parallel, realizing some of those operating platforms we have, so we expect higher investment-related income from those. We'll have to see how much interest there is in the market in them. There seems to be very good interest in green portfolios, but we'll see over this year.
But at this stage, we're expecting, on our base view, that we should be up on where we are. In terms of performance fees, there's the question of the seasoning and the timing of the funds because we have a whole lot of funds, some which didn't have catch-up that are realizing at the moment. But, Ben, hopefully, I've left you something to elaborate on there. But in terms of the two questions, one is the green portfolio and how you're running that down, and the other is investment-related income and performance fees.
Well, I don't think there's actually much for me to add.
The only thing I would say is it was obviously a much more subdued market last year from an M&A point of view, and I think the other thing you've got to remember is that we've been raising much bigger funds, and those funds are still in their deployment or they're in the asset management phase. So as we look to the sort of medium term, we've got more money to deploy than ever before. We've been raising bigger funds, and so over time, obviously, you'll get that performance fee, but that is not for some time. So that will certainly offset some of the investment gains from the green investment business, and I think Shemara answered the OPEX and DEVEX question as well as I could.
Sorry, just one follow-up on that.
Just how long do you think the green investments will take to roll through, to get those, and then you offset with the performance fees coming through? Is it a two-year, three-year, five-year period? How long should we expect to see those gains stop?
Oh, I was just speaking instead of cutting. It will certainly be a multi-year effort, so it won't all be done in one year. We're really pleased with the support we've had from the market to establish both the MGECO and MGET fund, and we see a very good pipeline of investors for those, and we've already deployed significant amounts of capital in building those portfolios.
But as Shemara said, we do have a couple of very large platforms that have embedded gains for shareholders that can't be transferred, obviously, for conflict reasons from a fiduciary point of view into funds that we'll continue to support with OPEX and DEVEX, and over the next couple of years, as it makes sense, we'll look to divest those and create a realization. So again, some of it will hopefully occur this year, then into the next year, but it is a multi-year effort.
Thank you.
Beyond that, it could be three to four years of the realization of the assets, which will support your strategy, medium term of growing the fiduciary income.
Right. John, second line there.
Thanks. Can I just follow on with that topic for Ben and Shemara as well?
It looks like the MGECO was established in April, so does that imply that some of the assets were sold into the fund at a gain which have already been crystallised into the FY 2025 year? So you've effectively started this year off very well. Am I interpreting that correctly?
Did you want to answer it, Ben? I can briefly say the funds that we're transferring, the assets we're transferring to the fund, as we've mentioned previously, we tend not to look to make a big gain on transfer because we want the fiduciary investors long-term to have a very good experience. They're usually earlier assets. But, Ben, I'll let you elaborate into that.
So first of all, MGECO was definitely closed before April, before the 31st of March. That's important.
It's only had its first close, and so obviously, we've transferred a number of assets that we were holding really at cost on the balance sheet into that fund because, as we've discussed before, investor sentiment to actually not back blind pools but to come into a seeded fund, that's a point of difference often for us because we can use the balance sheet to do that. So I think it's fair to say that we've now got a fund with a first close that has a good set of assets in it, which makes it much easier for future investors to do due diligence. And I think it is fair to say also that we've got good momentum around the fundraising there, and those assets are performing well.
Just a follow-up question, actually, more on the private credit side because I think the portfolio is now in equity north of $200 billion with the capital tied up there. Just wanted to get a feel for the returns on that and the ROE in there. Given how rapidly it's going, the opportunities that you're seeing, is the ROE coming under any pressure? Michael or anyone there?
Yeah. And happy to let Michael speak briefly as well. But basically, I think we've said that we're making net of our transfer pricing close to 5% on that, so the transfer pricing's a couple of percent. We think for the risks involved, that is very good return. I think we've mentioned previously, we're provisioning expected credit losses at 3%-4%.
Our experience has been 0.3-0.4 because they're very good investors in the niches in which they invest and through the cycle have managed to deliver pretty good returns. Michael, did you want to talk because Michael's very closely watching the credit and the equity investing going on?
Sure. John, as you know, the market's grown a lot, so in the sponsor market, about 80% of financing's been done direct. We're obviously not looking to be a market share player, so we're focused on those sectors that Alex referenced before, like software, education, healthcare, and there's been ample opportunity. We're not compelled to invest, and so we've been able to sustain the margins. Most importantly, though, the loss rate is what we're focused on, capital preservation, and that continues to perform in line with historical levels.
