Good morning, everyone. Welcome to day four of Macquarie's EMEA Investor Tour. Hopefully, everyone had a good night at dinner last night. Today we'll have Simon and the team talking about CGM. Simon Wright, who heads up the Commodities and Global Markets team, and then the European team to talk about their business. We are going to have a break after about an hour, just a short break, get some coffee, and then the team will finish up. Probably got about 45 minutes for questions, and then we'll finish up this afternoon with some closing remarks from Alex. With that, I'll hand over to Simon. Thanks very much. Actually, we've got a video first. Sorry. Video first, and then Simon.
I'm here in London, just around the corner from our EMEA headquarters. It's where we first started operating back in 1989, then with just three institutional stockbroking staff. Commodities and global markets have come a long way since then. The pace of growth here has really been accelerating, and a lot of that growth has come from our key financial centers of Paris, Dublin, and the United Arab Emirates. I'm here back in Paris. We've seen significant growth in our commodities business, especially agriculture and oil, and European gas and powers. I think in times where the market is so uncertain, with economic uncertainties and unprecedented volatility, it is important for us to be able to be there to answer our current needs and the really needed guidance in that particular period.
I'm part of our Quantitative Investment Strategies team. We provide investors with access to systematic strategies across asset classes, including equities, fixed income, FX, and of course, commodities. We partner with our investors to turn academic concepts into tradable reality, which we then execute. We are a global business with global expertise, and we are trading physical biofuels, and we finance biofuels as well. That enabled us to do fundamental analysis and understand how the market works, and therefore be able to be a price maker and manage that exposure, that price exposure, into our own books.
We manage the entire value chain meticulously to ensure efficient customization, implementation, post-trade operations, and risk reporting. To give you an example, one of our strategies contains 30 different sub-strategies trading over 120 assets across 1,200 different positions, some of them trading multiple times a day. I'm excited about growing our footprint in the region. Being based in Paris allows us to be closer to our clients, have a deeper understanding of their businesses, and therefore design innovative solutions that can meet their needs. We will continue to make a positive impact on the real world.
Good morning, everyone, and thanks, Sam, for the introduction. Welcome, everyone, to the London office. I do appreciate you've been here for a couple of days, and I believe you've been to the Paris office as well, where I also came from, which is, as you would have seen, a fantastic office because it's nice and small, lots of collaboration. I did have the opportunity to meet a bunch of you last night. For those of you who I didn't meet, I'm Simon Wright, and I am the lead for Commodities and Global Markets, which I've been in the role for just over a year now. My background has been 35-odd years in CGM, mostly on the financial market side, about 27 years on the ManCo for CGM.
I've had a long history of working through the evolution and iterations of CGM over that time. The last time CGM hosted you as a group was two years ago in Houston. Over that time, you'd appreciate the business has continued to grow and evolve. The markets have changed a lot. We've seen lots of opportunities, and we've grown our business accordingly. Particularly here in EMEA, we've grown a lot, and we do see lots of opportunities, which we'll walk through today. I would like to start by reflecting on a story we started two years ago about a European telecommunications company we were partnering with. It's a good story for us and an important story for us because it continues to be relevant, and it does really depict a lot about who we are and what we do.
It was a client that really needed some quite unique offering. They basically needed someone with asset finance experience, but also deep metals markets experience to help them transition from a cable network to a fiber network. Effectively, they needed to finance that transition. What we ended up providing was a tailor-made solution that involved purchasing their existing copper cable network and helping them extract and recycle the copper cable in the ground. Over the past two years, as a result, we have provided over EUR 400 million of financing and have also basically been acquiring about 187,000 tons of cable, which equates to about 100,000 tons of copper. As of today, we recycle about a fifth of that copper in our own recycling plant here in location. What's been really important about that for us is that we found a solution for a client that others couldn't.
We differentiate ourselves through our physical and financial expertise, plus our financing capability. What is really exciting about this is not only did we solve a client's problem, but it gave us a capability that is scalable. The last two years, we've been looking at ways to deploy that capability, which we'll touch on a little bit later. Right. Many of you will have seen this diagram before. This is, for want of a better description, almost like a competency diagram. It's what we call our three by four. It does basically define who we are and how we're organized. We are three operating divisions: our commodities division, our financial markets division, and our asset finance division. They're basically revolving around four key competencies. Risk management. What we do well with clients is provide our clients with solutions and certainty around their uncertain price exposure.
Also, in terms of capital and financing, we provide a whole bunch of solutions around the capital stack, up and down, inclusive of both financing and equity. We also provide market access to our clients on a 24-hour basis, both on exchange, OTC, etc. We also provide physical execution logistics, basically trading the physical, but also providing or facilitating the movement of commodities from producer to consumer. As a business, we are large. We're diverse. We are 2,500 people across 21 markets. We provide market access for our clients 24 hours a day. Our teams do have a diverse range of skills and capabilities ranging from things like logistics, geology, meteorology, quant finance, engineering, and believe it or not, theoretical physics. I'm not quite sure what that is, but it's important, apparently. At the core of our business, which you've heard before, is our client franchise.
We have built this up over 45 years. It is basically defined who we are. It is what we care about. It is very deep in our DNA. Many of those clients that we have built up over the years have stayed with us through multiple decades. It is what really defines us, that close collaboration with our clients. It gives us the confidence to build our business because of that income being repeatable from period to period. As I mentioned earlier, we are a diverse business across both by product and by region. This diversity gives us the consistency of earnings, basically as different asset classes and different markets do different things at different times. It gives us the diversity and confidence that we can make money in certain markets when other markets are quiet.
The EMEA region has been core to this earnings, and we basically derive about a third of our income from this region. We do continue to grow our presence here. We're very focused on EMEA. It's been a core part of our business, and we are very deliberate about what our opportunities are here, and we see lots of growth potential. As you see here, we are a business underpinned by our core client franchise. Around three-quarters of our income is derived from our client business. We have, at the moment, onboarded and dealing with 3,700 clients. Our client base continues to grow reliably as we build it in a very deliberate fashion. Around 85% of our income is from repeat clients, which means as we grow clients, we can basically foreshadow the positive impact over multiple periods.
Turning to our global income, it's a chart you're starting to see more regularly now from us. I've touched on the diversity of our income. As Alex discussed with you earlier this week, our earnings sit on a continuum of annuity-style and market-facing income. When we look at CGM, about a quarter of our income is market-facing, and about a quarter is genuine annuity-style income. The balance, or half of it, is market-facing but with annuity-style characteristics. Again, this does demonstrate the strength of our underlying client franchise, and the high-level repeat activity gives us consistency and basically contributes to that annuity-style income. Okay. On this slide, you'll see the breakdown of our capital usage. What's notable here is on the right-hand side you can see the most use of our capital is in credit. Now, that's consistent with our client focus.
Most of our activity drives our capital usage around credit usage. Our operational and market risk capital requirements reflect our participation in physical and financial markets, mostly around our commodities business. The histogram you see next to it is a diagram I think a lot of you have seen before. This is a kind of an evolving story that we've basically been introducing, and it's accurate up until the 31st of December. What's worth calling out here and what you'll be interested in, no doubt, is that we've seen a normalizing of our earnings over the last couple of periods. Now, you all reflect back to FY 2022 and FY 2023, Storm Yuri and the Russian invasion of Ukraine. Those periods of extreme volatility have obviously subsided. We've gone back much more back now to market conditions.
What has been really pleasing is that the skew of our earnings has remained consistently positive. A lot more up days and down days. That is really important when you are trading. This kind of really does reflect the asymmetric nature of the opportunities that we get presented with and how we approach markets, but also very much how we approach risk management, which is very disciplined, not only during busy times but subdued times. Now, what is important about that is those people who have a purely risk-on mandate, when markets are quiet, are compelled to trade regardless. It is how they derive their income. It is what their mandate is. We do not have to do that. We can take the opportunity to sit back, wait until we have high conviction, or we have that competitive advantage. That is what drives this positive right skew of earnings distribution.
I have touched a little bit on the fact that risk management is core. I would just like to reiterate something that you've probably heard from our [Macquarie AM] flames over the last couple of days. Three things are core to us. Basically, we own the risk in the business. We own the good times and the bad times. It's on us. Full risk ownership. Secondly, when we look at risk and we look at our businesses, we stress test everything. When we go into new markets, new products, we look at what the downside is. We look at how much capital is at risk. Finally, when it comes to sign-off on risk, that's done independently by our risk management group. Okay. What I would like to do is talk about strategy.
You've heard over the years how we've basically focused on building our client franchise. In CGM, what's true, we've defined ourselves on this, we've always built our strategy from the bottom up. Business by business, desk by desk, division by division. As those people closest to markets see opportunities, we build the strategy opportunistically. You'll see some examples on the left of what we've delivered over the last couple of years. Our success, our growth over the last five years has now delivered us a size and a stage in our maturity, which we believe has delivered us at an inflection point. We are looking now to complement this bottom-up strategy growth with a top-down review and organization. Since I've stepped into this role, just over a year ago, I've been very focused on three things: strategy, structure, and cost.
Basically getting ourselves organized to basically deliver the next three to five years of growth in a more deliberate and articulated fashion. Why? Basically because the scale of the business now requires it. We basically got a platform that is of serious scale that we've got an opportunity really now to deliver in the future. We basically set a challenge to all our divisions to come up with a forward-looking strategy for the next three to five years. We've collated those strategies, reviewed what the opportunities are, and basically looking to deploy those that are scalable and have the greatest impact on our business. It doesn't mean we're going to lose our bottom-up approach. Things will change. As we all know, the best forward-looking plans often come undone because things change or market circumstances alter.
