Good morning, everyone, and welcome virtually to our FY 'twenty one results presentation. As per usual, we'll hear from our CEO, Shmara Vikramanayake and our CFO, Alex Harvey. We do have some of our group heads here today and some more on the line. And with that, I'll hand over to Shamara. Thank you.
Thanks, Sam, and welcome, everyone, to our FY 'twenty one results presentation. And as usual, I'll begin by looking at our business footprint across Macquarie. And as you know, Our business now comprises 4 main operating groups: our Global Asset Manager, Macquarie Asset Management our Australian Banking and Financial Services Business, BFS Our global commodities business, commodities and global markets and our global investment bank, Macquarie Capital. And all of these represent So medium term franchises, but importantly across the 4, they give us good diversification through the whole variety of market cycles and external environmental Cycles we face. And in this particular year, you'll see that our market facing business has stepped up to contribute 46% of our income Given the external environment and the annuity businesses contributed 54%.
And those 4 operating businesses are supported by Four very strong support areas, our risk management group, our legal and governance, our financial management group and the corporate operations group. Now before turning to looking at the results for the financial year, I'll just quickly take you through the COVID response as we've done each presentation for the last few ones given the continuing impact of the COVID-nineteen environment. And starting first with our employees, you'll see that 90% of our locations now are able to Turn to office. And our team has done an incredible job supporting us through a year where at one stage we had 98% of our people Working remotely like many of our peers across this industry and many others. And we were able to support them with technology, Also HR support in terms of leadership training to manage in a remote working environment and with the physical infrastructure they need to do their jobs.
And pleasingly, that has been manifested in a 5% increase in staff engagement at the end of last calendar year. Now also with our clients at the peak, we had 13% of the BFS clients on payment pause and Receiving hardship assistance. We're pleased to say now as many of our markets come out of this situation, especially Australia, we're down to 0.2 in terms of the retail book and none in our business banking book. Also, we've been focusing on supporting our portfolio companies in our asset manager through this. And that is meant for businesses like our transportation asset where the volumes are less at airports, making the facilities available for other things Or in things like communications infrastructure, really having to step up to support the much greater online operation of economies across the world.
So we've been able to support the 100,000,000 customers that use our assets every day and the 170,000 staff We're working those assets. And then finally, in terms of our communities, we've stepped up and made a $20,000,000 extra contribution to our foundation To help with COVID response and $17,700,000 of that has been allocated with another $1,000,000 in this financial year now Committed to India where the COVID situation is particularly challenging. And our thoughts are certainly with not just our Colleagues there who are dealing with incredible challenge at the moment, but also the communities in India. So turning then to the results for this financial year. And you'll see we've combined looking at both the half on half and the year on year on this page.
And in terms of the Half on half, you'll see that we delivered a result of $2,030,000,000 which was up 160% on the first half, really reflecting the year that we had in Terms of the first two quarters being very impacted by the lockdowns due to COVID. And that's starting to release quite a lot in the second two quarters, Particularly with the MoneyPree and fiscal stimulus around the world. The full year result of GBP3.15 billion Was up 10% on last financial year. And as we've said, it's a record earnings result for Macquarie Group. That was driven by a 4% increase at the operating income level, which then drove a 13% increase in operating profit before tax And a 10% increase in our after tax profit.
Our earnings per share were up 7% and ROE down Slightly from 14.5% to 14.3%. And that was mostly driven by the increase in our share base As a result of annualizing the raising that we did during not last financial year, the one before and also the issuance we did The merit and the discount on the DRP over last year. Looking then at a half on half, what happened with the operating groups, They were all up in the second half apart from Macquarie Asset Management. And the result from the operating groups was up in the second half 68% from the first half result. Now in Macquarie Asset Management, the reason the result was not up Is because we had the European Rail realization in the first half and slightly lower performance fee and other income in the second half.
In Banking and Financial Services, Where we had a period of strong deposit growth, but lots of customer assistance needed in the first half. As we went into the second half, we had very good growth In the loan books and also in the funds on platform and in our deposits. And that drove a stronger second half. In Macquarie Capital, particularly where the first half, as I mentioned, was quite subdued in terms of activity levels there as well as the market The environment for asset realizations, we had a much stronger second half in both of those areas. We also were able to deploy Capital over the second half and grow our debt finance portfolio.
And then in commodities and global markets, we had a stronger second half, both in terms of our Risk Management Services, but also in our inventory management and trading business where we saw increased dislocation in the second half. In terms of the year on year results, the operating groups in aggregate were up 12% on FY 'twenty. And I'll go Through high level group by group and then in more detail how that result was comprised group by group. And Apologies. We're on Slide 10 here.
In Macquarie Asset Management, the result This financial year was down on last financial year. And that was mostly due to the fact that the Macquarie Air Finance portfolio faced a very Challenging environment in terms of particularly international travel recovery. And we also had lower performance fee and other income compared to a record year last year in Macquarie Asset Management. We did benefit, however, from the sale of the European Rail assets in the first half of the year. In Banking and Financial Services, the result was broadly in line with the prior financial year despite the environment that we encountered.
That was principally driven, as I said, by growth in the loan volumes in both the home loan and the business banking area And growth in our funds on platform as well as deposit growth. In the annuity style contributions out of commodities and global markets, We did have reduced volumes in specific sectors in our specialized asset finance business. So that was down slightly. Macquarie Capital was down On the prior year, and that was principally due to, as I said, lower fee and commission income due to the reduced activity. Although we did have much higher ECM income in Australia given our market leading position, particularly in the first half of the financial year.
Investment related income also down due to less realizations, albeit improved performance of the portfolio. And we had lower impairment and credit charges, and we got the benefit as well from our cost Base reducing, particularly as we focused our equities business into the Asia Pacific region. And then lastly, in commodities and financial markets, as you've seen, The result was up there year on year. The big drivers there were performance in the risk management area, as I said, across Resources, North American Gas and Power, EMEA Gas and Power and Agriculture. And then in the inventory management and trading business, We had good results, not just from North American Gas and Power in the second half, but also from precious metals and from oil in the first half.
And then in the financial markets area, we had stronger results from foreign exchange, interest rates, credit and equity derivatives. So altogether in terms of the financial performance, as I said, 4% up in terms of operating income, 10% up in terms of Net profit after tax, earnings per share up 7% and the dividend per share was up 9%. I'll touch on the dividend at the end of my section. But for the full year, the dividend amounts to $4.70 per share. Looking at our assets under management, as you can see here, we ended the year with $563,500,000,000 of assets.
That's a 6% decrease. The biggest driver there was foreign exchange with a strong Australian dollar during this year. Also, we mentioned previously that we had a reduction in contractual lower fee insurance assets. And the AUM decrease from those was Partially offset by the market movements, which mostly impacted MIM and then in MiRAA, the investments in the MiRAA managed funds. And then looking at the diversification of our income by region.
Asia continued to contribute about 10%, so 11% this year Of our income, the rest of the income has been spread across the Americas, EMEA and Australia. You can see the percents there. Americas 34%, EMEA 23% and Australia 32%. Interestingly, in this financial year, the Americas again was the largest contributor but So larger than Australia as happened in 2015. Turning then to looking at the earnings in a bit more detail group by group And starting with Macquarie Asset Management, you see here Macquarie Asset Management delivered a result of $2,774,000,000 That was down, as I said, slightly down 5% on FY 'twenty.
It represented 34% of the contribution from our 4 operating groups. Some of the features of the Macquarie Management year, we ended up with $142,000,000,000 of equity under management, and that was down slightly down 5%. And that, as I said, was mostly due to FX impacts and also equity return to investors. We had a record year of fundraising The $21,800,000,000 raised, invested $14,800,000,000 and then returned proceeds of $7,700,000,000 to investors. So Macquarie, Infrastructure and Real Assets has ended the year with a large equity to Deploy of $29,900,000,000 Now we've also laid out some of the assets in which the funds were raised or the funds in which the money was raised over the year.
I'd also note Macquarie Infrastructure Company had a good realization of the IMTT business, and we had the sale of the Macquarie European Rail Business During the year, Macquarie Air Finance, as I mentioned, which we own manage now 50% manage completely and own 50% of, faced headwinds given what's happening in the airline sector. Looking at Macquarie Infrastructure Macquarie Investment Management, the MIM business, we ended up with Assets under management of $367,100,000,000 That also was down 4% and also driven very much by FX impacts, But also, as I mentioned, the reduction in contractual insurance assets. But we had positive net inflows, And we had good market growth offsetting that to an extent. The assets there or the funds continue to perform well with 60% of AUM Outperforming 3 year benchmarks. And importantly, MIM, as we've announced, we complete we made the acquisition, which completed just recently of Waddell and Reed.