On the equity front, as you know, we've got a number of strategies, and we've seen really good opportunity in the past year, as illustrated by the growth in the book. That's across a very diverse array of businesses, and the returns are consistent with the historical returns that we expect to make. And so whether that's in the digitization area, whether it's in PPPs in economic and social infrastructure, or whether it's in technology, we're seeing really good opportunities out there.
And the only other briefing I'd add to that is we basically have four swim lanes where we see our people having really deep expertise and delivering superior return that we're backing with more capital. At this stage, we have a slight seasoning issue where they've put a lot to work over the last few years, and it realizes these are buy-and-hold's three, four, five-year holds.
So there'll be a point at which the equity book is delivering more consistently with the credit book, with a little bit of lumpiness around it, but we're still seasoning there.
I'll go to Andrew, and then Matt.
Thank you. Andrew Triggs from J.P. Morgan. Another question on MAM. So if you look at the profit performance this year, it's AUD 1.2 billion. If you go back to prior to GIG going into that business, it was routinely doing AUD 2.1-odd billion dollars of profit, albeit with some material gains on sale from European Rail and an M&A disposition fee. Can you give us a sense, please, of, A, to what extent was GIG loss-making this year and whether it will still be next year, and also whether the underlying earnings power of the rest of the MAM business is greater than what it used to be?
Yeah.
Again, I'll answer briefly to say, look, the underlying franchise has been growing. You've seen the equity under-management growing, the base fees growing, the Public Investments , AUM, growing, and the fees going on that. We obviously did acquisitions there that we've integrated and taken the costs out of now. So the underlying has been growing. You mentioned we'd had some very large one-offs, so the rail leasing was AUD multi-hundred millions. We had AUD 300-400 million there. The MIC was about AUD 600 million. So we've had various one-offs, but the underlying continues to grow. And I think for the last two years, the big one-offs for FY 2022 and 2023 were in the AUD 800 million odd of the green. But on the underlying franchise, Ben, is there anything on that, or if you have?
I think the one thing on the underlying franchise is the fact that we're managing $938 billion of assets under management today. The best leading indicator for an asset manager is, are you being trusted by your clients to manage more of their assets than ever before? And obviously, the answer for us is yes. In probably the most difficult fundraising market since the GFC, relative to our peers, our teams have done an outstanding job of not just raising our existing vintages like MEIF7. We've also got MIP6 in the market, which is going very well from a fundraising point of view, but also launching new products which, for most asset managers, first-time funds has been almost impossible to raise. So I think we are very happy with the client franchise and the support of clients.
We think in some areas, we've got unrivaled expertise and able to deliver on giving clients superior returns, but we are in a tricky period in terms of that transition. And this year, while we're very convicted around energy transition and we think we've got an unrivaled team, it was a more difficult year for green investments, and that was part of the transition. And as you note, we didn't have another significant one-off to buttress that. So we've sort of got a strategy in place for the medium to long term that we're convicted around, and we always knew there would be some years of transition, and this has been one of those.
And will GIG likely be loss-making again in FY 2025?
We've said that the operating expenses will be similar, but we expect some realizations this year, which is what we said about the net other operating income.
So in FY2024, we didn't have meaningful realisations. As I said, the team now are going to be, for the next few years, focusing on those. I would also briefly say, in terms of the underlying, that Ben and the team are looking at more than just the green, which is a very important adjacent strategy, but growing into private credit, the real estate growth that's been running for a while, the agricultural funds, the Asset Finance , which is part of private credit, but the aircraft portfolio. So there's a lot of growth going on in Private Markets in MAM, which is where really the interest is in terms of where investors want to allocate their savings.
And also, MAM is looking to grow more into the wealth channel and the insurance channel, and that as well is drawing investment, which we think for the medium term is very worth doing. It's not a massive % of MAM earnings, but that's all happening as well.
And maybe just to add, Andrew, I mean, you can see from our guidance, we talk about net other operating income significantly up. So we've obviously used that phraseology in the past. And so there's a component of that, which is the performance fees. There's a component of that, which is the returns that we expect from realising assets off the balance sheet and obviously our share of equity accounted income might come through our interest in the funds. We'd note that, at least in relation to the green component of that, we are saying subject to market conditions.
So the point that Ben made, I think, during the last 12 months, it's obviously been a more challenging environment from a realisation perspective, not because we think that the fundamentals have changed in relation to energy transition. There's obviously a huge amount of capital that's required to transition the energy market, but we've seen supply chain challenges across the sector. We've obviously seen some of those assets that we talked about at half-year where people had actually had to give up their PPA, their feed-in tariff, because the pricing was yesterday's cost and today's economics. So all of that's been playing through. I think the team's done a good job at, actually, as Ben said, raising the fund for or raising the capital for MGECO to enable the transition to get underway.