We will still continue to be focused on those people closest to business helping us refine that strategy. Importantly, as we move forward, by defining that strategy now, we can clear the path, look at what those obstacles of those growth are, and clear them now to give us the agility and the speed to market we'll be able to execute successfully. I touched on the copper cable financing solutions earlier. What's been really exciting about this and a good example of what we're doing is a scalable product. We have had first-mover advantage. That's kind of rare in this market, but it's something we've been able to secure. Importantly, since that first deal, last year we signed our second deal. Slightly different structure, but same concept. In addition to that, we are at the moment looking at closing another couple of deals.
We are basically having success both in North America and in Europe, and now turning our minds to Asia. Another example is on the Macquarie Aurora Platform, which is our digital trading platform, which some of you may be aware of. This gives our clients real-time access to a broad suite of CGM products in real time, electronically, and it helps them meet their access, trading, and risk needs. We have seen quite extraordinary growth in this platform, almost surprisingly, because we were not the first to do this. Because of our unique offering and our range of asset classes, what we are finding is we are able to scale this business both jurisdictionally and by product really efficiently. Less people, more product, and also frees up our people to focus on the things we are actually really good at, and that is solving problems.
As this platform is evolving, we are broadening out what our focus is. At the moment, we're doing about 300+ currencies. I think Craig will take you through a bit more of that. We've got about 450-500 clients and about 1,400 end users. We have plans now to scale this across more asset classes, more jurisdictions. Importantly, we're adding in more of our commodities product suite, the oil-based metals and some more ag products. That's really quite exciting. Importantly, I mentioned that my focus and the team's focus here today has been on the strategy, structure, and cost. Part of that look at structure has been focusing on EMEA and our basically Macquarie Bank Entity, MBE, and what was needed or what is needed to scale the business and the opportunities here.
What we've done is reviewed the funding and the capital profile of MBE, the cost of it, and made it more efficient and get it ready for scale. I'll stop talking. To further discuss the opportunities here in EMEA, I'd like to hand over to Arun Assumall, who is our Head of CGM in EMEA.
Welcome, Arun.
Thank you, Simon. Good morning, everybody. I'm Arun Assumall. I've been at Macquarie for 13 years. Before joining Macquarie, I spent 12 years at Goldman Sachs, and I started my career at Deutsche Bank. I've been in London throughout this time. As Simon mentioned, I'm the Regional Head of CGM for EMEA, and EMEA accounts for about 1/3 of CGM's total income. We have offices in London and four other sites in the U.K., as well as Paris, Dublin, Geneva, Zurich, and Dubai.
We also intend on putting people into Milan and Riyadh later this year. As of now, though, 10 locations in five countries covering all of the EMEA region. The size of the region and the diversity of our business means that we have a more complex footprint. This requires us to interact with a number of regulators, including the FCA and PRA here in the United Kingdom, as well as the Central Bank of Ireland for our Macquarie Bank Europe activities. We take these responsibilities seriously and spend a considerable amount of time engaging proactively with our regulators. As you can see, the commitment to the region is longstanding. The presence we have today is the result of growth, innovation, and commitment to our clients, and it all started with the opening of our office in London 35 years ago.
Most of the growth has been organic, but we've made some interesting acquisitions along the way. An example of a business that we've grown organically is the commodity investor products business that I was hired to establish in 2012. If I make reference to the matrix that Simon spoke about earlier, Macquarie was thriving in three of the activities within commodities but was largely absent in one of the four activities, which was providing investor market access for commodities. The barrier to enter at the time was twofold. Number one, the lack of a quant platform for index products. And number two, our credit rating relative to our competitors was uncompetitive. The credit rating differential was restricting our ability to sign ISDAs with institutional investors.
After the financial crisis, most of our competitors joined us in the strong single-A rating category, leveling out the playing field with respect to ISDA negotiations. The team and I were hired to build out Macquarie's index platform. Here began our journey. Once the business developed and we saw scope to replicate similar index products in other asset classes, such as equities and FX, we expanded our offering. Today, over AUD 125 million of fee accrual revenues are generated by this business, and approximately a third is non-commodities. The non-commodity revenues are so significant and growing that we actually changed the name from the commodity investor products to quantitative investment strategies. A great example of business that we have acquired is our investment into Corona Energy, a wholly-owned subsidiary that is the second-largest industrial and consumer gas supplier in the U.K.
We acquired the business in 2006 as an adjacency to our own European gas and power business that we were growing organically at the same time. Since then, the Corona business has gone from strength to strength. It is one of our key growth areas looking forward in the region, in particular the growth of its power portfolio, which has doubled in recent years and we expect to keep growing at a fast rate. In 2018, we saw a significant opportunity to grow out into Europe following the U.K.'s withdrawal from the European Union. Our Macquarie Bank Europe business today has more than 100 staff working in it.
With the relationship between the U.K. and EU constantly evolving and the regulatory landscape remaining fluid, having options across the European Union proving to be valuable for us to remain agile in maximizing the client opportunity. As you saw in the video and my colleague recognized, obviously having more offices in Europe and keeping us closer to our clients is also a positive. Another focus in region has been to drive increased collaboration across our teams and divisions. We see opportunities to collaborate more between our commodity and financial markets franchises, in particular the coverage of corporate clients and financial sponsors. On screen, there are many more examples of our journey in EMEA over the last 35 years, but the result of this patient growth and investment has driven EMEA's large share of CGM's revenue. As we look ahead, we see plenty of opportunities to grow in EMEA.
The global energy transition thematic continues to be a key focus in the region and brings with it several growth opportunities. To call out a few, European power, carbon markets, battery materials, and the copper recycling business that Simon already spoke about earlier. There are some interesting statistics about EMEA on this slide, and I'd like to call out two of them. Number one, Europe consumes 55 million terajoules of energy each year. This is 16 x the size of Australia's consumption and gives you some idea of the scale of the region and the opportunity. Another one to call out is that around 10.5% of global emissions come from Europe. This should continue to drive an increase in activity across the environmental products markets, including the trading of U.K., European, EU, and German emission allowances.
The current European Union emission trading scheme only captures fuel burners. A second scheme will become operational in 2027 and will capture the fuel providers and distributors. This represents a significant opportunity to grow our business by supporting this expanded client base. In fact, our carbon experts are already out on the road in front of this future client base discussing solutions. While we've grown significantly in EMEA over the last 35 years, we believe that the growth and innovation will continue in region. In simple terms, it's a case of more clients, more regions, and more products, as well as investing in data and tech to manage our processes and costs and enhance the experience for clients when they interact with us. We want to grow our people, grow our business, and grow our people while strengthening the control environment and risk governance that we operate under.
Our ongoing focus on non-financial risk remains strong and is just as important as our management of financial risk. Having a strong and ever-improving regulatory engagement built on trust is also at the top of our agenda in region. We are very excited about the opportunity here in EMEA. I'm now going to hand over to Eric Peterson, who's co-head of global commodities. Eric will provide an overview of our commodity franchise in EMEA, as well as a deep dive into our European gas and power business. Thank you.
Good morning, everyone. I'm Eric. I joined in 2004. I'm Co-Head of Global Commodities. I've always been based here in the EMEA region. Today, I'll talk a bit about our global commodities business. Immediately prior to this role, I was also running the power and gas business here in Europe and started it.
I'll do a little spotlight on that as well for you. In terms of what we're trying to do in the commodities group, our strategy is to be client-focused and evolving our business with our clients' needs. That's the core of what we are doing. We take a combination of credit and market risk and occasionally equity risk in our businesses. We've got three pillars: financial and physical risk management, physical execution and logistics, and financing and capital. That's across all of the different business lines that we have. We combine that with deep market expertise and insights, and that enables us to take better trading decisions. Here in the region, actually, all of our commodity offering is represented across our four business lines.
Gas and power and emissions, ags and oil, where Noemi, that you saw in the video, works, resources, which has metals, precious, and base, including the copper deals that we've spoken about, and then QIS, where Maya works, who is in the video. The growth here in the region has been pretty organic, and it's a large part of our business overall. It's about 44% or so in financial year 2024. It's been a consistent growth in our clients and the number of clients and the depth in which we operate with them as well. You see here on the P&L that it's been fairly consistent growth with some outsized event in EMEA, power and gas, which was a function of some market conditions that I'll go into in a second.
When we think about our strategy, we have to consider a bunch of macro thematics, and there are a lot of them that impact commodity markets, as you probably know. I'll talk about three of them. Climate volatility is very important to us, of course, in power and gas, winter-related, but also in businesses like agricultural commodities where droughts or floods can really impact some of the markets, which I'll talk through an example in a bit. The tariffs, high-rate environment, inflationary pressures. We wrote that a while ago, by the way. It's not something that we've added in over the last few days. It's obviously very important at the moment, and I'll have an example later on how that impacts what we do.
I'd say structurally, growth in power demand and the increase of renewables and the requirement for flexibility is a very important thematic that's linked to decarbonization and particularly topical here in the region. In terms of our strategy, we're developing our offering both in terms of new products within existing business lines, but there's also some business lines that we think we can be deeper in. For example, a new business line will be LNG. We do some LNG activity at the moment, primarily price risk management and some financing type of business, but we think we can be more present in physical. It's a large market. It's very important in the energy transition. An example of an existing business line but a new product will be battery material and some of the critical minerals, including the copper financing for telcos.
We combine that with expanding our reach. Expanding our reach both from a geographical perspective, where, for example, in the Middle East, we've been growing our client base consistently, and that region's become more and more important for us. Lots of commodity-impacted customers in that part of the world, but also growing a subset of our clients through the electronic market offering. Here's a case study that is actually fairly live at the moment. You may know that we've seen very high elevated cocoa prices in recent times, as demonstrated by this graph. That's been driven by some supply concerns. Cocoa supply is quite concentrated in West Africa, and there's been years of underinvestment as well as some weather-related impacts on that supply, which has created this very, very volatile market. How would we interact with our clients in that space?