And that will step up the scale of the MIM business materially as we go through the integration over this financial year and it starts to contribute from next financial year onwards. Looking at Banking and Financial Services. As I mentioned, the result there at $771,000,000 was in line with last financial year's £770,000,000 it contributed 13% of our result. The material things to note there is, as I said, the loan portfolio is up. Home loans up 29% at $67,000,000,000 now and a good quality book being focused on there And strong customer service focus across there and also the business banking area, up 13% at a book of 10,200,000,000 The funds on platform now have grown to be over $100,000,000,000 up 28% and the deposits are up 26% at £80,700,000,000 The vehicle finance portfolio continues to run off 16%, now at £11,500,000,000 And then turning to commodities and global markets in our market facing businesses.
The result there at $2,601,000,000 was Up 50% on the prior year. CGM contributing the largest contribution of our operating groups this year at 42%. As you know, it comprises both annuity style and market facing businesses. In the annuity style businesses, the specialized and asset finance Portfolio was down about 9%, but we had positive performance there from U. K.
Energy Meters and also the Technology, Media and Telecoms areas. We also have mentioned that after the end of the financial year, early this financial year, We had the disposal of certain assets in our U. K. Energy Metering business, and that will be recognized in FY 'twenty two. Also in the annuity style businesses, the lending and finance activity across resources, agriculture, Oil and Gas assets had mixed results, certain sectors impacted by reduced volume and uncertainty linked to the macroeconomic environment.
In the market facing portion of CGM, we had both strong client activity across our platform. I mentioned resources, North American and EMEA Gas and Power, Agriculture, partially offset by decreases in global oil. But in the inventory management and trading area, we had dislocation across a range of sectors that, as I said, gave us good results in Physical Oil and Precious Metals in the first half and North American Gas and Power in the second half. Also, as I mentioned in the financial markets portion of that business, In FX, we had strong client activity in U. K.
And Australia. And we had sorry, we had strong client activity In FX across all our regions and trading activity in the U. K. And Australia and also in the Equity Derivatives and Trading business, we had a good contribution from trading activity there. And then lastly, turning to Macquarie Capital, where the result of C651,000,000 It was down 15% on last financial year and the contribution was 11%.
As I mentioned, this business both in ACS and IEG Was impacted by the challenging external environment for both service based work and also realizations in the first half. But we continue to have a great global franchise being built in Advisory and Capital Solutions and the Principal Finance business now integrating in there well With over $4,000,000,000 committed in FY 2021, having the Principal Finance and Advisory and Capital Solutions work together supporting clients there. Also the equities business there after we focused that business to the Asia Pacific region and made a strong commitment there has stepped up its contribution materially. And in Infrastructure and Energy, we're the number one global infrastructure advisor. We maintained this Position had a good volume of advisory work in our PPP work or expanding into Latin America and Emerging Markets.
And we continued our principal investment in the green energy space with now over 2 50 projects with more than 30 gigawatts represented in them. So that's the income portion by group. I'll turn to just looking at our balance sheet and capital numbers now. And in terms of our funded balance sheet, We continue to have a strong balance sheet with our term funding exceeding our term assets. The deposits all up at $84,000,000,000 as I mentioned about of that in BFS, up 25%.
And we raised term funding over this year of 21.6%. And then turning to capital. The capital position are also strong. Our surplus over the Aperol III levels Has reduced from $9,400,000,000 to $8,800,000,000 In terms of the increase in capital, we had the 2nd half earnings, net of dividend contributing to that. But in terms of absorption of capital, you'll see a material absorption there of 2,300,000,000 Bringing us to that net $8,800,000,000 which includes $500,000,000 of operational capital overlay, which will temporarily reduce our investment Looking at where that $2,000,000,000 plus capital was absorbed in our businesses, as you can see in the first Half, we were principally releasing capital out of the businesses and absorbing it then into the second half as all of our businesses Saw opportunity to invest.
I would note that in the first half, dollars 1,400,000,000 of the step down was basically due to FX, which was Offset by our foreign currency translation reserve. And over the year, if we net out the FX impact, We've had an underlying growth in capital absorption of $1,600,000,000 Now in Macquarie Asset Management, the Waddell and Reed acquisition has absorbed A lot of that step up of $900,000,000 and that will be a long term investment. Equally in BFS where we've invested dollars 300,000,000 that is an ongoing growth into long term investment in the book. In commodities and global markets, We invested in derivatives trading volume and adding loan commitments, which has Increased our market risk capital. And then in Macquarie Capital, as I mentioned, the principal finance lending activity It's stepping up now, particularly after coming together into the Advisory and Capital Solutions team group.
And we're also making other investments into primarily green energy and infrastructure offset by some realizations. In addition, the move of the group services entities from the non bank group into the bank group has absorbed 3 £300,000,000 of capital long term. Our regulatory ratios remain comfortably above Our Basel III minimums. And in particular, I'd note that our CET1 ratio is sitting at 12.6%. And in terms of our dividend, the Board, as you will have seen, has declared a final dividend of $3.35 up from the $1.80 in the second half last year and that results in a full year total dividend of $4.70 Up from $4.30 last year, 40% franking rate across all those dividends.
The payout ratio then is 60% for The second half and represents 56% across the year. And the Board continues to maintain its dividend policy of 60% to 80% annual payout ratio. And the last thing I'd like to cover before handing over to Alex is on Board and management changes. So first of all, starting with the Board. Our Chairman, Peter Warne, at the request of the Boards of Macquarie Group Ann Macquarie Bank Limited has agreed to stand for reelection as Chair of the 2021 AGM for 1 additional year.
Given his oversight of the ongoing process of Board renewal as we have some step off and new directors come on and as we face a period of global uncertainty, Which should abate into 2022. So over the course of 2022, the Board will nominate a new chair and will advise shareholders into your course. And Mr. Vaughan intends to step down at the AGM in 2022. I would also note that Gordon Cairns, who has served on the board And made a massive contribution over the last 6 years, will retire as of today as he previously advised in terms It's his intention to retire.
Then turning to our management team. Following Ben Way's appointment as Group Head of Macquarie Asset Management, Verena Lim, who's an Executive Director Senior Managing Director in the Asset Management Business in Singapore will succeed Ben As our Asia CEO effective the 1st July 2021, and she'll join the Macquarie Management Committee together with Lee Harrison, Who's based in London and heads the Macquarie Infrastructure and Real Asset Business globally. Then in Macquarie Capital, Following the successful integration of the Principal Finance business into Macquarie Capital, Florian Herold has decided to step down from the Executive Committee also Effective today. And this coincides with his just having returned to London, where he's going to continue to lead the principal finance team. And he's very focused on consolidating the recent momentum in the investing very successful investing activity on that team, but with a lot more to be done to build on that.
Macquarie Capital continue to be represented on the Executive Committee by the current 2 co group heads, who are Michael Silverton and Dan Wong. And Dan has decided to relocate from London to Asia in the second half of twenty twenty one. We will continue his global role and be closer to the Growing IEG team there in terms of investing activity and advisory activity in that region. And then lastly, following Mary Ream's decision, which we announced to retire as Managing Director and Chief Executive Officer of NBL, She's kindly agreed to continue in her role as Chair of the Foundation for the remainder of 2021, particularly given the Foundation head We'll be on maternity leave for a period, and it will give more stability to the foundation. And Alex Harvey, our Chief Financial Officer, Has kindly agreed to step up and succeed Mary from 2022, and they will be working through a transition.
So Speaking of Alex, with that, I will hand over to Alex to take you through the financial results in more detail and then return to discuss outlook. Thank you.
Well, thanks very much, Shamara, and good morning, everyone. As is usually the case, I'll now take you through some more detail in relation to the results for March 'twenty one and some other matters associated with the financial management of the group. So starting firstly with the income statement. I thought I'd start with the second half first. As Shamara said, the second half benefited significantly from the improved economic climate around the world, the vaccine rollout, the Opening up of economies and obviously still the benefits of the fiscal and monetary stimulus coming through the economies.
Operating income for the second half was up 31% the first half of FY 'twenty one, you can see the key drivers of that include an increase of $637,000,000 in interest and trading income, A significant reduction in credit impairment charges, down 93% from the first half largely reflecting that improvement, improving outlook from macroeconomic, Macroeconomic viewpoint. The other thing we did in the second half was release a centrally held provision that we were holding associated with Yes, a more difficult outlook. The other thing we saw in the second half was an increase in investment income up to nearly $1,400,000,000 again reflective of the fact The conditions for asset realizations across the year improved quite materially in the second half. Operating expenses for the year were up 8% for the half were up 8 And that largely reflects the increased profit share associated with the underlying performance of the group. And so profit attributable to shareholders The second half of $2,030,000,000 up 106% on the first half and a record result for the group.
Turning now to the full year. You can see operating income for the full year up 4% from where we were this time last year. Again, a key contributor for that was the interest in trading income, up $950,000,000 You can see Fee and commission income down 11%. That largely reflects lower performance fees coming through the group together with lower advisory fees in Macquarie Capital. And you can also see a 46% reduction in credit impairment charges during the year.