Obviously, this year, we're pretty comfortable with the way the portfolio's performing, but at the end of the day, we've got to make sure that the market's there to support them, and the assets are really high-quality assets. We want to make sure that those that we're either putting into the funds or we're selling to third parties, we're getting the right value for those assets.
Thanks. And maybe second question on commodities. So I've seen some data which shows open interest in global commodities back close to a record level and flows year to date, coming year to date, have been very strong into commodity markets. To what extent is that a lead indicator for particularly the risk management product line within the commodities franchise?
And again, Simon's here, so we might let him comment.
But ultimately, even within commodities in CGM, there's huge diversification across gas and power in North America, growing into EMEA, growing into Asia, oil, ags, resources, etc. And in all of them, we're patiently looking at growing these franchises. So we see opportunity in every one of them because we're a small player. Were you talking about energy commodities specifically there, or were you talking about commodities?
It was both, actually.
Okay. Did you want to, Simon, comment?
Yeah, sure. I mean, that inflow is well recognized, and we're seeing the uplift in our business through the client franchise. I think over the last two years, we've seen our client numbers and percentage grow by 8%. That's someone calling the client calling, Simon, to pick up the phone. Yeah, it's an order. But obviously, what drives the inventory management is the volatility.
So we realize money in two ways through our client franchise, but also the opportunities that that volatility presents. But we are very focused on continuing to grow that client franchise, which we're demonstrating, while still maintaining that optionality around the opportunities that come with volatility. So it's pleasing to say these inflows. We are benefiting from them, but the real optionality will be driven by volatility.
Thank you.
And we've got a Matt. Thanks. Matt Dunger.
Yeah, thanks very much. Matt Dunger from Bank of America. If I could just ask you on the Macquarie Asset Management capital requirements, which are reduced by AUD 700 million in the half, you called out MGECO and the transfers. Can you walk us through the outlook for business capital requirements for MAM going forward?
Yeah.
And I'll let Alex give you the detail because, as he mentioned, we have different treatments in how that's shown. So in the equity list, the assets are still there. But I think broadly, we should see that equity requirement in MAM step off as we realize these green assets. Do you want to give details?
Yeah. I mean, I think there's a few things going on there. I mean, obviously, we have, as Shemara and Ben mentioned before, we've obviously agreed the terms on which the transfer of some assets will move from the balance sheet into the new Green Energy and Climate Opportunities Fund. So the capital's come off. The settlement hasn't occurred, which is why they're sitting still on the balance sheet and that equity slides. That's why I mentioned that that will come up off relatively quickly.
My expectations, so in that green investments, in green energy component on the equity investment side, you've got a couple of platform assets. Those platform assets, we've been building for some time. I think, as Ben mentioned, we're likely to think about realizing those assets to third parties in due course rather than through into funds. And so they'll result in a reduction, you would guess, in the equity you've got alongside the asset management business. The other side of that, though, Matt, is that we're obviously growing our energy transition fund. We're growing our renewable energy fund. And consistent with that, you also see group contributions to those funds, LP interests to those funds that'll no doubt grow as we grow those businesses, at least for the next little while.
So I think Shemara's point around the direction of travel's probably right, but there's obviously a few components there that'll influence exactly where we get to over the next one to two, three years.
Thank you very much. If I could just follow up on that, in terms of the deployment you're talking about of capital into MacCap, is that subject to realizations happening? And Alex, any comments updating? Now, six months ago, I think you were talking about expectations for realizations to really start to kick off in the second half of this year. Is that still on track? Have you changed expectations?
Yeah. I mean, maybe I'll just make one point, and then I'll let Silverton talk. Really importantly, from my perspective, I was really pleased to see the investment team had done over the last 12 months.
I mean, obviously, in a subdued environment, what we want our teams to be really encouraged to see the investing, particularly in the areas that the team has got great expertise in. As to the broader question, I might leave it to Michael.
And just one little thing I was going to say is that we're at AUD 13.6 billion of equity. I mean, we have the green assets coming off, but on a AUD 34 billion total equity position. So concentrations-wise, we really focus on appetite. Michael's teams are managing to originate a lot of other good investments. So if we want to deploy, we may look at bringing partner equity along, but that's it.
Yeah. The only point I'd add is that within the equity portfolio as well, we have a number of companies that are seeing opportunities themselves.
One of the key aspects of working alongside our clients is that we can support them on that growth. At times, if there are opportunities to grow the platform further and then time the realisation, that can work in the interests of our clients. We've seen a lot of growth within those portfolio companies as well.