In this particular case, it's a chocolate manufacturer, a large European-based chocolate manufacturer. They buy cocoa as an input for their chocolates, and they need to protect themselves against the volatility of these prices. We would offer them several different types of derivatives to be able to hedge this price risk and so that they can keep the prices of their chocolate essentially more constant or smooth it out. In doing so, we need expertise in the product. We need to understand the fundamentals of this market from a market risk perspective, but we also provide them with credit and take over some of their funding obligations. Here's another example of a deep market insight and how we use that to take advantage of a situation that presents itself to us.
Here, on the right-hand side, you've got what we refer to as the gold physical arbitrage, which is the difference between New York-delivered gold and London-delivered gold. With Trump coming in, you see here at the sort of towards the right at my end, but the kind of peak and trough on that graph was the expectation of Trump coming in and putting tariffs effectively on gold, moving gold into the U.S. That meant that the price of gold delivering to the U.S. really increased versus the London. How do we take advantage of it? We've got a network of producers and owners of gold. We went and sourced gold on the London market and in Australia and moved it actually physically over to New York, put it on warrant and delivered into the futures and made a spread.
I guess this is usually quoted internally as a percentage. Moving on to EMEA power and gas. This is a business that we've been in for about 15 years. We're one of the few financial institutions that have stayed in this business consistently through that time and service our customers consistently through that period. We provide essentially four services in this business: client hedging and risk management, provide market access across a number of physical and financial markets of electricity, gas, and carbon, physical logistics, or as referred to here on the slide, off-taken supply, where we may take a contractual position in the gas storage that we try to optimize, and we provide structured financing and capital solutions. This is a graph of Dutch gas, which is sort of the benchmark for European gas, quoted in Euros per megawatt hour.
You'll see here towards the left-hand side of the graph the impact of the Russia-Ukraine war, where Russian gas, which is somewhere between or was somewhere between 30% and 40% of the total gas in Europe, was largely lost. Some small gas were flown, but largely lost. That creates a very high price of TTF, over EUR 300 per megawatt hour. In sort of oil terms, that would be around EUR 600 a barrel or so. If you think about that, it's very material, created a large crisis here in Europe. You'll also see that in 2023, 2024, and into 2025, it looks like a very sort of calm pricing environment, but actually, the price of gas here in the region is still relatively high.
If you take the graph back 10 years or so, it's around 45-50, and I would say the average prior was maybe 25-30. It is still reflective of the fact that we've lost this Russian gas, which has been replaced largely by LNG. I'm showing you this because throughout this period, we consistently continued to service our clients, and they were very appreciative of the fact that we were just there for them. We had zero credit loss throughout that period, which I think illustrates very well the strength of our risk management. Here is an example of a deal which talks a bit to our strategy and what we do, where we try and combine our financial expertise, let's say banking-type expertise, with our physical market access.
This particular case was a large European energy supplier, I think Swiss-based in this case, where through a physical transaction and an ETF agreement, which is the contract used to transact wholesale physical gas, we provided them with a prepayment and a delivery of gas of around EUR 200 million. Relatively significant for us, but also meaningful for them. They get both the gas as well as some working capital. Some of my colleagues spoke a bit about the potential for carbon in this region. Europe has the sort of most developed and most mature carbon market globally, the European Emissions Scheme, and that is evolving to capture a larger part of the economy. In Germany, they have implemented effectively a German-specific market in anticipation of this new EU ETS2.
We provided one of our German refining clients, again, a similar type of product to what I discussed before. We provided them with both the carbon credits, which is a fairly liquid market, is a nascent market, this German-specific. You need to have a large network of counterparties and clients to be able to source the liquidity, as well as some deferred payment terms where they effectively receive some financing through the structure. That's all for me. Thank you. I will hand over to my colleague Ben Davis, who will talk a bit about oil and petrochemicals.
Hi, good morning, everyone. For those of you that I didn't meet last night, my name is Benjamin Davis. I have been at Macquarie for 16 years. I actually started as Eric's junior, basically getting him coffee between one and three times a day. It's been a really interesting journey.
I've come a long way now, and I currently Co-Head our Global Oil Business. I wanted to give you all a few insights into what we do in global oil. Now, a lot of this stuff is going to sound similar to what Eric talked about in gas and power. For us, a key part of our business is our client focus. We have over 300 clients that we service, and this client base is a diverse mix of airlines, refineries, producers, large industrials, and they need a whole range of solutions from us. The obvious solution would be an airline, for example, needing to hedge their jet fuel. When you think about this client base, there's a lot more we can do with them.
An airline that needs to hedge its jet fuel also needs to purchase a carbon permit in the EU, which they will do from Eric and the gas and power team as well. Across this client base, we think about a few main products that we can provide them. The first one will clearly be the derivatives, the risk management. That is probably the largest part of the global oil business. At the same time, we are able to offer them physical oil, and we are also able to offer them financing. It is this bespoke financing that I think is what is probably most interesting, differentiates us from a lot of our competitors. When you think about Macquarie, clients think of us as a hybrid.
We have all the capabilities of a physical oil house and oil major, but at the same time, we are an A-plus rated, fully regulated bank, and they like dealing with someone that can offer both of those products. If I give you an example of the bespoke financing, this slide is actually about three days out of date. It says that we have three refinery deals in EMEA. We actually just closed our fourth one. We have four refineries in this region where we provide the full inventory monetization. That means we finance all their inventory. At the same time, because we have the capabilities on the physical and the logistics, we assist those clients with the physical and the logistics. In the perfect deal, we also offer them hedging and risk management. Now, this client base expects us to innovate with them.
The way that Macquarie looks at its client base, it's all about proactive, active marketing. Because we have deep physical expertise that a lot of our banking competitors don't have, when they've got a problem, they come to us, ask us, "What's going on in the market? What's the solution for us?" If you think back 15 years ago when I first started, I believe we did the first ever petrochemical hedge, plastic hedge for a consumer in EMEA. If you think about a loaf of bread, for example, around that loaf of bread will be some low-density polyethylene, LDPE. Clients realized that those exposures were extremely volatile, asked us to create a hedge for them. There was no liquid market. Because we have deep physical expertise and we understand how to manage correlation risk, we were able to create a hedge for them.
You take this product and you can mimic it for other plastic-like products, PET, bottles. The next stage is what's going on right now in the market. It's been an expansion of biofuels. To give you an example when it comes to diesel. Historically, if you were going to run a truck in the U.K., you put diesel into that truck. Now around 13%-14% of that diesel needs to come from biofuels. In the last year, unbelievably, the oil markets have been extremely unvolatile. When you think of everything that's going on, Trump, wars, the market's been pretty flat. Brent has been in quite a tight range, around $75 a barrel. The biofuel component, although it's only around, say, 13% of the diesel requirement for a trucking company, that is much more volatile.
Clients have actually said, "We're less worried about the underlying diesel. Help us hedge the biofuels." Now they've come to us and we've offered them hedging on this product. If you move on to the next slide. The next stage of this, very proud that we've executed now what we believe is the first ever recycled PET. If you think of a bottle, a Coke bottle of Coke or Pepsi, different companies have different targets, but let's say roughly 25% of that bottle now comes from recycled PET. This is a new market. There is no liquid market. Clients came to us saying, "We are going to make big investments into plants that help us with recycled PET. How can we make an investment? How can we plan if we don't know how the pricing is going to look forward?
We want a derivative on this. We want to help. We want to understand how we can risk manage this." They came to us. We've now executed our first RPET, recycled PET hedges, both in America and in Europe. If I can leave you with one message about our commodity franchise, we are client-driven, and because of this hybrid model that we have, we will have to, and we will continue to innovate with our clients to help meet their needs in the evolving oil world. I think it's time for a coffee break, but I'll be handing over to Simon first.
Thank you. Welcome back, everybody. My name is Craig Ross, and I lead the CGM Fixed Income and Currency Division, otherwise known as FIC. I've been at Macquarie for 31 years. I joined in 1994 as a graduate on the FX trading desk.
Over those years, I've had many roles. I would say the highlight was spending seven years in Singapore helping us build out our Asian markets business. Under FIC, we are a client-centric, client-first business, providing tailored solutions to meet the needs of our clients. Our client mix is quite varied, from pension funds down to SMEs, high-net-worth individuals. The two major sectors that we resonate best with, we work well with, are corporates and private funds. What we've done is develop our offering to meet the evolving needs across both risk management and financing for those two sectors. We are a truly global business with 220 people across four key regions. As you can see, our people are spread across our major international trading hubs, providing bespoke offerings in those regions.
FIC has had very strong growth globally, and EMEA is actually becoming a very, very important part of that growth. For those of you not familiar with FIC, I'll touch on how our business has evolved in its inception. When I joined in the 1990s and much of the 2000s, FIC was an Australian-led fly-in, fly-out business, really focusing really on just ANZ markets. Our touchpoints globally were with clients that had in-country presence. We were just actually an intermediary, providing liquidity to them. The 2008 GFC was a real turning point for the business. It actually provided an opportunity for us to consider what we're going to do, and what we did was go offshore. Our global deployment began by hiring local talent who knew the local landscape and actually had local clients.
We established a presence here in 2013 through Macquarie Bank London, and we've gone on to further establish our presence in region, opening offices in Paris in 2020 through Macquarie Bank Europe, or otherwise known as MBE. What this has done has ensured that we have direct access to our clients in continental Europe post-Brexit. Our operations also span Dubai, Dublin, and as mentioned before, plans to build out in Milan later this year. Our business has evolved over the past few years. In 2021, Fund Finance joined FIC, and in 2023, Credit Markets Division joined. Bringing these businesses into FIC has widened our product set and unlocked many synergies, driving strong revenue growth, as shown by the chart. As a client-led business, we've put particular focus on collaboration within our division so that we can present all of FIC to our clients.