Couple of things there. Obviously, through the year, as I said, we saw an improving Economic outlook, we saw a relatively low level of actual losses come through the group. And those 2 were partly offset by increased provisions associated with specific sectors largely in CGM and Macquarie Capital together with provisions that were taken for emerging risk reflecting the fact that you've still got lots of government and monetary stimulus in the economy and of course an increase in the loan books that we saw coming through during the year. Investment income for the year was up 18% from where we were last year. So as I said, our operating income up 4% for the period.
Operating expenses were basically flat. So we had an increase in employment expenses. You See there on the P and L, that increase in employment expenses partly reflects profit share, partly reflects an increase in headcount, particularly in the support areas and also in BFS. And those increases were largely offset by favorable foreign exchange, together with lower travel and entertainment expense generally across the group consistent with the environment being, in fact, impacted by COVID-nineteen. Income tax expense for the year, the effective tax rate 23% up from about 21% last year.
So overall profit for the group at $3,015,000,000 up 10% from where we were this time last year. Turning to the first of the operating groups, Macquarie Asset Management. Can see a very strong performance given the challenging environment, down 5% from where we were in FY 'twenty. People will recall, I think FY 'twenty It was a record result for Mann. You can see the key drivers of the movement in result for the year.
Base fees were down 63 That largely reflects unfavorable foreign exchange movements, net of increased contribution From mirror investing across the stable of funds as well as market movements that we saw in MIM. Performance fees were down 20% from FY 'twenty, which was quite a strong performance The year for the group. You can see credit and other impairment charges up $290,000,000 And that largely reflects the partial reversal of the group stake in MIC in the United States that we accrued in the second half of the year. Operating expenses down nearly $60,000,000 Benefiting from foreign exchange and that lower travel and entertainment expense I referred to before. And then on the right hand side of that chart, you can see The transportation contribution to the overall Mann business.
In terms of Macquarie Air Finance, down $363,000,000 That reflects The full year effect of the joint venture that we've now got in place in relation to that business, that joint venture was established in our prior financial year. It also reflects the more the challenging environment that's continuing for aircraft leasing activity all over the world. And we had lower Shares of investment income coming through that joint venture. We also took some impairments associated with some of the assets in that portfolio. And you can see that was partially offset that loss was partially offset by an increase in the Macquarie European Rail Business, Which reflects the disposal of that business in the early part of our financial year.
In terms of the key drivers of the business, assets under management finished the year at $562,000,000,000 obviously affected by the FX Movements through the year, also benefiting from market movements coming through the MIM stable of funds and investing activity through MIRROR. And pleasingly, we saw net inflow into the MIM stable of funds over the course of the year. Equity under management at $142,000,000,000 At the end of the year, pleasingly, we saw a strong period of rising across the mirror stable funds, nearly $22,000,000,000 worth of New capital raised over the period of time, a record result for the group. And importantly, a diverse source of raising as well, both the 5th year of U. S.
Infrastructure fund, the 3rd Asian fund. And we also saw inflow into our infrastructure debt product in that business. So it was very pleasing to see the support Continuing from clients all over the world. Turning to the second of our businesses, the Banking and Financial Services business, really Solid result in line with where we were last year. Obviously, a year or 2 halves, and I'll come to that in a moment.
But in terms of the overall result for the year, you can see Personal Banking up $68,000,000 And the key drivers of that were an increase in mortgage volumes during the year. Average mortgage volumes up 27 Partially offset by pressure further pressure on the deposit margins in that part of the business and that debt decline in the motor vehicle leasing business that Shamara talked about before. You can see the bank, the business banking component of that business down $60,000,000 Largely that reflects the continuation of the deposit margin pressure Coming through that part of the business offset by a 14% growth in deposit volumes and a 10% growth in average business lending as the team has continued to support Clients across Australia. You can see growth in the Wealth Management business, which is largely reflecting the inflow of deposits that we've had over the course of the year. Pleasingly, we saw less lower credit and other impairment charges, and that really is reflective of the improving macroeconomic outlook, particularly across the year, Together with the lower support needed for our clients affected by COVID-nineteen, particularly as the year progressed.
And expenses and other were up $55,000,000 for the year. The team has been investing significantly in the platform, both in terms of the number Staff that are working to support the growth and the technology platform that underpins the personal banking, the business and the wealth. So there's been investment in those areas. We've also invested to support clients that were affected by the impact of COVID-nineteen. And of course, the team continues to invest In the regulatory requirements of that business over the course of the year.
Now we thought it might be useful, just given how significant the difference was Between the first half and the second half of BFS, this year, we thought it might be useful just to break down the movement between the two halves. So in the first half, you can see Primarily, I guess, down $68,000,000 from where we were in the second half of FY 'twenty. And there was a couple of things happening there. You recall in the first half, we were carrying significant surplus funding, including drawdown of the TFF in the first the term funding facility in the first half. We're also providing significant support to our clients who are impacted by COVID-nineteen.
And we saw that Coming through in terms of the cost associated with the business. The other thing we were seeing is significant pressure on our deposit margins, particularly in the first half.
If you
then roll into the second half, it's quite a different result. Obviously, up $137,000,000 from the contribution of the business in the first half. And you can see the key drivers there being, particularly the personal banking business, where volumes are up, average volumes are up 12% for the half. And Banking business where volumes are up, average volumes are up 12% for the half. And what the team are able to do is actually utilize that surplus funding we built up in the first half.
So we saw There's less pressure on our deposit margins. The other thing we saw in the second half obviously is lower credit and other impairment charges, particularly reflecting The improving macroeconomic outlook and that impacting our forward looking indicators. And the other thing we saw is less need to support clients that were affected from COVID-nineteen as they came out of That recovery, particularly here in Australia. So really strong result for the group in the second half of FY 'twenty one, dollars 454,000,000 In terms of the underlying drivers, you can see all of the with the exception of motor vehicles that we've talked about previously, all the underlying drivers of the BFS business All heading in the right direction, which is incredibly pleasing to see. Now turning to the first of our market facing businesses, the commodities And global markets business, as Shamara mentioned, a really strong year for the group, up 50% on where that group was last year.
In terms of the movements, you can see a significant step up in the commodities area, dollars 933,000,000 step up from the contribution from our commodities activities. Pleasingly, we saw a 13% increase in the risk management income coming from risk management products. Obviously a range of dislocation across the commodities markets throughout the year. But particularly, the team saw opportunities to support clients In managing risk in the resources sector, in North American Gas and Power Business, in the European Gas and Power Business and also in the agricultural sector. And then the other part of that business obviously is the inventory management and trading.
And that was an $800,000,000 step up from where we were last year. I think people will recall last year Was quite a subdued result for inventory management and trading. We delivered $178,000,000 last year in that component of the business. This year, it was a strong year, obviously reflecting of Reflecting the dislocations that we're seeing in markets in a range of places around the world. A couple of things I was going to point out about the growth there.
Firstly, It was quite diverse in terms of where that increased contribution came from across CGM. And secondly, it happened across the year. And In the first part of the year, we saw opportunities, particularly in the oil storage space as the contango in oil actually unwound. We saw opportunities in the precious metals Market, particularly with the dislocation in financial and physical markets in areas like gold. Then we continued into the second half.
We saw further opportunities, Particularly in the oil markets as supply was constrained. And then more recently, the dislocations in the U. S. Gas and power market in the middle of February. So quite diverse in terms of where the contribution came from and the time period over which that business generated The other thing in that block there is the, is $232,000,000 associated with the timing of income recognition on oil storage contracts And gas and power transportation contracts.
We saw that come into this year. Partly that reflects an unwinding of some income that wasn't in prior years Because of the need to accrue that income over the term of the contract. So partly that was unwinding of that coming through the P and L this year. You can see the fee and commission income down $145,000,000 We saw less opportunities in some parts of the business, particularly in the futures business and And the equity derivatives and trading part of the business. And we also saw a lower contribution coming through the commodity investor products part of that business.
But overall, obviously, a very strong result for the year for CGM. We thought it might be useful just in terms of the underlying Drivers of the CGM business, just to provide a couple of additional slides, to help understand what's actually going on in that business and hopefully you'll find these useful. Some of this will be information that hopefully is that you've seen before. So just on this first slide, you can see client numbers on the right hand side of the slide. A compound growth over the last few years was about 6%.
That's a slide that I've talked about previously. We've also added onto this slide the operating income of the Break it down into the underlying client businesses and then obviously the inventory management and trading activity on the top. And you can see those underlying client businesses Delivering 11% per annum growth in client related income over the same period. So you can see more clients and more income from From that client activity coming over the last few years. And client activity, on average over this period of time, has been about 75% of CGM's overall operating income.