Obviously, just, Matt, more generally, the second half was better for MacCap than the first half. Part of that was the performance of the private credit business. Part of that was the revaluation gains on some of the portfolio investments and some disposals. As I said in my comments earlier, a reversal of some impairments on a small number of equity investments that MacCap had made. We're taking prior periods. We were able to reverse them this half.
Great. John? John Storey, just in the second row here.
Ryan, if you could just pass it for John or Silva, if you can pass that. Yeah. Thanks.
Thanks very much. Thanks, Sam. John Storey, UBS. Just wanted to follow on from Matt's question there, just around the AUD 700 million capital release, Alex, and just try and reconcile the delta or the move in the balance sheet in terms of assets held for sale. I think, obviously, everyone's trying to get a bit of a sense on what the size of realizations could look like for 2025, and a lot of people probably baked that into consensus already. So just that AUD 600 million difference, is that some of the mature-stage assets that Ben's referenced there, or is there a difference in terms of cost or market value? So just to reconcile that, that's the first one.
And then just the second one, which is, I think, a lot easier, is just to get an understanding. If you go and have a look at the corporate center just on the cost line there, has there been any change in terms of how group services are charged back into the business units? It's quite a big delta that came through during the course of this year in that line item. Thank you.
Second one. Maybe I'll just deal with the second one first. Pretty as you know, there's been no change. Obviously, when the corporate center gets fully recovered out to the operating groups, the step up, as you're referring to, I think, is probably consistent with the point I was making before around the increase in headcount.
A lot of that headcount's come through the central services area, so we recover that out to the businesses as we've always done. There's a few other things going through the corporate centre around earnings on capital, and we've been able to deploy our liquids into high-yielding HQLA rather than the exchange reserve account with the RBA. So that's generated a bit of return there. And then because the businesses have been able to deploy the surplus funding, we've been able to generate better transfer pricing, which sits in the centre. So that's really the movement in the centre.
And I should just briefly comment, Alex, that if you look across the walk across tables Alex does for each operating group over the last few years, you'll see that whole AUD 3 billion of increase allocated out to all the businesses. So it is recovered and has been.
In relation to the movement of the capital, the AUD 700 million of capital in MAM, mostly that's related to the assets that we have agreed to sell to the new Green Energy and Climate Opportunities Fund. So the conditions for releasing the capital have been satisfied, but settlement hasn't occurred. So those assets are sitting in held-for-sale on the balance sheet because settlement hasn't occurred. They're sitting in our equity investments, but they will come off the balance sheet when settlement actually occurs, but the capital's been released. In relation to the held-for-sale assets, I think you're referring to the step up in the balance sheet assets versus the capital. There's obviously a big step up, AUD 1.3 billion or something like that, some of which is the assets that I just referred to that are going to go from MAM into the Green Energy and Climate Opportunities Fund.
But there's also a number of other assets across the group, not just in MAM, that we have an expectation that sitting here today that we'll realise those assets, or we'll likely realise those assets over the course of the next 12 months. And so, as a result, they get reclassified as held for sale in the balance sheet.
Okay. Yep. We'll go to Brian. Microphone behind you. Thanks.
Brian Johnson, MST. Three questions, if I may. The first one is just on the transfer of these seven renewable energy assets and even East Anglia. Thanks. Long-suffering shareholders, the P&L gets hurt effectively because you expense the development and the construction costs, and presumably, you're doing a good job on that. Then you transfer them over effectively into the fiduciary fund. I'd just like to understand why there isn't a gigantic gain when you've been expensing the development costs.
Is the fact that there's no gain telling us that they haven't been developed very well? Why?
They're pretty early assets, so we'll be expensing intra-year. And then when we transferred, we pretty much just recovered our expenses, our OPEX and DEVEX in the transfer prices. And frankly, they're so early stage that we wouldn't be expecting in a third-party transfer to have massive opportunity of gain that we've foregone for the shareholders. So we think it's actually in the interest of the long-suffering shareholders to build these assets, transfer them, put them into a fiduciary strategy that long-term for, I guess, three reasons we're moving these assets to a fiduciary strategy. One, it's the volume of capital going into green energy is well beyond the capacity of our shareholders' balance sheet that we want to put to work. Two, frankly, the returns have come in.
They are still at a point where they're attractive for the risk of a long-term holder. But for Macquarie, where we were buying and exiting at much higher risks and doing much more development work at much higher returns, it makes more sense to have a fiduciary strategy in this. And three, frankly, the counterparts we're dealing with were starting to express some dissatisfaction with us seen as a buy-and-flip partner in these projects that we're doing, whether they're co-investors, governments we deal with, etc. So the long-term fiduciary approach will give us a much better license to operate in responding to this great growing opportunity that's going to happen for green investments.