In FY24, around 30% of our clients deal with more than just one desk within the division, and we plan to continue to grow that. In EMEA, our business focuses on providing clients with derivative solutions across FX and rates, and financing through securitization, structured credit, and sports solutions. We've continued to expand our offering in the region. In 2023, we established a Fund Finance offering here in London, focused on replicating the success that we've had in the Americas and ANZ. In the digital space, as Simon mentioned, Macquarie Aurora has been a great success in the region. We now have close to 500 unique users. The platform gives our clients access to the OTC markets that we operate in. It also delivers a cost-effective and scalable solution for flow activity.
The most important thing that it does do, though, it allows our origination teams to speak to our clients on higher value, more complex deal structures, and that's ultimately where we get paid. The client franchise, when we look at our client franchise, we're seeing strong momentum across the EMEA business. We achieved record income and net profit in FY 2024, and FY 2025 first half was very strong. Key drivers of this growth are actually doing more with our current clients, and as you can see from the chart, client acquisition is a key focus and working well. As mentioned, one of our target client segments is private funds. Analysis of the segment shows that we have deep penetration with the top 10 global private equity managers across the top 100, more than 50%, but there's still work to be done.
The EMEA market is more fragmented than the U.S. market, and what we want to do is replicate what we're doing in the U.S. Here in EMEA, we see great upside. Looking ahead, our focus is to do more with the existing clients that we have, as well as grow our reach across tier one funds here in EMEA. One of the growth opportunities for FIC in EMEA, I alluded to the first, which is to further strengthen engagement with our existing clients. Secondly, we look to expand our client footprint with a real focus on continental Europe. We're also realizing the benefits of closer collaboration within Macquarie. Maccap's a great example. We're really growing a strong relationship with the principal finance, sponsors coverage, and infrastructure teams. The third growth opportunity that we see is to expand our product suite. We're looking to do longer tenors on swaps.
We're going to continue to add product onto Macquarie Aurora, FX options, commodity products. We're also looking to finance new non-vanilla solutions. The last growth opportunity is something sort of dear to my heart, coming from the trading background, is to empower our traders to take incremental risk. We have a very disciplined risk profile. Everyone knows that we are client-first, but we want to empower our traders to take risk when those opportunities are there. Now, what that means is more client flow allows them that opportunity, that optionality to grow those books when there are opportunities in the market. That is where we see us growing FIC in the region. There are other smaller parts, but that is the core of what we want to do. I'd like to take the opportunity now to introduce two of my colleagues that work here in London.
Firstly, you'll hear from Sarah Milne, who's the Managing Director of the Structured Credit Team, and Arturo Alonso, Head of FX Rates and Sales. Over to you, Sarah.
Thanks, Craig. Good morning, everyone. My name is Sarah Milne. I work for the structured credit and securitization team in London. I've worked in securitization my whole career, starting off at Barclays Capital, moved on to Investec, and joining the team at Macquarie nearly 15 years ago. We're now a team of 19 people across EMEA. We have people working from the London, Dublin, and Paris offices. We'll continue to relocate staff to those MBE locations as we reflect our growing book out there. Our market's quite specialist, so most of us have been in securitization for many years. My boss, I think he can claim 30 years. I'm 20, so there's a lot of continuity within our team.
How do we make most of our money? We lend money to originators of granular assets. For example, if you're a non-bank mortgage lender, we'll evaluate your business, your management team, your lending proposition. If you pass the beauty parade, we will lend you some money. For that lending, we earn accrual income. If the lending of that client has reached a critical mass of some sort, say it's been a number of years, they've been out lending, they have a book of several hundred million, we will arrange funding for them by structuring securitized bonds. This tips the assets we funded into a new vehicle. The bonds are sold to investors, to a variety of institutional investors. That would include asset managers, hedge funds, super nationals, insurance companies. We earn a placement fee for undergoing that role, and the cycle starts again.
We also have a couple of credit traders in EMEA. They take principal positions for the bank in both securitized bonds and the complementary high-yield bond markets. Because we're Macquarie, because we're client-driven, we also like to pursue other opportunistic business that presents itself. For example, we noticed that some of the lenders we dealt with, they just required really small amounts of CapEx to start a new business or to replicate something they've done successfully before. In certain of those scenarios, we might choose to take a minority equity stake in those businesses. This is despite being in the headlines of a fixed income style business. It's a win for the clients. It means they don't have to run a separate process to raise finance. It's a win for us because we often don't pay very much for those initial equity stakes.
Sometimes we don't pay anything, and there can be massive upside in a client that we've got to know really well by the work we've done evaluating the debt proposition. This facet of what we do is unique to the markets. It's very popular amongst our relationships. I think it's a really good example of Macquarie's flexibility and dynamism. The sectors we're most active in across Europe are residential mortgages, so financing portfolios backed by, say, Baitelet or other forms of specialist mortgage risk. We're increasingly supplementing this by expanding into adjacent sectors such as auto risk, SME lending, and consumer credit. Historically, our lending book was around 95% in the U.K., but since the advent of MBE, we've been looking to change that. We now have a number of deals that we've closed in Spain, France, Belgium, the Netherlands, Ireland.
We also have a large pipeline of deals in Portugal, Germany, Italy, and we're in the early stage of exploring what else we can do in other jurisdictions such as the Nordics. Now, I'd like to talk you through two example transactions the team has on the books. On the left-hand side, this is a French pharmacy transaction where the underlying platform lends money to pharmacists to acquire pharmacies. They're very resilient businesses. It's definitely at the more esoteric end of what we've worked on in the past, but we undertook a ton of modeling and due diligence at the start. The deal's performing really well. We've just helped them raise funding from two more institutional counterparties who sit beneath us in a financing structure. We lend them EUR 50 million in total.
We're about to double that to accommodate their lending pipeline, and we also own a 35% equity stake in the platform itself. On the right-hand side, this is a client called Creafin. They're based in Belgium. They're a Belgian non-bank mortgage lender. We closed this deal last summer. We're in the process of upsizing it now. We lend them money to originate new mortgages. We also help them cover some costs in the new business that they were starting up by taking a majority, sorry, a minority non-controlling equity stake in the platform. We own just under 20% of that business. The management team, they're very capable, they're very experienced. They've got a pipeline now of around $100 million of new loans.
It's growing every day, and I think we've got really high hopes that by this time next year, we'll be readying their first securitization for the market to sell to investors. Since they started lending from using our finance in September last year, they've had numerous approaches from various PE firms, private equity, private debt companies, and other banks. I think it's safe to say that we've added plenty of value being there from the beginning of their journey. In summary, it's a really exciting time for the structured credit and securitization team. There's ample room for growth. Europe offers a number of formerly untapped opportunities, and we're still only in the early stages of exploring those opportunities. I'd now like to hand over to my colleague, Arturo Alonso, who will talk about the derivatives business.
Thank you. Hello, everyone.
My name is Arturo Alonso, and I run our FX and Rates business here in EMEA. I've been in Macquarie, excuse me, for 15 years, and for the expert linguists in the room, you can probably pick up on my American accent. For the first eight years of my time here at Macquarie, I was actually based in our New York office. I worked there with my colleague, Lynette Olson, who some of you may have met two years ago during the America's Investor Tour. In fact, one of the key reasons for me coming to EMEA in the first place was to bring the IP and the skills that we learned in that business over to Europe and drive growth in those niches where we already knew we had a competitive advantage.
The synergies and adjacent growth opportunities have thankfully worked, as you would have seen in the growth slides from Craig's presentation earlier, and it continues to be an engine of growth for us here in EMEA. Now, the market is certainly different. It is smaller, it is more fragmented. Geography and language play an important role here that does not really apply in the U.S., but the key remains the same. We build solutions around our clients' needs, and we fill the gaps in the market that we identify as good risk-reward. This is fixed DNA, and some of this sounds like repetition of previous presentations or other geographies. That is actually by design. What do we look like in EMEA? Our team consists of 28 professionals across offices in London, Paris, and Dubai.
As Craig mentioned before, we are a fully client-centric business, and our two key client segments mirror those of FIC globally, as one would expect, namely private funds, that's infrastructure, PE, real estate credit, etc., and corporates. Now, if you think about it, that shouldn't be too surprising because when pretty much anybody thinks about Macquarie, the two things they think about are infrastructure and commodities. Where does FIC come into all this? Let me explain. Infrastructure funds have very specific needs when it comes to derivatives, both at the fund level and at the level of their assets. This is driven by their investor base, ownership structure, liquidity needs, investment horizons, etc. Macquarie understands these needs intimately, as one can imagine, but many other banks treat these clients as simply any other asset manager, and that doesn't work.
We, therefore, develop solutions with a true understanding of the client. We can then take what we've learned and apply it to the similar but different needs of other private funds. This gives us a competitive edge. Now, looking at our corporate business, it certainly has a bit of a commodity flavor. Most commodities are priced in US dollars, so there's a natural opportunity to cross-sell to any client doing commodity business with us in EMEA. Furthermore, we're able to understand our clients' credit profile in a much more granular way, as many of them are producers or users of commodities as a core part of their business. Beyond just the cross-selling, however, our corporate sales teams have a true local expertise in their markets.
They're able to identify sectors and geographies where we can have a competitive advantage, be that because there's an existing competitor pulling out of a market or maybe just an offering not widely available due to inefficiencies. What do we trade with our clients? Given our strategy, the products we trade are really a byproduct of the client need. Most banks in the world can trade FX and rates, so our strength truly has to be that holistic and solutions-based offering that we bring to our client. Often, the credit and derivatives structuring matter much more than the currency pair or the underlying interest rate. We don't simply trade anything and everything. We pick our markets strategically, and we take risk where we can build a critical mass of client demand. Our client base, for the most part, is focused on hedging, as is with much of CGM.
This gives us a more sticky business and almost an annuity style of core client revenue, firmly in the light blue, I guess, section of where Simon was showing before. We can then leverage this when the volatility does present itself, as it has for us in recent years in interest rate markets or even currency volatility around recent political events. Where do we see the opportunity today? As Craig mentioned, our growth in EMEA is honestly more of what we see works already. Our business in EMEA is still only a very small share of the overall market, so we intend to grow by entrenching ourselves further with the key players in our existing markets. Geographical growth is also key.