On this slide, we've attached the regulatory capital utilization for CGM. We've normalized it for FX movements and the introduction of SA CCR several years ago. But you can see a growth in that capital usage of 5% per annum. Again, that's consistent with the growing franchise that we're seeing in CGM. And I particularly want to point out the dark gray at the bottom of this slide, which actually represents the credit capital that CGM is using.
That credit capital obviously is aligned with that client activity that I just spent time talking about. And then finally, on the right hand side of the page, you can see the daily P and L for CGM. And I guess two observations About this, firstly, you can see the clustering of daily P and Ls between, say, dollars 10,000,000 per annum. It's very clustered around those sort of daily P and L outcomes and has been For many years. The second thing you'll see on the chart is a skewing of that distribution just to the positive, just to the right of the y axis.
And again, that reflects the inclusion of that client margin income really driving much of the daily P and L within CGM. So we hope these slides are useful for you as you think about the underlying drivers of CGM going forward. Now turning to the last of the operating businesses, Macquarie Capital, down 15% from where we were last year. Again, a story of 2 halves. People will recall, I think the first half, about $189,000,000 loss in the Macquarie Capital Business.
In In the second half, the business produced a net profit contribution of $840,000,000 And that's not surprising. As the market normalized, We saw more opportunities to work with clients on M and A transactions. We saw more opportunities for realizing Of investments across the group. So not an unusual result, but nonetheless, quite a difference between the first half and the second half. Just in terms of the full year, as I said, down 15%.
You can see the drivers there. Net income on investments down $291,000,000 We did expect a period of lower realization, And that's come through during the year. You can see the fee and commission income down about 13% for the year. And that largely reflects a Reduction in the advisory income and in the income coming from our debt capital markets business, particularly in the United States, consistent with the client activity level, particularly in the first half of the year, partly offset by a strong period of contribution from our Equity Capital Markets business here in Australia. You can see a step up in the other Related income, and that really results from improved underlying performance from the joint venture interest that Macquarie Capital has across its portfolio, Together with an increased contribution from the debt investing that Shamar referred to in her slides earlier.
Partly offset by a step up in the development and platform expenses that Macquarie Capital is incurring around their green energy development business around the world. Pleasingly, we saw lower credit and other impairment charges that the really reflecting the improved economic outlook, the macroeconomic outlook that we're seeing Across the portfolio. But pleasingly, that portfolio has performed very well both on the debt and the equity side over the course of the last 12 months. And where we are seeing Selected impairments, it really is in sector specific exposures like exposure to the travel industry, for instance, that are very exposed to We're exposed to the impact of COVID-nineteen. And finally, you see operating expenses down $151,000,000 for the year, reflecting the work the team's done To refocus the equities business on the Asian and Australian footprint, but also the work they've done across their advisory businesses in the United States, Europe and Asia coming through in terms of lower expenses.
In terms of the outlook going forward, obviously, capital Invested alongside Macquarie Capital's clients are very important part of the drive of the business going forward. We have about $4,000,000,000 Invested, dollars 4,000,000,000 of capital invested alongside Macquarie Capital's clients. You can see the difference between the opening and closing is largely the foreign exchange movements that occurred during the year. Pleasingly, as I've said before, the investments, which is utilizing capital and the realizations basically balance each other this year. So we've got a continuous amount of capital out there working for shareholders.
The other thing on the investment side, you can see the increased investments in the green energy space. You can also see the increase in the debt investments as the team grows that principal debt business all around the world. So turning now to some of the other aspects of the group. Firstly, compliance, the cost of compliance. This is a slide that we've talked about now for As you can see on the right hand side of the slide, you can see an increasing contribution or expense associated with compliance Over the course of the last few years, 2021 was no different with cost of compliance up 19% from where we were in 2020.
Notably, and we've talked about this before, you can see the project investments in, at the top part of that slide, Up 33%, 34% from where we were in FY 'twenty. And there is a lot going on in terms of regulatory projects across the world. And then business as usual activity spend up 13%. So it's a feature of the result, and we continue to invest heavily in making sure that we meet the standards With our business all around the world. In terms of the balance sheet, it remains solid and conservative.
We raised about $22,000,000 just a little $22,000,000,000 worth of term funding this year across both the bank and the group. We're active in Tier 2 markets, important to tier 2 issuances for MBL. We're also active in the hybrid markets, both in terms of an issue for MGL as well as an issue for NBL. And we very much appreciate the support we get from investors all over the world in terms of buying Our debt products and hybrid products. The balance sheet remains very diverse.
And at maturity our weighted average maturity of 4.8 years, really quite long dated as well, which is very pleasing. And as Shamara mentioned before, customer growth this year up 25%. It was really pleasing to see the continuation of the deposit growth story that we've seen over the last few In terms of the loan, the lease portfolio, you can see up to just under, I guess, dollars 98,000,000,000 for the year. You can see the significant contribution there Coming from BFS as we saw growth both in the home loan portfolio together with growth in the business banking portfolio, partly offset by that reduction in vehicle finance. In terms of the equity investments, and this slide obviously represents equity investments that are fair value through P and L or equity investments That we hold as a significant influence in equity accounted interest.
It doesn't include our consolidated equity investments, which appear in different line items on the group's balance sheet. But you can see equity investments down from $7,500,000,000 down to $5,900,000,000 this year. And largely about twothree of that movement Is represented by the appreciating Australian dollar between March of 'twenty and March of 'twenty one. In terms of the regulatory update, this is a slide that we've had now for some time. There's obviously a significant amount of change That's continuing across the regulatory landscape here in Australia.
As we've said before, we are working with APRA around resolution planning. And we have also Provided submissions on a range of consultation papers that APRA has released over the course of the year. I guess I would note more generally that based on what we understand Today, some of the reform is still in the early stage. We expect the group to have sufficient Tier 1 capital to accommodate any additional capital I would note, APRA's most recent announcement, the Macquarie Bank Limited's Risk Management And prudential reporting. The matters, as we note on this slide, relate to specific intergroup funding Arrangements as well as breaches of liquidity reporting that occurred between 2018 2020.
Notwithstanding these are historical matters that have now been addressed. We take these matters very seriously and acknowledge the continued work is required to address these issues. And we have an ongoing program of work that you can see over the course of the years. And we're working with APRA to address these issues to make sure the matters can be resolved. In terms of the bank's common equity Tier 1 ratio, you can see it's 12.6%, so very strong again.
Our liquidity position for the group is very strong, including the $55,500,000,000 of unencumbered liquid assets and cash. And finally from me in relation to the capital management, just two things to note on this slide. Firstly, the board has today resolved to issue shares To satisfy the FY 'twenty one MEREC requirements, and that will be in the amount of approximately $619,000,000 And the second thing, the Board has Resolved to issue shares to satisfy the dividend reinvestment plan for the second half of FY 'twenty one dividend at a discount to the prevailing market price of 1.5%. And those two decisions, obviously, were taken in the context of the significant capital use we're seeing across the group that Shamara talked about in her slides. And with that, I'll hand you back to Shamara.
Thank you.
Thanks very much, Alex. And I'll take you through the short term outlook now through looking at the factors that are impacting that outlook by each of our operating groups. So starting with Macquarie Asset Management. As we've mentioned, we've just completed the large investment in Waddell and Reed in the MIM business there. And we're expecting that Acquisition to slightly reduce the net profit contribution of MIM in FY 'twenty two because we will be going through integration and one off costs In that business, apart from that business, we're expecting base fees to be broadly in line with last financial year.
And we're expecting performance fees and other income to be other operating income to be slightly down given the significant one off Items we had in FY 2021. In the Banking and Financial Services Group, you can see the franchise continuing to grow there and we see ongoing momentum In our loan portfolios and also on funds on platform, which will drive the result. That will be offset to an extent by the competitive dynamics That we continue to see in terms of margin pressure, driving margin pressure and also an increase in costs As we invest to support the volume growth, also investing in technology investment and in increased regulatory investment. We'll also need to monitor the ongoing provisioning as COVID-nineteen pandemic support payments Start to unwind. Then in Macquarie Capital, as Alex and I both mentioned, we saw increased client Tivity and investment realization opportunity through the second half of FY 2021.
And we're expecting that to continue through FY22, which will also mean an improved outlook for asset realizations. And we expect to see increased balance sheet deployment in that business As we are seeing in Banking and Financial Services and also in Commodities and Global Markets. And in Commodities and Global Markets, the last of our 4 operating groups, Given the strong results that we had in FY 'twenty one in terms of the commodities business And that was due to broad dislocation across the commodities markets. We're expecting the commodities income to be significantly down on FY 2021, Although that will remain subject to opportunities that may be created by volatility during this financial year. We also expect the positive impact from the timing of income recognition, which Alej referred to, on our storage and Contracts in FY 2021, which is $232,000,000 not to recur in FY22.
In the Financial Markets area, we expect a consistent contribution based on our client contribution. And in the Specialized Asset Finance area, We also expect a consistent contribution linked to the business activity there. And we would note that in the first half of 'twenty two, We will also get the impact of the disposal of the U. K. Metering businesses that has just completed.