Now, the ones, Brian, where the balance sheet has long suffered for quite a few years, those are the ones still sitting on the balance sheet where we've made a conscious decision in MAM to exit those two third parties. East Anglia that you just mentioned is one of those. We just exited that to L&G's NTR. And the six that went across, which were listed and Evie's sitting here in the front row, and will tell me that the SEC rules on general solicitation don't let us talk if we're actively raising a fund about how the fundraising is going, what we expect to get to. But one of the investors, UniSuper, put out a press release on the $400 million commitment they'd made listing the assets and talking a bit about the strategy. So there's information.
Then I think even the press release Ben you put out on MGECO and the launch has a bit of information. But you'll see the six assets listed. They're pretty early platforms like Aula, like PNE, etc., that we're early stage, have been working on this year. And Ben, hopefully, you can endorse that that's what happened on the P&Ls.
Yeah. I mean, I do think it's important, Brian, that we distinguish where we've invested and created an asset and held it on the balance sheet for four or five years. We do not put that into a fund. That would be unfair to shareholders, particularly where we're doing that and creating embedded value in those assets. And that's things like Corio and Cero. And so we will look to, over the next coming years, divest those on behalf of shareholders and realize a gain from those.
We have in MAM for many, many years used the balance sheet to often seed new funds with assets. That's all we've done here with MGECO. We've actually followed a path that we've done for the MEIFs, for the MIFs, for the MIPS previously. We often do that because our teams find good assets for the underlying investors, and we don't want to miss out on that opportunity until we have a first close of the fund. MGECO is no different to what we've done ever before for other types of funds. It's probably just attracted a bit more attention. I can certainly assure you we're not looking ever to transfer funds that shareholders have supported for a long period of time into a fund at the expense of shareholders. We have a very clear policy and delineation around those types of balance sheet positions.
And given that dissatisfaction, is the performance fee structure just the same as it always is? Yes, it is. For MGECO and MGET, yes, it's a very similar model to that you'd see in the regional flagship infrastructure funds.
Maybe just to add, sir, Brian, we obviously recover the DEVEX we put through the P&L. We obviously recover a cost of capital over that period of time. But as Shemara and Ben mentioned, they're relatively early-stage platforms. We put them into the fund. There's obviously a performance fee structure. The important thing, I think, to remember there is, A, we feel like the return we got for the risk that we took was the appropriate return. But, B, we're then subject to a performance fee.
And we've also got other parties that help us develop those assets from development stage through construction into operation, which is where you're obviously seeing a significant expansion of the value. We should be seeing significant expansion of the value. And we share in that as part of our management through the performance fee. So we feel good about that. And I think it's consistent with the point that the chairman was making before. When we transferred GIG into MAM, we had a bunch of assets that were early stage that we thought were good platform-type assets but weren't sort of pregnant with significant embedded gain. We thought those assets would move their way into a fund. The fund took slightly longer than we expected, but that's just the nature of the market.
But there are other assets that are sitting on the balance sheet that we think are really good platform assets that we'll end up realizing to third parties for the points that Ben made. It's very hard to make that quite a point.
So just to clarify, the transfer of the assets to MGECO and East Anglia One, just recovering the development spend implies that there is a realization gain on transfer.
Yeah. Well, there is. Yeah. It's a roll forward. So maybe just to East Anglia One is separate to the six assets. So that's the first point to make. Second point is, yes, obviously, the point is we're recovering what we've spent, plus we're getting a roll forward on the risk that we took at the time, and we're creating the new fund strategy for Ben.
We have about 105 gigawatts of renewable projects, and 17 of them have gone to MGECO according to the release that came out. So the ones that have gone there are later stage sorry, earlier stage assets that we're transferring at recovery of DEVEX. And it's a roll forward IRR at the cost of acquisition, which we've always done for seed assets. The ones that are more mature, we will exit over the next few years.
Great. Second question, if I may. The most common question that I certainly get from investors is on the private credit book. A few years ago, when we were all in the U.S., you basically were able to enumerate exactly how big the provisioning was. So it's a $21.3 billion book. You said quickly today what the loss rate is.
Could we just get a clarification of how much is the collective provision that's basically held against that book, and what is the annual long-run loss rate, and what is the life? And how long does the average exposure last?
I'll just say. So do you want me to take it? Yeah. Okay. So the collective provision, stage one, stage two provision against the book's about 2.5%, right? And we've obviously got some stage three provisions on a couple of underperforming, so idiosyncratic positions that we also include as part of our ACL. But the collective provision is 2.4%. And then maybe I'll let Silverton talk about the loss rate.