We've identified key markets in the Middle East, in the Nordics, and Eastern Europe where we have had some success historically, but we think a more concerted effort would bear fruit. These markets are full of touchpoints in private funds and commodities, and that mix with the diverse currency mix and local interest rate markets should be a natural fit for our derivative solutions business. How does all of this work in practice? I'd like to share an example with you, a recent example that hopefully gives a bit of a flavor of what I'm talking about. In this particular example, our asset finance team, who you'll be hearing from shortly, were competing to bid on the financing of a portfolio of solar assets in Italy. These were owned by an infrastructure fund that was not an existing client of Macquarie's.
The asset finance team has a deep expertise in this market, and they really liked the risk, but unfortunately, they lost the bid to a non-bank lender who could offer slightly more aggressive terms. Normally, this is the end of the story. However, we in FIC knew that we are one of only a few banks who can offer a secure derivatives hedge when we are not a lender. This is commonly referred to in the market as an orphan hedge, and I apologize for the depressing name. As a result, FIC was able to step in, and using the diligence and the work that was already done and available in-house, we underwrote an interest rate swap alongside the non-bank lender.
Much of the heavy lifting had already been done, and instead of going to waste, it allowed for a seamless client experience and fast execution for something that would normally be a big headache for a client at closing. The infrastructure fund, who was the owner of those assets, is still a client of ours today. These are the kinds of deals that we love to see: cross-division collaboration, infrastructure and commodity adjacencies, and an efficient solution for a new client of CGM. With that, thank you for your time, and I'll hand you over to Marc Hari, who runs our shipping and finance business.
Hi, my name is Marc Hari . I'm the Head of Shipping Finance at Macquarie. I've been with Macquarie for 25 years, based in London and now in Zurich. Shipping finance is part of the asset finance division within Commodities and Global Markets.
We provide leasing, equity, debt, and equipment advisory services across a range of industries. In addition to shipping finance, there's a further specialized business in meters, who are one of the leading providers of smart meters in the U.K. Our general lending and asset finance business, in turn, has deep sector expertise in areas such as manufacturing, energy, resources, advanced technology, and waste. In shipping finance, we provide senior secured debt to shipowners in the middle market. Our focus is on commercial ocean-going vessels. Our client base is global. We run the business from here, but we service clients in Hong Kong, Singapore, the Middle East, all over Europe, New York, and even Buenos Aires. What sets us apart is our agility.
We demonstrate a remarkable flexibility in accommodating a wide range of client profiles, structures, and geographies, as long as those clients align with our stringent risk appetite concerning sanctions and trading in conflict zones. A key strength of ours is our streamlined execution process, which means we can execute even for a new client in a matter of weeks, and that timeline really aligns well with the fast-paced nature of purchases and deliveries of ships in the second-hand market. We tend to attach between 50% and 70% of the market value of the ships fund for a five-year term on an amortizing profile. We take ship mortgages as security and assignments of long-term charges and of insurances. Next slide. Thank you. What is exciting about this business, which has existed for hundreds of years? What is exciting is that at Macquarie, it did not exist eight years ago.
We built this business from scratch in 2017. Now, the backdrop to this is the environment of loose capital in the lead-up to the global financial crisis. For shipping, this period saw a massive overbuilding of ships, and when that excess capacity came to market, it triggered huge correction in earnings and values. That overhang lasted for nearly a decade and even put a number of large shipping banks completely out of business. For us, this was the perfect environment to start the business. We began small, focused on building a team, putting processes in place, establishing a risk framework, and began developing a client base. We saw steady growth, and in 2022, our portfolio reached $1 billion. Now, as you can see from the chart, this year has been absolutely extraordinary for us, and we've seen unprecedented growth.
In effect, we've been able to double the size of our business in the last 12 months. What's behind this success? Several factors at play, but it's really underpinned by our continuous evolution and our proactive approach to tailoring our offering and trying to find adjacencies. A key part of the growth this year was our entry into new markets. We began financing offshore vessels. Historically, our focus was on tankers, container ships, and dry bulk carriers. About 18 months ago, we started collaborating with our oil and gas specialists in the commodities business to really try to understand how the various ships fit into the oil and gas value chain and which of these ships might be the most resilient through the cycle. This collaboration led us to finance offshore support vessels, which are used in operations and maintenance in oil and gas offshore fields.
A similar story with our colleagues in Macquarie Asset Management. We gained insight into the offshore wind market and began financing vessels servicing offshore wind farms. The move into these segments was a major catalyst of our growth this year, and today, offshore represents about 25% of our portfolio. On the commoditized shipping side, we began offering pre-delivery financing, supporting clients with their installments to yards when they build new ships. Pre-delivery financing is different to what we traditionally do, different to shipping finance, but it's good business in its own right and, of course, positions the lender extremely well for the term financing when the ships deliver. Pre and post-delivery today account for approximately $275 million of our portfolio. There were further innovations in play, but our growth ambitions are based on a five-pillar strategy.
First, we continue to do what we already do, and we see tremendous runway and continue to enjoy good momentum. Second, in the past, for each transaction, we tried to solve for both return on funding and return on capital metrics. Of course, there is plenty of good business to be written, which may have high return on funding, poorer return on capital, and vice versa. Now we have been able to build this business to scale, we can take a whole-of-business approach and effectively expand our target market. Number three, unlike people focused on equity as a lender, we are only focused on protecting our downside. Shipping markets tend to be very cyclical. Values move up and down, but the point at which we are comfortable with touching tends to be pretty static.
As markets move, there are times where we can stretch on loan-to-value for a higher return and still be very comfortable with our downside. We think this offering is going to be very accretive to our P&L, but in all likelihood, will remain a modest part of our portfolio. Fourth, regionally concentrated trading. We've already financed vessels trading exclusively in Saudi Arabia. The enforcement considerations in those circumstances are quite different compared to vessels trading internationally, but if we can get comfortable with the relevant issues in other jurisdictions, such as India and Brazil, this also represents an important growth area for us. Finally, we have ambition of building a leasing platform for equipment required in the energy transition in shipping. There's a tremendous amount of work going on in areas such as carbon capture, hull cleaning, sales for wind propulsion.
As you can see, I'm super excited about the future prospects of this business, but also about the value the whole of CGM in areas such as fuels, carbon, rates, freight trading can bring to this new client franchise. Thank you very much, and with that, I hand back to Simon.
I do hope that what you've heard today has highlighted what we've been trying to sell, and that's the diversity of our business, both globally, but particularly here in EMEA. What is important, one of the takeaways I've been having this year, is that despite the fact we've had really modest volatility and subdued market conditions, we've had a really solid performance, and it is a real testament to what you've been hearing about this client franchise that continues to drive and underpin our performance.
No matter what the market does, whether it be busy, quiet, going sideways, structural change, we are finding ways to continually have a constant and reliable source of revenue driven by that deep client expertise, collaboration, and client focus. You've heard a lot about kind of opportunities we are seeing going on. We are genuinely optimistic and confident that the opportunities we're seeing and we're highlighting see a real path to growth for us, both globally, but particularly in region. We've talked a lot about our strategic intent, what our focus is, and we've looked three to five years forward, identified where those opportunities are and how we can scale our platform. We think we're in really good shape.
The trick now is just to go and execute, and obviously, we'll always be subject to market vagaries, but as you've seen, the client franchise is strong and underpins that annuity-style income. All right. We'll stop talking now, and I'll throw it open to questions. Sam?
Great. Thanks, Simon. Thanks, team. That was a great presentation. I'm sure you'll all agree. We have about 45 minutes for Q&A, and I think Andrew Lyons had his hand up first. I'll give you this.
Simon, in your opening comments, you spoke to the top-down review, talked to strategy, which we went through, and structure as well. The third one was cost, which you did not say as much on. Can you maybe just go into a little bit more detail in relation to what you are talking to around the top-down review on costs?
Yeah, sure. Talked about the scale and the size of the platform. As our business over the last five years, I mean, obviously, the two you did two years ago and this one, you've seen the business grow quite extraordinarily. What has happened in the same period is our cost base has also grown commensurate with that. That's been driven by both non-core and aligned-type expenses. Now, one of the things in the platform we have is that we've had a bunch of projects that we need to cover off. Typically, for our business, historically, we are really being opportunistic, and so we've grown by businesses and perhaps not always efficiently. So we spent a bunch of money investing in things like tech, but also importantly, in our non-financial risk.
We interact with a lot of regulators, and we've had all sorts of issues as have other institutions in our sector, and we've been building out that capability. Also, around things like data in conjunction with FMG, streamlining how we basically come to both internally and also to our regulators in terms of data provision. Costs have gone up in those couple of years. Pleasingly, in the last 12 months, we've held costs flat, and that's been a really key focus of this team and myself over the last 12 months. We've done a good job of basically settling that. What that now leaves us with is a platform that is pretty much well invested. We've still got some things around tech, and we're particularly focused on AI and have a significant budget for that, but we see costs being stabilized now.
The focus is looking forward, using tech and AI to bring those costs down. That's the dream, but also making sure we scale this platform in the investments we've made. The strategic review top-down is very much about how we will leverage that platform. The punchline is costs have gone up. We've stabilized them, but the platform is now fit for scale.
That's great. Thank you. Just a second question around risk management. You said that the business, first and foremost, manages and controls the risk, always focused on downside scenarios and capital preservation. Can you just talk a little bit more about that in relation to what that exactly means? At what point when you're doing downside scenarios and you're looking at what capital preservation looks like, where do you make the decision as to, "We're not going to go ahead with a particular deal or a particular credit"?