The compensation ratio we Expect to be in line with the range of historical numbers and our tax rate. We also expect to be broadly in line with the FY 2021 result. So those are the factors driving short term outlook by each of the groups and the compensation ratio and tax rate. In terms of the factors that will affect this Outlook, it remains subject to the factors we usually note. And in addition to that, the duration and speed of our recovery from this COVID-nineteen pandemic across various markets in which we operate and the extent of government support for those economies.
In addition to that, market conditions, including significant volatility events and the impact of geopolitical events, Also potential tax and regulatory changes and tax uncertainties, completion of period end reviews And completion rate of transactions and the geographic composition of income and the impact of foreign exchange. And given all of that, we continue to maintain our cautious stance and our conservative approach to capital funding and liquidity, which we think positions us well in the current environment we're in. Over the medium term as well, we continue to take that approach, but we see ourselves Being well positioned as ever due to our deep expertise across a broad range of capabilities across Our 4 franchises and the complementarity of those and diversification in terms of responding to a variety of market environments. And that together with our ongoing program for identifying cost savings and efficiency initiatives and our strong and conservative balance sheet and our proven risk management framework Gives us confidence in terms of our results over the medium term. And you can see that evidenced in my last slide in terms of the ROE that we've delivered.
Annuity style businesses, 22% average return on ordinary equity over the last 15 years with 23% this year And in the market facing businesses, 16% over the last 15 years with 17% this year. And after taking into account the $8,800,000,000 of surplus Capital we hold, that results in a 14.3% ROE for this financial year. So with that, I will hand you to Sam to take questions. Thank you.
Okay. Thank you, Shamara. Thanks, Alex. So we will have a period of Q and A, and I'll hand over to the operator to facilitate that. Thank
you. Thank Your first question comes from Andrew Lyons from Goldman Sachs. Please go ahead.
Thanks and good morning. Just two questions, if I may. Just firstly, Slide 21 of The pack shows demand for capital from the business units went up pretty significantly in the half. And you also have the APRA In position of the $500,000,000 of operational capital overlay that was announced in April. Recognize your surplus capital Position is very strong, but can you just talk about how much comfort you have that the group has sufficient capital resources just to fund What looks like pretty attractive growth opportunities in the business units.
And then the second question is just in relation to your CGM FY22 outlook, you talked to disposals of certain assets within the SaaS business. Can you maybe just talk to The potential magnitude of those in first half 'twenty two, please.
Sure. Shall I kick off, Alex, and then you can comment. So look, in terms of the capital absorption by the businesses, you're right that if you look at the second half of FY 'twenty one, We're seeing all businesses start to see good opportunity to invest capital. Banking and Financial Services, that's been a trend that we've been seeing for Some time both in our loan business, in home loans and also business banking and also in terms of the Investment we're doing in our Wealth business. And then in CGM, it's the growth of the franchise, as Alex talked about, that capital investment, principally in credit capital, in line with the client growth.
And then in Macquarie, In line with the client growth. And then in Macquarie Capital, again, the growth of the franchise, we're seeing step up in capital there. Macquarie Asset Management, had a big one off, but it will be a permanent capital investment in Waddell and Reed. Basically, at the moment, we are comfortable that we had the surplus capital to Support the businesses, including allowing for that €500,000,000 overlay that we have in terms of the capital penalty requirement from APRA, Which will reduce our investment capacity in the short term, but we're comfortable we have capital capacity. We are issuing for the Merope and have a small discount on the DRP.
Having said that, if the businesses continue to see opportunity that is attractive and delivers good return to grow their franchises, We will at that point go out to the market to look at capital. At this point, we're comfortable that we're able to support the businesses in terms of The opportunities that they're bringing to us, including the large one off for Dell and Reed. Anything else?
You want
me to do the second one?
Just remind
us to
do CGM?
Yes, sure. The numbers are in the Yes. Yes. It's a large part of the number that's disclosed.
Andrew, maybe just picking up the second point. As Shamara mentioned, obviously, we have CGM has entered into a transaction to dispose of a small portion of industrial and commercial meters in the U. K. If you look at Note 11 to the group accounts, you'll see the contribution we expect to come through in the first half of FY 'twenty two. Just roughly about $450,000,000 worth of profit in that first half, and you can see that set out in the accounts.
Perfect. Thanks so much. Appreciate it.
Thank you. Your next question comes from Ed Henning from CLSA. Please go ahead.
Thanks for taking my questions. A couple from me. In the medium term outlook, you talk about acquisitions in CGM. Can you just touch What areas you'd like to grow the business there? Are they just bolt ons?
Or could we see something substantial, an opportunity there to start with, please?
Yes. Look, the CGM business has principally grown organically, but historically, we've Going back to Nick O'Kane's here, the Cook Inlet investment and the team that we brought on in 2003, the team from Duke, The first investment in Cargill and more recently the second one, the Corona and Constellation investments. So There have been various acquisitions we've done basically all targeted at bringing on teams that have expertise in a market or A commodity or a geography or a sector that complements the broader franchise that we're building. So That's where we'd look at inorganic acquisition. Currently, as Alex showed in his slide, the vast majority of the capital going in has been into credit risk As we've grown our balance sheet there and into market risk and less so in equity risk.
So it's really driven by Nick and his teams on the ground In terms of adjacent opportunities, they seem to bring people on, just as is the case with all of our businesses. Nick, was there any comment you would like to add to that? No, he's there.
Is there any teams or anything in that that you think you're lacking or you Want to grow or areas that you're not in currently or it's just adding to the ones you've got?
Nick's at the microphones, we'll let him speak to that.
Okay. Thanks for the question. I think, Shamara did a pretty good job of explaining our strategy as it relates to acquisitions. We do look To move into adjacent spaces where we see good cultural fits and good opportunities to grow, More often than not, existing businesses or businesses that are very close to the ones that we're currently involved in. We're not really identifying any big gaps across the commodities or financial markets offering at the moment where we see Substantial opportunity, but we continue to remain open to opportunities as they present themselves.
Yes. We did and sorry, we did say that the opportunities we see are both organically and through acquisition. But I think the vast majority It's been organic growth and the acquisitions are ones that happen from time to time to complement that.
Yes, I think that's right. We look to grow in spaces where our customers are asking us to expand our services, and as a result, that generally happens real time as As the opportunities present themselves and as the dialogue with our customers evolves, so more often than not, the growth comes from Organic CapEx rather than acquisition.
Thanks. And just a second question, on base fees in the MAM business. You've called out broadly in line and you have for the last couple of years. This year you've got $29,900,000,000 to deploy in Mirror. You've got markets reopening And FUM likely going up in the MIM business.
Why are you not more positive on the outlook here?
Yes. Look, broadly in line covers a range there. And as you Can see the underlying franchise is growing, and so the base fees have been stepping up in line with that. So I think we're saying it's not A material increase that we see in base fees, but they will continue their broadly in line trajectory.
Okay. Thank you.
Yes. Thanks.
Thank you. Your next question comes from Matthew Wilson from E&P. Please go ahead.
Yes. Good morning, team. I have two questions, if I may. Firstly, with respect to the equity investments, the equity that you've devoted to Green Energy Has actually trended down since about 2018 from $1,400,000,000 to $700,000,000 Perhaps there's some FX impact in there. But that does seem contrary to a sector that has experienced revenue growth.
Can you sort of add some color to your perspective on the investment opportunity in that space? Yes.
Why don't you go?
Thanks, Matt. Thanks for the question. Yes, that firstly, just make sure that we, that equity investment slide obviously is A combination of equity investments that are fair value through P and L, so relatively small investments and then investments that are Effectively equity accounted, so joint ventures that we have in the green energy space. So as you say, in that component, I mean, there is some FX that's Coming through the numbers over the course of the last 12 months. And that's part of the exposure, probably 2 thirds of that.
But the other thing that we have seen is more Consolidated investments, Matt. I think we mentioned before the growth in the platform activity that Macquarie Capital is undertaking. So that's not represented on the Slide, these are obviously equity investments, whereas those consolidated activities are spread across the balance sheet. And so you've seen the team Establishing, for instance, solar platforms. And on Shamara's slide today, we're talking about the Cerro platform, which is a solar development platform In Europe, we've also seen other opportunities to actually do that type of activity fully on the balance sheet in a consolidated fashion.
And so Probably, the equity investment slide is trending down slightly, but a better indication of the amount of investment across the group in green energy is the increasing utilization of capital In that, in the green energy space, which is on the slide that I talked about later. I guess it's up there now. Slide 37. So you can see that, That light green represents the capital that's going into Green Energy Investments. And obviously, that includes the activity that's being consided on the balance sheet.