Yeah. The other thing to add is that we've also got unamortized fees that are held roughly about 2%. About 2%. So yeah.
The loss rate continues to be within the historical numbers that we presented to you in the U.S. last year. It's actually been performing very well, and we expect that to continue.
And Michael, what's the life of each exposure?
The weighted average life of each exposure? Is that the question?
Yeah.
Yeah. It's about three years.
Three years. So from memory, it was a 30 basis point loan loss each year. That's about right.
That's the average over the year. So we're following the overall. Yeah. And then, like in COVID, we had some positions like ferry loans that we took. So that's over time. Sometimes it'll be less than that. Sometimes more. But this is the average over a very long.
Final one, if I may, push my luck. And I suspect I'll get no answer.
If you have a look at the MEREP disclosures today and even the commentary, you talk about, in the middle, lower bonus payment. Could we just get a feeling for the ROE? It's certainly lower than it was last year, but I sense that the bonus pool didn't mechanically participate in all of the upside of the super composite global market cycle. How much did that basically smooth the ROE in this period?
If anything, it dragged down the ROE because, basically, we pay all our businesses a percent of the profit they make for shareholders based on what the return on equity is and the stability of the income. And that's been a pretty well-established rule. As the business is mature, that sharing rate may come down a little. So we've been allocating on that basis for a very long time.
But the way we pay people now with big share-based payments and retentions, it gets expensed in a delayed way through the P&L. So actually, what we've had this year is a few hundred million AUD of expensing of the profit shares from the last two years hit this year and actually dragged down earnings. Now, Alex, I think we've disclosed the numbers.
S o you can see them. Share-based payments expense, obviously, the MEREP that we issued through 2022 and 2023 accumulates and amortizes over the vesting period. So the historical high level of profit the group generated and the payout of that in the form of MEREP actually affected the current year P&L. I mean, obviously, the current year profit share is just a reflection of the underlying performance, and rates of sharing are not dissimilar to what we've seen in the past.
So the more successful you are, the higher your share price, the more you get hit in the future as the shares vest. Is that the way to think about it? The timing of the expensing of the staff variable compensation is now impacted by the accounting implications of the share-based deferred payments because the staff don't get the money for a while. And so if they leave before those shares vest, then the shareholders get the money back, as has happened recently in a very large case. So that's to the benefit of shareholders. So the staff have to wait to get paid, and we expense it when they actually get the money because if they go earlier, the shareholders will get that money back. But if they stay, then the expensing mismatch of timing happens.
Thank you.
Thanks Brian . Andrei, do you have a question?
And then we'll go to the lines. Thanks.
Thank you. Good morning. Andrei Stadnik from Morgan Stanley. Can I ask my first question just around the group, the ROE and the capital allocation? I think the ROE this year is probably on the lower side. I think, ideally, you'd love to get it to high teens. So what are you thinking in terms of how to get there, particularly in terms of capital allocation across the different divisions?
Yeah. I think, at the moment again, I'll just answer first. But we're holding more capital than we're getting earnings on at the moment because we're transitioning assets out of Macquarie Asset Management. So that's one of the things you saw in terms of where the ROEs have been impacted this year.
The market-facing businesses, even in a year of much lower volatility for CGM, managed to deliver a return pretty much in line with the 18-year average. So it was a 17%, I think, 18-year average, and they delivered 16. It was the annuity-style businesses where Macquarie Asset Management normally is a very high ROE business because it's capital light and a more fiduciary business. BFS and let Greg because he hasn't had a turn to speak briefly about BFS. But we're very disciplined about putting capital out the door and growing our books based on the credit qualities but also the ROEs. In Macquarie Asset Management, that's where, this year, we have had the meaningful step down as we have a big impact from this green energy transition. So over time, we would expect that to come back.
We'll be releasing equity out of Macquarie Asset Management, and we'll also be growing earnings. But that's going to take a couple of years, I think, Ben. I might just briefly let Greg, in terms of ROE discipline that we have just as an example, talk about BFS and how you approach it. And then if Ben wants to comment, let him.
Yeah. No, absolutely. Very disciplined on the ROE. And you saw that, I think, during the year, the third quarter, when there was really acute competition in the market, the volume of applications because of some pricing changes we made to manage the ROE. We saw really low applications in the third quarter. And hence, in the fourth quarter, we saw our lowest settlements that we've had in probably the last couple of years, just reflecting the discipline about returns rather than just chasing market share.
Yeah.