Yeah, sure. It has actually evolved a little bit in this last year, but typically, as we go to new products, new markets, new jurisdictions, we typically have not had a top-down modeling of all the opportunities. We have actually looked at deal by deal, client by client, but we have always been measured on two things. It is basically return on recap and return on funding. We have very clear hurdles, which does not let us do anything without meeting appropriate hurdles, and we have that discipline. What we are now looking at is looking forward, being more strategic. We are going to be able to take a more portfolio-style approach, and Marc touched on this. We can actually mix the capital returns and the funding returns. As long as we return on a portfolio basis, those minimal returns, we can move forward.
That basically is giving us a little bit more flexibility as how we approach the market. It allows us to build businesses with a longer-term framework. Basically, we measure each division each year on their return metrics, what the return on recap is, and what the return on funding is, and that drives how we basically remunerate, reward, assess the success of those businesses.
Yeah. Thank you, Simon. Just a question on the regulatory side of things. The NOC structure, the group's NOC structure, is that a source of competitive advantage for the group in terms of booking many of your operations in the non-bank? I'm not sure if Alex could comment on. I mean, APRA's had a potential review into this for a very long time, although it seems to be still a distant proposition, but can you give a sense of if anything were ever to change on the NOC structure, the conglomerates review, what they would actually do to how much of your business?
Yeah. I think this has been evolving. It actually is part of our structure going forward. There are a bunch of businesses that we're focused on which will benefit from the flexibility of both sides, bank and non-bank. One of the challenges we've always had is, one, how the regulator views it, things like dual hatting, how we manage that, but also access to funding and the capital. In our strategic review with Alex and team, we've basically found a path forward, and Alex has been really supportive of this. I think Frank's here as well, and we are looking at ways we can fund the non-bank through CP, but also long-term funding as well. There is more flexibility with the institution now to have that pivot point between certain businesses.
Now, some of the activities that I think Eric might have touched on, which I'm sure will come up soon, works better in the non-bank, and some things around the physical parts of our business, which are better suited to a non-bank structure. We are in constant dialogue with the regulators about that. They've actually been on part of this journey with us, and so really for them, as long as we apply the same risk frameworks and the same approaches to risk, and they're obviously concerned about contagion risk, so we're very conscious of that, we think we've got more flexibility with that going forward. I don't know, Alex, if.
I would basically just agree with Simon, Andrew. Maybe the way to think about it, though, is that there's a bunch of businesses sitting in the non-bank that are obviously much more non-bank-like businesses. If you think about the asset management business, it's obviously not a bank business. It's actually typically a non-bank-type business. What we've done in the past, which I think makes sense, and certainly from a regulatory viewpoint makes sense, is put the businesses that are more likely or that should more sort of logically sit in the non-bank in the non-bank. That's why Macquarie Capital principally sits there and Macquarie Asset Management principally sits there because they're mainly non-bank businesses.
To Simon's point, the CGM business has basically sat in the bank, and that's because primarily the business obviously extends credit to the extent that there's physical activities, and so there is a small non-bank presence with MCT, for the sake of the example we've talked about before, which is our oil trading business. To the extent there's physical activities, some of those physical activities are better suited into the non-bank. I think we continue to think about the structure. I'm not sure that I'd put it as a particular advantage or disadvantage. It's just that because of the diversity of the business, it makes sense to have both the bank and the non-bank just by nature of the underlying activities.
To the APRA point, I mean, APRA has obviously alluded to the idea of sort of NOC reviews for some time, but the timetable by which that review will occur is still uncertain.
Thank you. The second question, just obviously enunciated a bunch of growth opportunities for the business. Do you feel any limitations on your growth ambitions given the contribution that the business is making to the group? I mean, recutting the annuities, how you look at the annuity-style income streams probably helps in that regard, but do you have a view as to what investors think about the prevalence of CGM earnings within the overall earnings mix?
I think in terms of what you think the limitations are, perhaps in the last 12 months, as I alluded to, we've been focused on this kind of strategic review in terms of what we think the business can do. Now, when we go and set our targets and aspirations, traditionally, we're quite conservative. We're going to look around the businesses where our earning mix is, what we think the growth can be. What we've done in the last 12 months has been very deliberate about where we think those opportunities are without being too kind of basic about it. We effectively have identified 20 key strategic focus points, and then we've basically looked at what it's going to take for us to do that. As I mentioned, these things will change. The world changes.
Climatic change, tariffs, Trump, etc. If we look at those opportunities, there are very little limitations if we clear the path now. One of the things often we are guilty of, and historically, is as we look at businesses, clients, opportunities, we're looking kind of deal by deal. What's been happening as the world is changing is that we'll have to debate the thematic every time we have a deal come up and then look at the actual deal. By clearing the path now, we can actually just debate the deal rather than the thematic. In terms of limitations, no. I think we're both really super optimistic about what the next three to five years will do. As a mix of the institution, we are a growth focus. We need to grow to survive, and that's the reason why we're doing this.
Talking about the platform, the platform's grown a lot. We've invested a lot. It's now time to scale it, and I think we've got that opportunity to do it. I'm not sure if that answers the question, so apologies if it hasn't.
Thanks. We've got John.
Thank you. Can I bring up slide 11? It's one of our favourite slides. We've been talking about this one for a while. It's got the chart that brings out the profit by days, and you can see the trading days.
Yep.
By nine, sorry. There you go. That's it. Slide 11. There you go. FY 2025, it's a lot narrower, but probably very, very few trading days over $30 million.
Yep.
Probably the lowest ever of big trading days. I just wanted to get a feeling for why that is. If you look at that, compare that to a couple of years ago, you were making probably dozens and probably 50, 100 days above that. Is that because, number one, less volatility? Number two, you've taken risk off? Number three, new competitors just saw how much money got made three years ago, and more capital is coming into it? How would you describe it? Secondly, we're now in a new world. We've got Trump moving around. Who knows where the gas price and oil price is going to be?
If we have a spike in volatility, something like we saw three years ago, is there the chance that you have another year like 2023, or is that just a one-off because of new capital, lower risk, whatever? You won't be able to have those halcyon days again.
Yep. Okay. The first question, you've already answered it. Those three factors, absolutely. That range has been driven by volatility, and I'll get Eric to comment on that, and I think Branko is here as well. Ben alluded to it with regards to oil markets, but we've just seen a lot less volatility. Basically, up until January, when you think about the kind of perhaps two markets, basically Europe and North America, I mean, perhaps I'll comment on North America first, the trading range of Henry Hub and, in fact, even the basis between the locations, much more subdued. As a result, less opportunity. That's just the reality of it. What do we do in those situations? There's less volatility. We don't overtrade. I alluded to it before. We don't have to trade to make our revenue.
We rely upon our client business, and we focus on growing that. The trading side is the opportunistic, is the optionality part of it. We do reduce our risk. When markets are tighter, deploying the same amount of risk, basically with less volatility, you can get more vagaries around basically people playing in that market, to your point. We have seen a lot more risk capital into that market. We have seen, interestingly, I guess, trading behavior, market dynamics change this year, in part driven by those huge years of 2022, 2023, which basically subtracted a whole bunch of risk capital. Everybody missed out, apart from a couple of us. We have seen a flood in of risk capital. We have seen hedge funds, trade houses, and banks return to the market.
The difference is that when those people return to the market, particularly in North America, they do not have the physical side of the business. They can just trade financial, so they tend to overtrade things like Henry Hub. You are seeing kind of skewed responses to market fundamentals. We looked at our VAR usage the past year. We are probably trading at a third of what we have historically, which is appropriate for the market size. We will, as part of our tight risk management, reduce our risk in line with what the market opportunity is. Eric, I might get you to comment on Europe.
Yeah. I think one thing I would say is when we think about how we build our businesses and deploy market risk, we think that the trading gains can come from any parts of our commodity business. That's how we think about it. In terms of how we build them up and the research we do to be able to take the market risk, power and gas has been a thematic, let's say, recently, last three years, but we've been going for three decades or so, and in the next three decades, it could come from the ags business, the oil business, could be carbon. I don't think we know. If we do our job well, we try and make a forecast of what it might be, but I think it's important to note that we build it so that it can come from anywhere in our platform.
In terms of European power and gas, the market is still tight. I think I mentioned that in the slide up there. We have lost Russian gas, and the replacement is LNG. LNG competes with anywhere in the world, so if you get very cold weather out in Asia, for example, that could take gas away from Europe, and that would not be replaced by pipeline gas. That is reflected in the premium that I mentioned about sort of EUR 45 gas versus maybe, say, EUR 25-EUR 30 gas before. We have had a mild winter overall. We have forced storage fill levels here in Europe, so by a certain time in the year, it needs to be full up to a certain percentage. That is actually being reviewed at the moment. They want to loosen that up primarily because the price of that has distorted the price of summer gas.
If they do that, it will get more volatile over winter. I would say that that graph shows that we're very disciplined. We can wait, and we can wait because we have the client franchise. If you go and raise a fund, you can't wait. You have to deploy. We've seen people come in and out of our markets over the last 20 years. Honestly, every two, three years, there's someone coming in. We try not to focus so much on that. We try and focus a lot on our research and what we can control.
Yeah. I think probably the second part of the question about do we still have that optionality in place, the answer is yes. Everything that we had in place three years ago is still there. We still have the same storage, transport, FTR rights in North America, probably more in Europe now. That optionality in the business is still around. Should we see markets dislocate and those opportunities present, we will get those opportunities. Lately, those sort of dislocations have been happening, but they're all kind of announcement events, so a little bit harder to read. You sort of get tariffs one day, they're off the next day, so you get markets flicking around. In terms of where we saw the big volatility in earnings, all the conditions that we had then and the infrastructure we had then, we have now.
This is Brendan from Citi. I just also got a question on slide 11, just around the capital intensity of your business. You can see there in the capital in credit risk really stepped up from 2021, and obviously, that would have been somewhat impacted by the supply shock of the Russia-Ukraine war. Even though you've been growing your customer base, we haven't actually seen that credit risk come back at all. Is this reflective of the type of clients that you are banking now and that this is going to continue to grow, I guess, as you grow your client base, or do you expect it to come back to 2021 levels at some point?