The other thing I'd mention is that we also are moving more to the development phase as well compared to construction as More and more capital comes to this space and the returns become lower in the construction phase. And so the funding required there is typically less. The human capital required is more the complexity to deliver the returns. But things like East Anglia 1, which was a late stage construction project, we were To be brought in to co invest in that. And the checks are larger there when you're late stage construction, but we are tending to do even more in the development Area now.
Yes. That's exactly right. And part of that, Matt, is obviously expense through the P and L, particularly when it's early stage development as we've talked about previously.
Yes. Thanks for that. That's very clear. And then perhaps one more just on vehicle leasing, obviously emphasized in the presentation that it's in runoff. You seem happy to shrink But the sector has turned sharply positive in recent months and the landscape of players in the space is also evolving.
Can you perhaps just add to your perspective on that space?
Yes. I mean, you've obviously seen the trend Over the last couple of years, I mean, I think we continue to think it's a good business. Obviously, a bit of the trend is affected by new car Sales volumes, as you've seen, actually being able to get new cars in the market. The other thing is the runoff of an old legacy book That we acquired and we've also reduced our exposure to dealer finance the wholesale component. I think we still think it's An attractive return on equity.
The team has been since we moved it from CAF into BFS. It's been integrated into the broader platform of BFS. And I think the team Still think there's good opportunities there. But obviously, yes, there's some bigger macro trends that are influencing the movement. I don't know if we've got Greg on the line as well.
I'm not sure, do we?
Yes. I agree with all those comments, Alex. I'd say we like the sector. We've just been Focused on some higher returning relative to capital parts of that business and there are some runoff portfolios as well And also agree with all your comments.
Yes. Well, could I just squeeze in one more given that Greg is Obviously, a key peer yesterday painted a pretty rosy outlook on business banking. It'd be good to hear Greg Ward's perspective on that as well.
Yes, certainly, Matthew. We've had a We've had a record year actually in terms of growth in business loans and business deposits. Obviously, it's a very small business that we have And focused on professional segments primarily. So we're very optimistic about ongoing growth in that Mason, there's we're making a lot of investments in terms of our capabilities for onboarding clients and growing both the deposit Our franchise there in the lending book as well.
Yes. I completely endorse that, that at the $10,000,000,000 book, we're a very small portion of the market. So Growth for us is not as challenging as some of the much, much larger players. And as you say, Greg, this niche strategy That Greg pursues, he's growing into the subsector, typically professional services niches.
Thanks, Craig.
Thank you. Your next question comes from Andrew Triggs from JPMorgan. Please go ahead.
Thanks and good morning. Two questions, please. Firstly, on Emera. The equity deployed number is now running, I think, Above 20% of AUM, which looks like at least a recent record to me. How confident are you that you can maintain the pace of fundraising Even as the business gets larger and larger.
And then just a second question, perhaps if you could sort of help with some of the modeling On the Woodall and Reed acquisition around the share of revenue and expenses that you expect for the part that you retain First, the part that's unsold to LPL.
Sure. Let me start first with the Mira business. So it was a record year for fundraising, as I mentioned, at the $21,800,000,000 Partly our franchise growing, so we're offering To our investors, much larger opportunities to invest. So we're raising money not just in infrastructure now, but real estate is starting to become a bigger business for us. Private credit's Coming bigger, particularly the infrastructure debt.
Transport sits there as well. We're raising in agriculture. So across the MiR business, we're raising across a bigger base And across a much broader range of areas. The environment as well externally is one in which investors are really looking for Investments in these sort of alternative assets where they can get superior return for risk in a very low base fee environment. So we are finding that the flows to these sort of alternative assets is picking up.
And where we have good track record franchise teams, we're able to raise money in those areas. So I think the raising environment for the next while should be a conducive one for the Mira business given the positions it's Grown across so many things. It's probably going to be a more challenging investing environment because there's a lot of liquidity out there With monetary stimulus, fiscal stimulus as well, now added to that. And there we really rely on the expertise of our teams To be able to go out and source very good investment opportunities. And we're still the pleasing thing is we're managing to get our funds invested well.
So we've just raised The 5th European fund and the 6th European 5th U. S. Fund and the 6th European fund. And we're still managing find good opportunity, the same in real estate, Same in agriculture, same in the infrastructure debt area. So I think we should continue to see that organic franchise growth, and we have A well positioned business there.
In terms of the Waddell and Reed acquisition, it's different obviously to the large last Investment we made in Delaware, where we were buying a platform already and didn't have to do Integrational change. Here, what we're doing is that LPL is taking over the wealth part of the business, and that Transition of the wealth to LPL has been closed now or completed, and they've taken over the wealth management part of the business. They have had higher adviser retention pleasingly than we had modeled between us. We've taken over the asset management part of the business. And We've now got the mutual fund approvals and the shareholder approval for the whole transaction.
And we now need to work on integrating the Asset management part of that business. And that's a challenging task over this coming year. So our teams and the Waddell and Reed teams Working together very well, but need to bring funds across investors across merge the teams in terms of managing those So we have a period of keeping our heads down over this year, and the integration costs This year will result in a slightly negative contribution from Waddell and Reed. But at this stage, there was a portion of assets, Which was in the high 70s that were asset management assets. The wealth management assets have gone to Adele and Reed all the wealth Responsibility and the advisers.
And it's playing out as expected at this stage. Anything else, Alex, you'd add?
No. I mean, I think, Angie, you could look at the announcement we made, obviously, at the time of the transaction back in November. And I think at that time, if you look at what we said, we basically said after divesting the surplus assets and the adviser platform To LPL, we expected to pay about 6x earnings pre synergy. So that might give you a sense of what we think on a more medium term basis. The group might or the acquisition might deliver, obviously, pre the integration costs and synergies that Shamara just detailed.
Alex, it was more sort of just the split of revenue between the Wealth Management business and the part that you're keeping, but perhaps you could take that offline.
Thank you.
Thank you. Your next question comes from Brendan Sproust from Citi. Please go
ahead.
Good morning, team. Look, I just have a couple of questions on your commodities outlook for the next 12 months. Just looking at The 3 components of revenue that you give us, the inventory management and trading obviously was close to $1,000,000,000 this year. Is there anything you're seeing in 'twenty two that suggests So that won't revert back to what has been the sort of longer term average at around sort of that $200,000,000 revenue? And then my second question relates Just to the risk management product revenue line.
Obviously, you called out today there's quite a bit of volatility in different markets. And Primarily, I imagine that's COVID related. Do we expect that that also will soften a little bit in what you're seeing at the moment Into FY 'twenty two, just given that these economies are starting to recover.
I
can just give some initial comments. In terms of the inventory management and trading, as You've mentioned, I think it was on Alex's Slide 34, that has had a very good year last year. This year, it will really depend, as we say, on what sort of volatility we see across the various markets CGM operates in. But what we try to do is set up our teams from the client business they do to be able to respond when we see that sort of dislocation. And As we said this year, it happened in physical oil.
It happened in precious metals, particularly in gold at one stage. It also Happened across North American Gas and Power. So at this stage, we have to wait and see what happens there. In terms of the risk management, I think it's like all the other Parts of the CGM business, things like the lending and financing, the storage and transportation, where we've got an underlying franchise that's growing Partly with our client numbers, partly with cross selling to our clients. So we'd expect that one to continue to grow at the sort of rates we've been seeing.
Yes. I'll just maybe Brendan, I'll just add a couple of things. Obviously, on the outlook statement, we've pointed to the things that we think are relevant there. In particular, in relation to inventory management and trading, we wouldn't we're not expecting The income that we saw coming through from the timing of income recognition across storage contracts and gas And power transport contracts to recur in FY 'twenty two. I mean, obviously, that somewhat depends on spreads.
But one of the things that we saw In 'twenty one was actually some contracts that had matured. So effectively, they were we were unwinding the accrued income that had been taken out of the P and L in prior years because of the way the County works. So some of that came through in 'twenty one. The other thing we saw, particularly at the early part of the year, was oil in quite Steve contango, which obviously put a lot of value into our storage contracts. And again, we saw that unwind into the early part of the year.
So we're reasonably neutral from an Accounting versus economic P and L through into 'twenty two. So at this stage, we don't expect it to recur. Obviously, it's a reasonably hard line to predict because to some extent, I guess it depends on the value of that storage or the value of the gas and power transport. And that's largely a reflection of volatility, dislocation and Spreads, and so reasonably hard to predict. But at this stage, we're not expecting that to recur into 'twenty two.
Yes, more generally, obviously, we're saying commodities We'll be significantly down. And I guess that's a reflection of the fact that we did see broad dislocation across the commodities platform Through FY 'twenty one, and as we're sitting here today, obviously, markets are starting to normalize a little bit from where they were. And so looking at here, we're expecting from here, we're expecting commodities to be significantly down. But as Shamara said, I mean, I think the things to note about CGM, and hopefully this is coming True in the way we talk about it. It's a very diverse business.