So obviously, we focus on other things like credit, like liquidity and funding matching. But ROE is something we're very disciplined about, not just at a group level but in the sub-businesses. So when Michael's team are putting money to work in equity in each of their four verticals, there's an ROE target that we have for each of those. So hopefully, over the medium term, we would hope to be returning that 14% average that you saw. But at the moment, it's really the investment we're doing for the transition of the green.
And for my second question, a MAM-specific question, I think your Private Markets fundraisings are very resilient to see it compared to peers.
But at the same time, there's been a lot of private credit growth and real estate growth and other growth some of your peers have seen, whereas you've remained fairly narrow in your infra focus in Private Markets . So how are you thinking about maybe broadening the growth opportunities for MAM? Are you happy with the current mix?
And when you said public markets, you mean in Private Markets ?
Sorry. More private. Yeah. Private Markets . Sorry.
Ben, did you want to briefly talk about your strategies? Because they're not going to make a massive difference in one year because we're growing for the medium term, but.
Yeah. It's a good question. Obviously, we're most known for, in the private side, being an infrastructure manager. We've expanded that into the energy transition. We've talked a lot about that today.
But as you may have seen, we also had a record fundraising year for our private credit book as well, which invests in infrastructure, in real estate, and also does some types of fund finance. So that's been an area for us. We've never raised more capital for that set of asset strategies. We've obviously then got the agriculture funds. We've got opportunistic real estate and so on. So there's a lot of work going on in terms of making sure that we have good Private Markets product diversification so that when clients are looking at their allocation models and wanting to do more with fewer managers, not having hundreds of different asset strategies but having asset strategies where we can service them depending on the solution they need for where relative value is best, we can accommodate that.
So certainly, that part of our business is growing and growing well.
Great. We'll go to the lines. And if there's any more here, we'll come back. So if we can go to those who are on the line, please.
Thank you. Your next question comes from Brendan Sproules with Citi. Please go ahead.
Good morning, team. I just have a question again in asset management but this time focused on the Public Investments business. I mean, you have a $0.5 trillion asset under management platform there. But when I look at the base fees, over the last two years, since you've incorporated the earnings from your recent acquisitions of Waddell & Reed and AMP, we've seen base fees fall about 10%-15%. At the same time, we've seen expenses across the broader MAM grow by high single-digit %. So I've got a couple of questions.
Are we going to see the scale benefits, I guess, of this $500 billion platform come through the cost-to-income ratio that we see here in MAM? And then secondly, in terms of the base fees, obviously, you've had quite a bit of outflow in the last two years, around $10 billion per annum. What's the outlook for outflows, I guess, in this business?
Again, I'll briefly comment and say what we've seen in that industry more generally over the last couple of years is a heavy rotation to fixed income. So we have had really good inflows into fixed income but outflows from active equities. Hopefully, if markets become more confident at the moment, the equity flows or equity increases are going heavily to the Magnificent Seven and the big growth tech equities in the U.S.
But in due course, if that starts to come back, as you know, the Public Investments benefits just from asset value increase, not just from flows. So that's been a factor driving. There's also been various one-off cost items in Public Investments . But with that, I'll just hand over to Ben to elaborate.
I think the only thing I'd add is it's certainly the case that, as we've had a reallocation of assets, the assets we've had come in in fixed income are at a lower fee rate than those of equities. So that's the primary driver of where you see those fees coming down. The second thing, too, is that, particularly in the public equities business, we're still rebounding from the worst 60/40 market 18 months ago. And so that's where we'll get that drive where, obviously, as people refocus on equities, the flows will slow down.
We've actually had quite a lot of client wins recently on the public equities side. We get, therefore, the benefit from reallocations but also the market increasing. That's what gives you the operating leverage drive over time. We're certainly pleased with the franchise we've got today. We think we've got the right strategy mix. The reason why we have a public business that has a mix of those different assets is because clients choose, from time to time, to allocate it into different buckets. We're able to service them irrespective of sort of where we are in the cycle and what's attractive at any one point in time.
Our public investments base fees have been going up every year but not at the quantum we'd hope because of this rotation that we've had recently.
Brendan, do you have another?
Thank you. No? Okay.
No. Great. Thanks. I think, Matt Wilson.
Thank you. Your next question comes from Matthew Wilson with Jefferies. Please go ahead.
Yeah. Good morning, Matthew Wilson, Jefferies. Two questions, if I may. Firstly, when you look at your peers, KKR and Brookfield, both of them have recently made acquisitions in the insurance industry sort of as an adjacency to their asset management businesses. Do you see a similar kind of strategic alignment and opportunity in insurance?