The jump from 2021 to 2022 was driven by regulatory change. Basically, UQS that came in basically increased the capital attributable to the credit risk they have with clients. That is a change that is here to stay. Obviously, it gave us a challenge in terms of getting the appropriate returns, and we did, at the time, have to look at the type of clients we are dealing with, the markets we are in, to make sure that we could hit those hurdles. Otherwise, Alex was going to throw us out the door. We have actually managed to do that. There is no doubt our return rate to capital did come down a little bit, but we have managed to find ways to keep it reasonably well pinned, so that is not going to change.
Perhaps what is, I mean, what is most interesting, you've seen the incremental jump in capital perhaps in the last year, and that's really happened in the last nine months. That is us deploying deliberately more risk to clients as we basically started to grow. In this kind of deliberate strategic focus we've had, we've already started deploying these strategies, and what that's done is that we're now building new clients, doing more with clients, and they've picked up the capital straight away, but we'll start to see the revenues of that come through in the next couple of years. Also, FX. That increase year on year, about a third is FX, so the Aussie coming off has driven capital up. A third of it is in things like our ship portfolio, which we've grown about $1 billion in the last sort of six months.
We have been deploying more balance sheet to our sponsor client sector.
Thank you. That's very helpful. Just a second question on the gas market. Obviously, the last few years, you had a supply shock and created huge volatility in price, as you showed in one of your slides. Just what's the outlook? I know weather is unpredictable, but if you put weather aside and just look at the supply side, I mentioned Mara has talked about these markets being in oversupply, and some of the European giants are talking about quite a bit of gas coming into this market from Qatar. You're seeing record exports from the US, and obviously, the administration there is promoting gas. Are we likely to see that price, that Dutch gas price, come back down to sort of those pre-COVID levels that you saw for a long time and much lower levels of volatility on a two to three-year view?
Yeah. I mean, I'll let Eric answer because he is the expert, but I mean, fundamentally, those gas prices were driven, obviously, by the shutting off of gas in Europe, which drove them up. The thematic is the next couple of years with the amount of LNG coming online, we are seeing a strong supply in the next couple of years. The broad thematic is, if you believe everything you read, is that in Asia, there is a prescribed 6% per annum reduction in reliance on coal-fired power. If that comes off, that will actually, if you do the maths, should double the demand for LNG within five years. If you look at what production is coming online out of the Gulf, Qatar, it can meet it, but it's going to be timing differences and so potential volatility.
In Europe, particularly, Eric's the expert, but obviously, the Russian gas question is obviously relevant. Perhaps not.
Yeah. I think overall, over the next two to three years, we would expect a lower gas price overall. That being said, you are relying on LNG, and like I said, that could go anywhere in the world, so I think you're more likely to get a more peaky behavior. You might have very elevated prices one week or one month, but if you take the average over your year, you would probably expect it to be lower, particularly if Russian gas comes back to Europe. Our view is that's unlikely to be imminent for a bunch of political reasons, but that's obviously difficult to call with the environment we're in at the moment.
Thank you. Congratulations, everyone. Really good presentations.
I don't think many people in the room actually understand everything you're saying. I certainly don't. Could we just get that slide 11 again, if we may?
Can we just talk to one slide?
You may as well. It's the only one we understand. It all comes back to that.
Yeah.
Just two questions on that. Simon and I are a bit of a simpleton, as you know. If I have a look at the chart on the left and I reflect back on the one we had two years ago, am I right in thinking most of that market risk is in North America, that kind of weird system they've got in the energy market there, whereas this business is mainly credit and growing customers?
Yeah.
If we go back to the histogram, if you have a look at it, right, once again, I love this small font stuff, but if you go down FY 2025 extrapolated based on data up to 31/ 2024. The point I want to make is that if you go back to the crazy, crazy, crazy years, it was all in the March quarter.
Yeah.
Yeah. January got cold, and it's gotten cold this year.
Yeah.
I know that you can't issue guidance, and you can't tell us what's happened in January on that, but if you're an equity analyst in Australia and you're a bit of a simpleton like myself, do we know this by the December quarter trading result, or should we be waiting for the March quarter to watch the weather in the U.S.? I have a question on the next slide.
To 31 December, yes, January was colder, but when you think about cold and what it does to prices, it's where it's cold, sustainability of the cold, and where infrastructure holds up. I'll talk about North America. I mean, there's been some price movements also in Europe, but what we saw in January was some spikes of volatility but not sustained. Because effectively, the places where it was cold, yes, there were some people, but all the infrastructure held up. Power flowed well. Gas was flowing okay. There wasn't any break in infrastructure. Generally, when these markets really start getting going, and Eric will correct me here, and Branko is here in the crowd too, you kind of need to see a two-week-plus kind of outlook for really cold weather. What we've seen is the weather be more variable than that.
Now, we spend an awful lot of time with these clever meteorologists who print these forward charts. No one gets it right. It's the same as the 6 o'clock news. What we're seeing is that we haven't seen that sustained weather. Infrastructure's held up. Yes, there were better trading conditions, but not in the way that you would imagine. Henry Hub traded up from about $3 to $4, I think, Eric, and sort of in parts, but it's not to where it had been in the past, and it hasn't been just as sustainable. We've seen probably more volatility in that as a result of the tariffs of late with the Canada issues and those sorts of things, again, up and down unsustainably because every day is a new announcement.
I don't know if you have a comment on what's been happening in Europe, but if there was some cold weather around.
Yeah. I think we've had more, I guess Simon mentioned earlier, but more headline type of movements in price as opposed to significant structural shifts, which are the type of environments where we get these outsized days. There has been opportunity for sure in the market in EMIR Power and gas, but it's been of a different nature. When you have headline type of market movements and texture, we deploy risk, but in a different fashion than we do when we have a fundamental shift, i.e., we do not hold the positions as long typically.
Mike, the one on the—sorry, Simon, the one on the left about the capital usage, is that broadly right, what I suggested?
What was I just suggesting?
By saying credit risk, this business, market risk.
Yeah, the business.
North America.
Oh, yeah.
If you think about that chart.
Yeah. Basically, where we have our most market risk is in North America, but also in EU gas and power trading as well.
Just a final one. I've asked way too many. If you go on the next slide, the one on the "We own the risk," you talk about the principles that have been applied for 30 years. Quite a long time ago, that used to be enunciated as earnings at risk rather than capital at risk. You know, we used to sit around, and we would conclude that it was all about never actually having an accounting loss.
Yep. Yep.
Is that still the case?
Yeah. It's still the case.
Or is it capital at risk?
Basically, when we've looked at all our forward-looking aspirations, we believe they will be retaining earnings-driven.
On that slide, and if you look at it, the one risk that you did not talk about is everything's correlated till it's not. Can you just run us through the market risk?
Framework?
No. Where does correlation risk play into that? You had a chart on cocoa. I do not understand how anyone can provide a hedging solution on that without punting the cocoa price.
Let me.
It's a certain space of correlation risk.
Who wants to—which one of you guys want to talk about ag's risk in cocoa? Perhaps Eric?
We're able to do so because we have a diversified book of consumers and producers, really. It has to do with access to liquidity, but that really is a name for what proportion of the market that trades are you actually covering. As a risk intermediary, in that example, it was a buyer, right, of cocoa. We've got a significant business in Brazil with quite a few people. We would have sellers of cocoa, for example, in that region, or we have some client relationships in West Africa. We size the risk and size our margin to that potential volatility. What we would have charged our customer now, let's say, would take into account that volatility. It would be—I don't know exactly, but it would be significantly more than if they were to come with the same product, say, three years ago.
We've not had that volatility. That margin needs to represent the risk that we're warehousing. In terms of correlation, we do spend a fair bit of time thinking about correlation risk in our commodity portfolio overall and what factors might actually impact the positions that we have on. For instance, weather is typically uncorrelated. When we design, for example, risk limits for power, we consider power markets relatively uncorrelated because if there is an outage of a coal asset in Queensland, it really has nothing to do with what's happening in Europe or in the U.S. One of the impacts of the growth of LNG is that the price of gas is becoming a lot more correlated.
When you had the events here in Europe with the Russian invasion and the high TTF price, that had an impact on the price of energy in Australia, in Japan, Korea, China, as well as in the U.S. We then need to take that into account when we size our risk and what kind of positions we take on.
I would say going back to perhaps the original part of your question, how do we think about when we grow these businesses and how much risk we're taking versus what's underlying, what money are we spending? We don't lead businesses from the risk side first. We always lead from a client side, a product side, a capability side. As we grow the client franchise, as we underpin the business with what we think is sustainable income, then we have a look at what we can leverage in terms of risk. We will never be out of whack, no matter how big we get, but the more client franchise we can build, the more sustainable it is, the more we can then look at markets to trade. We won't just take risk for the sake of it because markets are going to be big enough to digest it, right?
Now, even if we've got huge uplift in revenue from client side, it doesn't mean we necessarily deploy a set percentage to risk markets. And if we think about the business, I mean, over 30, 35 years, without being too prescriptive, when we look at how much money we make from that client, new style, and that new characteristic of person, that's what we make out of risk, it's probably less than 20%. Probably less than 20%. Now, obviously, those two years have thrown out the—but that was just optionality. It wasn't that we were dependent upon it. It wasn't that we had risk capital at risk. It's just that we had the optionality when things went off the charts, and we were there to do it. That remains the case, but because of that, we haven't changed our business model. We're still the same.
I do, I mean, coming into this role and coming from where I came from, one of the biggest challenges is that, understandably, everyone here, everyone else I meet, wants to talk about gas prices, power prices. It is a big part of our business, but it's less than 20%. Less than 20%. It's a good story. It's good optionality, but it's not what gets our focus. It's not what drives the way we look forward. It's not what drives the build of our business.