I think over 200 products, a growing client franchise and a recurring income from that Client franchise. And so we think that the platform itself, the franchise value of the platform itself is growing. You can see on the slides That they're in front of you today. So that underlying story is a good one. Obviously, the extent to which dislocation happens or volatility happens is obviously a little harder to predict Sitting here at this time of the year.
Yes. Yes. This was I mean, to your question, this was a particularly strong year for us in inventory management and trading.
Thank you.
Thank you. Your next question comes from Andrey Stadnik from MS. Please go ahead.
Good morning. I wanted to ask 2 questions. My first question is just around The change in opportunity in the U. S. Market, in particular, it seems that Miura and Macquarie Capital, the infrastructure businesses A relatively larger in Europe than in the U.
S. And so what kind of opportunities do you see in the U. S. Given the new direction On renewals and infrastructure from the new U. S.
Administration?
Yes, I'll have a go at that first. I don't think we have any of our Macquarie Capital colleagues on, Sab, because of Time zones. But in terms of infrastructure, the Biden administration is talking about a very large infrastructure package, And that would be a positive for creating opportunity for investment if it were to come through. But we have still found very good opportunity to get our funds invested in that Countries. So when you compare it to Europe, Europe got going a little earlier, which is why we're on Fund 6 in Europe and Fund 5 in the U.
S. But the U. S. Funds are of a comparable size to the European ones and are getting invested as quickly. The U.
S. Is a much, much Bigger, deeper, homogeneous market. And as we said a few times, ultimately, the opportunity for investment Comes at the state and the local council level or even out in the private sector in terms of the assets we're investing in. At the moment, even without the Biden stimulus package infrastructure, we're finding ample opportunity to get our funds, which is sort of US5 billion dollars Size funds invested. And you've seen we're investing a lot more now in communications infrastructure.
So In data centers, in towers, in wireless businesses, fiber networks, etcetera. We also are seeing lots of opportunities in transportation infrastructure. So we've invested in port assets and then some waste assets, etcetera, sectors where we've had niche capability. So we are not seeing that the lack of the federal stimulus is impacting our ability to get invested well. If it does come, then it potentially could create even bigger opportunity.
In terms of the renewable energy side, the European markets there are much More advanced in terms of investment opportunity. So we do have a much bigger footprint there. And that's Partly reflected in Dan Wong deciding now to move to Asia to try and focus on growth there. We've had other people from the Infrastructure and Energy Group move to the U. S.
Try and look at opportunity there. Solar has been the main opportunity in the U. S. We're not sure yet again what Biden administration will do the main incentive mechanism there has been the tax equity mechanism for getting the private sector To invest in renewable energy. Potentially, the Biden administration is talking about working through using regulation.
We'll have to wait and see how that Plays out. I would say the U. S. Is a more nascent market for us. We have got a good platform in solar through the Savion network.
We've been investing in 3 opportunities there, but it is not as evolved as not just the U. K, but the European markets where we've been able to do a lot of investing, Particularly in wind, but onshore and offshore and also solar. So at this stage, we'll see how it plays out. We're not factoring in Any massive impact from either the infrastructure or the renewable initiatives because they're not past it and we don't know the detail. If they do get past, it will change always gives us opportunity to respond.
So we'll wait and see.
Thank you. And my second question, more around the financials and really the capital efficiency of the group. So This FY 2021 is a new record profit and exceeded FY2019. But the ROE in FY 2019 was 18% And that's dropped to 14.3% in FY 2021. So what do you think Macquarie needs to do Yes, improve the capital efficiency.
Did you want to go first or do you want me?
Yes. I mean, obviously, Yes. We feel, as Shamara said, we feel like the $14,300,000 is obviously a strong result for the year. I mean partly, obviously, you're seeing The impact of interest rates coming through, Andre, during the time, I guess, more generally to the medium term. We think the businesses Have really strong franchises and we think the businesses are seeing, generally speaking, seeing good opportunities to put capital The work in sectors that generate really attractive return for shareholders.
That's been a story over a long period of time. Obviously, if you look at the Shamara's slide, on average the annuity style businesses have done a 23% return in from a ROE viewpoint and And the market facing businesses have done a 16% return, so 22% and 16% return. So we think over time, They've generated good opportunities to deploy capital. And I guess the point we make on the surplus capital, if you look at what they've done Over the course of the last 6 months, we've seen good opportunities to deploy capital. And based on the outlook statements and what the team is seeing around over the medium term, I think they see good opportunities to continue to generate good return for shareholders.
So we think that the underlying story really is A continuation of a long term story, people close to opportunities on the ground, seeing opportunities and us from a center viewpoint setting up the organization to be able to those initiatives where they arise.
And we definitely look at the ROE targets business by business. And so the result at the Macquarie Group level is a blend. But to the extent we're putting more capital into lower ROE businesses, it will bring the overall return down. But we set our hurdles depending on so the hurdle is very different for commodities and global market investment compared to a BFS home loan investment Compared to what we're doing in asset management, which is typically a very capital light high ROE business where the balance sheet is being used now and then for acquisitions, but mostly to invest in funds where we leverage our capital multiple times or to seed temporarily acquisitions for those funds. So we look at it business by business.
And then taking into account, as Alex says, as the base rates come down and the risk free rates Come down, we look at what risk premium we need for each business in that environment.
Thank you.
Thank you. Your next question comes from Brian Johnson from Jefferies. Please go ahead.
Good morning, Shmair. Good morning, Alex, and congratulations on a great result. I had 2 I had 3 questions, if I may. The first one, Just when we go to the slide which shows the movement in the Macquarie Capital, the movement in the regulatory capital, We can see the gray bit, which I'm assuming is the capital for ECM, DCM, M and A and everything else Is basically, I would imagine, is the Principal Investments business, which is quite substantial. Alex, could we just get some comment On the duration of how long you hold those assets for?
And what is the target internal rate of return that you would like to get from an equity perspective on that capital? Yes. So in terms of,
Yes. So in terms of your first question, yes, the other piece, obviously, is largely supporting The more advisory type businesses as you talked about. I mean more generally, Brian, I think if you looked over time, the Sort of average duration of the Macquarie Capital portfolio more generally is somewhere between 2 3 years. I mean, if you sort of break that down, if you look at the, I guess the more private equity style investments, they've tended to be longer duration. We tended to stay in those investments for a longer period of time, Realize the business case and then find the right time to exit those investments.
The development activity tends to be and the construction activity tends A little bit shorter where we're actually on the construction sector, for instance, using the balance sheet to underwrite an exposure And then selling that down to people who want to be long term owners as the project gets de risked as construction proceeds. It varies in terms of the duration of hold across the portfolio, but more generally, sort of somewhere between 2 3 years. On the question of returns, Brian, it's I mean, obviously, there's not one answer to that question. It depends on the type of investment that we're making, obviously, and looking at the risk profile of that investment, looking at liquidity profile of that investment. So there's no Hard and fast answer in terms of the returns that we're trying to seek.
But obviously, we look at everything on a case by case basis and say, are we getting the right return For the risk that we're taking. I mean, obviously, more generally, if you look at the markets facing businesses, as Shamara put up on her slide, Yes. Over time, the return on equity across that businesses has been sort of 16%. There's obviously differences between Macquarie Capital and CGM. But nonetheless, over time, those market facing businesses have generated a 16% return on equity.
Alex, could you give us a feeling then just on the historical Performance of the Principal Investments book, the
ROE? Well, again,
I mean, we Brian, we don't we obviously don't Detail is, but to the extent that, in sort of break it down because there's no one answer. I mean, we can talk about So it have been low teens type return on equity that have been great investments because the risk profile has been consistent that sort of return, there's obviously debt investments that the team are making, which will be in that category. And then there's other transactions where We've been in for a long period of time. We've built a business that we've made multiples of our money. It'll have very significant returns on equity.
So There's no hard and fast rule. I mean, I suppose, generally speaking, what I would say is that, we have the opportunity working with the team do actually analyze every investment and say, does it meet its hurdle? Obviously, the extent to which we're continuing to invest in the business and continue to support that activity with Capital means that we feel like we're getting a good return for the risk we're taking. We have done historically, and we continue to see opportunities to do that going forward.
Right.
Alex, the second one is, I'm just looking at Slide 23. Yes. And when we have a dividend payout ratio for this period, 56 So it's below the target. We can actually see the transfer of the services business into the bank, which consumes capital. We've had the earnings inflated by effectively the weather event in North America.
We can see the dividend reinvestment plan and the MREIP Share issuance that I don't think people had thought about and expected. We've also got the APRA $500,000,000 impost. But we got the commentary that you've got this buffer of surplus capital, which you have already have. I'm just it looks to me is the move to issue the DRP shares in the MRAP, Is that and the lower dividend payout ratio, is this telling us something about the confidence on the forward dividend servicing capacity Or something on your capital position? Or is it just the temporary impact of the APRA $500,000,000 uplift?