Yeah. And again, I'll let Ben talk too. But different people are playing in different ways in insurance. So you mentioned KKR with Global Atlantic. I think Apollo was the first one to go into insurance in a big way and has now a big fixed income offering because a bulk of that portfolio is in investment-grade liquid fixed income. Others are approaching it differently.
For example, Blackstone has relationships with insurers and manages large portfolios or does reinsurance. So we will be very considerate in the way we approach it. But I'll let Ben talk about our thoughts at the moment.
So we have a very significant set of relationships with insurance companies already. We manage a lot of money on their behalf. There's certainly opportunities in asset management for us to play more of an active OCIO-style role, which is what, obviously, Apollo and KKR are doing. And as you would have seen in terms of the announcement today, we've established Inevo, which is a reinsurer based in Bermuda. And that will start to reinsure blocks of assets from our client base over the coming years. So it's certainly an increasing area of activity for asset managers. Like our peers, we're certainly looking at inorganic opportunities as well.
But we'll make sure that we do it in the right way and take our time to ensure that if we're going to deploy shareholder capital, we think we can do that in a responsible way and that we have the strategies to take advantage of those sorts of asset books.
Thank you. That's very useful. Then we're into 2025 now. Interest rates seem to have stabilized. They might move around a bit, 25 bps or there. So capital can now be priced. Are we seeing a pickup in financial market activity globally? There's been a sort of smattering of raisings and M&A and IPOs, etc. What's Macquarie seeing at the coal face?
Yeah. I'll let Michael Silverton comment because he has a global team looking at this and is based in New York. Oh, so he's Ben, so.
Yeah. Thank you.
Look, I think the market's as constructive as it's been in the last 18 months. It had been moving in slow motion. We certainly are seeing greater levels of activity. We pick that up in our own pipelines and also through anecdotes. In our business offshore, we're focused on the sponsored private equity, Private Markets community mostly. And there's about 28,000 companies waiting to be sold and $3 trillion embedded in those assets. So that, combined with the capital that has been raised and is waiting on the sidelines, represents a lot of opportunity. So recently, we've seen opportunity in critical minerals and Europe. But it's really picking up in the U.S. And as you referenced, it's positive to see some IPOs performing in the aftermarket there as well.
And I was just briefly going to say, I mean, the dry powder, in terms of the private funds - and that's a big part of your client base, the private sponsors - is as big as it's ever been. But as you say, the big thing is them getting the confidence that rates have stabilized and the environment is such that the price discovery will happen. At the moment, nobody is wanting to buy at yesterday's prices. And nobody's wanting to sell at today's prices. But that gap is starting to close. The M&A activity certainly picked up in Q4 last year and Q1 this year but mostly corporates rather than private sponsors. So there's a big pent-up activity level to come. And hopefully, if things stay stable enough during this year, that will start to come.
Yeah.
And that should drive activity into other parts of the business as well, including hedging.
Yes. Yeah. Yeah. Absolutely. Thank you for that.
Cheers. Great. Thanks, Matt. I think we've got one last question.
Brian, got one last question.
I've got billions of questions. But we rarely have Silvo in the room. Mike, at the moment, we've had if we kind of think about global capital velocity - it kind of goes back to Matt - but there's a subtle change which I'd be interested to hear from you on. We've got central banks seem to be holding rates at the short end of the curve higher for perhaps a little bit longer, which everyone gets spooked about. But the flip side is we've got the Fed, which is now slowing down the quantitative tightening?
We've got the RBA, which is just for example, they're not moving to actually shrink that QE book all that dramatically. What's more important for the market or for your clients? Is it basically this high for longer at the short end or the fact that central banks seem to be slowing down the pace at which they're doing the quantitative tightening?
Look, I think it's some stability, actually, just around the inflation picture and that playing through to whether it's the short end or the long end. Clearly, the market had been expecting rates to come down. And activity had started to show real signs. We had all the ingredients for the market rebounding in the past quarter. And that may pause for a moment as we see some recalibration around inflation expectations. But I really think it's the stabilization of inflation that investors are looking to see.
Yeah.
The monetary policy. I mean, there's also been massive fiscal stimulus that's gone on. So there's a lot of money out there in the hands of the consumer starting to decrease in terms of savings but consumption strong and growth as a result strong. But I think for the deal markets, the corporate markets, it's really that stabilization in cost of capital that is key to getting confidence back.
And I do believe, when it comes to the infrastructure opportunity across the group, the fact that we have these deficits, they need private partnership. And we're seeing that also across adjacencies around government services and technology as well where we're making investments to support government.
Great. All right. With that, we will wrap up. Thank you very much for your ongoing support and interest. And we look forward to catching up over the next couple of weeks. Thank you.