Yes. Well, obviously, maybe, Brian, to take the buffer point, firstly. So we do have a surplus capital of $8,800,000,000 above the regulatory minimum. So firstly, in that buffer, I'd make the point that there are thresholds the Board set that are obviously above the regulatory minimum. So we don't Show them publicly, but obviously, there's a threshold above those board minimums, which are being met by the surplus capital.
We obviously have a range of, as we've said before, there's a range of regulatory initiatives that are going on across the market, including things like unquestionably strong. And so We're making sure as we think about management of that of the capital that we're in a position, as I've said, to make sure we have sufficient capital to meet any additional regulatory requirements that are coming through from the regulatory change agenda. And then the other thing, obviously, we're doing is we're using that surplus to support the growth The business over time and the opportunities we're seeing. And I think in terms of the current, whether it's dividend payout ratio of the issuance for Miro for the DRP. I think what I'd point you to is the slide that Tamara went through in terms of The capital usage over the years.
So we the group's basically used a net $1,600,000,000 of additional capital. They're obviously seeing good opportunities to invest. And part of that, Brian, Includes more permanent type of step up. So if you think about Wood Dale and Reed, obviously, we're excited by the acquisition, but it's a permanent usage of additional capital in In Macquarie Asset Management. And I think and obviously, you're seeing that the ongoing growth in BFS, obviously, things like CGM and Macquarie Capital can be a bit more transient in terms of their use of capital Just based on the divesting and the investing path, but there's obviously a big step up in overall use of capital that we're And more permanent use of capital in MAM and BFS.
And I think with all that in mind, the Board took a view that For the second half of this year that the payout ratio should be 60%. I mean, obviously, the 56% for the year is To a large extent, the implication of the reduced dividend in the first half. And I think the Board looked at the capital utilization and the outlook for Looked for capital utilization and felt it was appropriate also to issue for MRAP and to include a DRP With a 1.5% discount. More generally, I suppose, I'd reinforce the point that Chamara made as far as dividend is concerned. The policy of the board remains a dividend payout ratio Between 60% 80%.
And so that's probably, Sihem, anything you want to add there?
No, I think
that covers it.
Well, I think that's I think capital management has been the hallmark. Just a final one, if I may, something I don't understand is that when we have a look at BFS In the second half versus the first half, I think we're seeing the home loan portfolio growing far faster than the deposits, Which I would have thought would have meant that the margin should have actually expanded. It didn't. Alex, can we get some kind of explanation on Why we didn't see the deployment of the excess deposits drive the margin up and what's happening with deposit pricing in that business?
Greg's probably online, so he might want to take this in a moment or add to this in a moment. Yes, we certainly saw in the second half, as you say, We saw a significant step up in home loan volumes, I think on average basis, up 12%. And we did make our way Through some of the surplus funding that we were carrying in the first half. And there was a continued drag, obviously, as you move into the second half, which partly affects margins in the second And the other thing you're seeing obviously is further support for clients. We're obviously seeing clients come off COVID-nineteen support throughout the year.
And as we sit here today, relatively low Portion of the portfolio actually requiring support, but that obviously happened progressively over the second half. And so that remained a partial drag on the margin. But overall, I think what we and the other thing you're seeing is a those rate cuts coming through that are affecting margin over the course of Based on the timing when those rate cuts actually emerge. But I think we are seeing, now that we've got those rate cuts through, we're seeing the surplus funding That's been utilized. We expect hopefully continued growth in both volumes and a more stable in terms of margins.
But maybe, Greg, do you want to add anything to that?
Yes. No, that's all spot on, Alex. And the only other thing to I could note to add to that would be the mix of businesses. Some of the home loans, of course, have been fixed rate Home loans, and that's at lower margin than the effectively the variable rate. So there's been a shift, obviously, a lot of people moving to fixed, So that's at a lower margin.
And then in the business bank, of course, passing through some of the CFF To clients in the form of lower rates, whereas that's been, in effect, pre funded, and we haven't drawn down our CFS entitlements Not in full yet.
So Greg, the deposit pricing, what's is there a plan is there an initiative in place to improve that? Or you're happy with where it is right now?
No. I think as Alex said, I think where things are at the moment, I think hopefully we'll get some more stable Levels there. And as he said, we will start growing into the excess funding that we've had in the first half and into Second half, so we'll keep growing into that, so that should have an effect in the full year.
Fantastic. Thank you. Well done.
Thank you. Your next question comes from Brett Limasuria from Velocity Trade. Please go ahead.
Thanks very much. Going back to Green Energy. So I gather from what you were saying before with the regulatory capital requirements going up and your carrying value going down And you've got more debt investments that you would have a debt for equity swap in relation to that carrying value to take it down Roughly $300,000,000 Is that the correct interpretation of what you were talking about?
I'm not sure, Brian. Brett, I can follow I can follow, Elijah. I guess the point I was making before was that equity slide that the question was asked about really is Only equity investments are the fair value through P and L and joint venture interest, if you like, that we equity count. It doesn't include green investing that we're doing on a consolidated basis on the balance sheet. And so those balance sheet exposures are coming through in various line items on the balance sheet.
I don't think there's any debt for equity swap I mean sometimes we put debt into these investments, sometimes we put equity, sometimes we put equity and shareholder loans in. So they're structured in a range of different ways. But I guess the point I was making is A better indication of the exposure, if you like, we have to the green energy industry is the utilization of capital rather than just looking at the equity investment Slide, which is only part of our exposure. And the other point I suppose that, that Tamara made, which is a really good point is that, a lot of the activity is earlier stage development And much of that is being expensed through the P and L. So you're obviously not seeing that in terms of either equity investments or in terms of capital utilization, which Just going through the P and L in terms of early stage development expenses.
So what was the reason for the reduction in the carrying value from March 2020 to March 2021 of about $300,000,000 Did you sell some
I will sorry, Brett, I might have missed your question. Part of that is just FX. I mean, of that move, across the board, about twothree of the move Is foreign exchange movements. So it's just rebasing the equity investments for the appreciation of the Aussie dollar between March 'twenty and March 'twenty one. And then yes, there were some disposals of green energy investments during the year, including things like East Anglia 1.
But equally, there was also some investing that was done through joint ventures during the year. So that's the net result of the divestment and investing during the period of time. But the vast That move obviously is a change in the Aussie dollar exchange rate.
And lastly, when I look through your MD and A in your presentation for References to revenue from Green Energy. All I can find is references to expenses with no reference to revenue. So it would be Correct in concluding that because you're still in the early stages of these investments that the ROE in any particular year still is quite low and The ROE will expand as the the concept of the ROE will expand when the development is complete and construction is complete. Would that be correct?
Well, certainly, obviously, I mean, there's a few things there. Firstly, there is plainly revenue from the green energy activity. I mean, if you look at the Obviously, we don't break out things like East Anglia 1, which is a construction stage offshore wind asset in the U. K. That's now moved to operations.
We obviously, prior years didn't break out things like the offshore wind development and construction activity that we've done in Taiwan in actual dollar terms. But through the investment income In the P and L, you're seeing the benefit of the work the team is doing in actually deploying capital into the green energy space. So we don't specifically call it out, but there certainly is revenue there. But I think what the team are doing is building a really strong franchise of development pipeline that over time should bear results In terms of realization, so as we take assets from that development phase through into construction and then into operation, What the team have been doing over time is actually selling down and generating P and L along the way. Over the course of the last few years, they've expanded Yes, their footprint in development activities.
And as Shamara said, we've now got 250 odd projects under development or construction and more than 30 gigawatts In the pipeline. Now not all of those things, Brett, will come off. But over time, you'd hope that those things as they get through and they start to mature, We'll generate opportunity for the team to realize profit through the disposal of those assets. So you'll see that come through in the years to come.
So just to finish off then, the ROE is currently on the low side and you expect it to expand in the next few years. Is that Correct interpretation.
Yes. I mean, if I could just have a go, we've been investing obviously in renewable energy projects for a couple of decades now, and we look at it project by project. The revenue may not be isolated in our investment income, but we've been making large amounts of revenue from exiting projects For a long time now, we've been doing several 100,000,000 a year in terms of renewable projects that we've exited for several years. Project by project, the ROEs have been very strong double digit ROEs. Initially, we were investing in operating assets, then we moved Projects now to development projects are required.
Returns go up as we move up the risk curve in terms of the complexity of these investments. But certainly, the investments we've been making have been delivering material revenue and very ROEs. What we're doing is constantly expanding the portfolio. So we're investing a lot. But as we said, we're typically investing now in earlier stage Smaller checks and also into development platforms.
Thank you. Those are all the questions I have.
Thank you. There are no further questions at this time. I'll now hand back for closing remarks.
Great. Well, thank you for your questions. Thank you for your interest. And we look forward to catching up with our shareholders over the next 3 weeks. Thank you very much.