Right. We've got a John story. Thanks.
Thanks, Sam. Thanks for the presentation today. I wanted to just dig in a little bit deeper to the hybrid model that you have within your commodities business, right? Just get a sense from you around what the advantages and the disadvantages of running a hybrid model actually are, and then what do the economics look like between the two different models, and how do you ultimately see your commodities business evolving within that lens, right?
Sure. Okay. Lots of people here from commodities that can help build this. When we think about what our competitive advantage is in commodities, we are pretty unique in how this business is growing. We think about who our competitors are, who our peers are. We've got banks, trade houses, hedge funds across the full spectrum from risk to client provision to financing. We do cover the full scope. Our clients, which is important, look to us because we've got that full scope. They do see us as being different.
When we think about how we grow this business and what that model looks like, the hybrid model, it's very much about what solutions, what are we solving for our clients, what we're actually deploying in a bespoke solution where I then describe it well, saying that basically clients come to us because we have this unique offering. They understand that we know everything from physical to financial to finance, and that we can provide a holistic solution. If they go to another bank, different. They'll get finance, but they won't get the physical aspect. If they start talking to a hedge fund, that's purely risk. They talk to a trade house, they'll talk about physical, but they won't see the ratings or the derivatives capability or generally the financing capability. Perhaps, I mean, Ben, you might want to pick up on the hybrid model.
Yeah. I mean, from our global or business point of view, I think it just gives us more of a reason for clients to want to speak to us. I think if you go to some of our competitors on the derivatives side, they'll take a much more macro view on the markets. Really, a lot of these commodities, as we've seen in the last couple of years, are much more micro, what's happening in specific differentials that are driving refinery margins, for example. The fact that we've got a physical business and we're in the physical markets means that those clients are much more likely to speak to us or want to speak to us, and we can use that as an advantage to actually understand their needs, which I think some of our competitors can't do who are not in the physical markets.
Thanks, Ben. I hope that sorted out, is it? Yeah. Yes or no?
Yeah. It's good color. Another one I wanted to ask you, just picking back on what Andy Lyons was just asking, just about costs, right? I mean, obviously, I appreciate you looking to kind of streamline, improve efficiencies within the business, but what kind of metrics could we hold you to account? What are the metrics that you look at when you think about costs?
Yep. The two fundamental metrics that we have are basically our return on the capital we use and the return on the funding we deploy. We do not do anything unless we trip those hurdles. When we think about costs, that obviously drives our net profitability. Fundamentally, as a business, unlike a lot of our peers, we look at net profit. We do not look at revenue. We are ultimately cost responsible. One of the great challenges I think we have, perhaps to our benefit and to our detriment, is that when you think about building businesses, we go and look at the revenue opportunity and then go, "Oh, that looks interesting. That looks like we could have a competitive advantage." Hang on. Our cost of seat is too high to actually get the appropriate return.
Whereas we'll see a lot of our competitors go and deploy capability, and we fundamentally sit back and go, "We don't understand how to do that." Take the funds finance business, for example, which we've been active in for a long time. We've seen a rush of money into that sector in the last couple of years from US regional banks, Japanese banks. Their return on funding is outrageous. As a shareholder, I can't understand how they justify the deployment. We will step away from things like NAB financing or SES because it doesn't make sense. I think if you're talking about costs, how do you hold us accountable? Hold us accountable to net profit and hold us accountable to tripping our return on regulatory hurdles, regulatory capital hurdles, and funding based upon our net profitability.
When we announce results, when Alex comes to us and sees you and says, "What's the performance of the business been like?" we try and sell them a good story. He goes, "Net profit, what are your costs? What are your revenue? What are your return on the clean metrics?
You're including your cost of funding in your cost?
Hold up. Hold up. First, the tax. Do you look at impact or do you look at our profit contributions? Those are very different numbers.
Yeah, they're different. We don't look at tax. Every time we go into new business and the business is assessed, Alex will take a tax view. Typically, we're looking at net profit, basically revenue minus direct costs.
You look at the profit contribution adjusted to bonus and maybe not tax to work out your attorneys. Because otherwise, it's a very different number than shareholder says.
Yeah. No, cascades down. When we're building businesses, we'll look at basically our revenue minus our direct cost. We'll look at our recoveries for the business, so kind of the whole platform cost. The next step down is then we look at kind of the payouts on tax and that. In fact, we back solve down to our RLE, which is a real thing.
Yep. Okay.
Any other? Here we go. We'll go to Andrew first, and then we'll go to Ed.
Good morning. Andre from Morgan Stanley. Just one question and slide six this time, if I can. That is the slide that talks about the actual mix, the product mix and the regional mix of all of CGM, right? Compared to the investor update from two years ago, the regional diversity has improved. EME, in particular, is up by several percentage points in that mix. That is the slide here. If we look at the income mix by division, the left side, commodities is actually now six percentage points higher than what it was a couple of years ago. Going forward, because you have spoken about a lot how you do not want us to think about gas power too much. Going forward, how do you expect the business mix to evolve?
What would you love to see in two or four years from now in terms of the business mix?
Yep. Everything just be bigger, right? That data is a little bit backwards. I won't comment on what's going to be going forwards. Effectively, the mix of the commodities is driven by some underlying volatility. As you go forward, we will see a little bit more variability on the edge of that. If you think about the commodities business, and Eric will stop me when I'm wrong here, but if we think about the profit mix in commodities, it's probably around 25%, which is risk in there, give or take, depending on what the markets are doing. When you think about financial markets and SAF, that market volatility isn't the major driver.
What we've seen in financial markets and now in asset finance, certainly in the last year to two years, the incremental pickup in profitability has been incremental and sustainable, generally 5-10% per annum. That's basically without taking risk. So it's basically taking more market share and evolving faster than our peers. When it comes to commodities, that's the same thing happening there as well. We'll see a little bit of variability in that mix of revenue based upon underlying volatility. Be more volatility dependent. I think that's probably fair, guys.
Can do that. What I would say is if you take all of our power and gas businesses globally, we've got three, right? All the rest, they're about the same. It's not just a power and gas story. It's actually quite a diversified one. I tried to highlight it previously, but that can change going forward, of course. It just depends on what's going on in the markets.
One of the things that we're very focused on is that diversity of concentration in the commodities world. One of the things the team here and Globe has been working on is we look at what those opportunities are. Yes, there are opportunities in power and gas, but equally, we're seeing really good opportunities, we think, in metals particularly and resources. They're actually working hard on building that. We're starting to see real green shoots there. Rolling out our oil businesses and looking at the way we're set up for that is looking like we've got some opportunities there as well. Ags have been obviously really important in the last couple of years because of that volatility.
Now, I do not think there is necessarily the same growth trajectory because of the size of market, but there are still opportunities there for us in basically the markets we cover and the clients that we are talking to. If I think about the mix, when I wake up in the morning, I expect to sort of see 40%-45% of income coming out of financial markets and asset finance and probably 55% coming out of commodities, and that is ignoring the trading optionality. That should be the baseline. What happens after that is dependent on market volatility.
All right. Thanks, Andrew. We'll go to Ed.
Someone just reset the clock. I thought I was done. That's not good. Oh, that's the time. Time's up.
Can you just go back and talk a little bit more about competition? You talked about hedge funds coming in, banks doing more. Is there anyone actually going on the physical side and doing more competition there? Is anyone going and doing both like what you're doing? Within that, I guess, is there war for talent, how that's impacting your business and wrapping all that up? The outlook, obviously, you've talked a lot about growth today and the profitability with the competition impacts.
Yeah, sure. That's all really pertinent questions. If you roll back a year as we came out of those two really big years, what was really apparent is a whole bunch of people sitting on the sideline had missed out. Hedge funds hadn't had money deployed. They quickly pivoted. They raised money. Trade houses had made a whole bunch of money in those couple of years. They had war chests to deploy. Banks who had retreated from the space 10, 15 years ago, particularly North Americans, all sat around thinking, "Damn." We saw competition coming from those three areas. When you think about hedge funds, I can rattle them off, but Jane Street, Balyasny, and Millennium, Citadel have all increased their presence and their focus. They've redirected funds from fixed income and equity markets to this sector. That's the hot money.
That money, as Eric said, has to be deployed. They've all been sitting around here the last 12 months allocating risk capital. We've already seen some returns come through. I won't speak of competitive peers, but you can see the results yourselves. They're not returning. There hasn't been the opportunities. In fact, some of them have kind of basically it's a drag on their returns. Whilst I think it's sustainable and the asset class as a whole is here to stay, the amount of money that's deployed will come and go based upon what the opportunities are. Sure as hell, those hedge funds are going to redeploy that capital back to fixed income and equity markets if they can't return there. There's hot money. In terms of what we think about in terms of competition from that sector, they don't talk to clients.
Those are all thumb. That is just another liquidity provider, another market participant. They put liquidity in the market. That is probably not a bad thing. We do not see them as a competitive threat to what is called to us. When you think about trade houses, they are stronger. They are more aspirational. We have seen this in cycles before, right? I mean, the trade houses have always had this kind of physical aspect of moving commodities around, and they play in that space well. We pick and choose where we play against them. They do not have the rating. When we talk to our clients, what is important to us, they are not rated like us. I think Ben touched on this when he was talking. That does give us a sustainable competitive advantage.
When clients want to hedge and be involved in this market, they prefer to talk to us. We are seeing some of these trade houses try again to build out a client type of capability. Again, it is going to be on the vanilla physical side rather than the derivative side because they are not licensed. We do get a competitive advantage there. To the banks, there has been a bunch of noise around particularly the U.S. banks returning to the space. What I think is true, and the guys will tell me otherwise, is the way they play in the space is more on the financing side. They will talk about being involved in LNG markets and the like, but they will tend to finance assets or finance clients. Is that kind of how you see it?
Yeah. I think our franchise is actually very sticky. And we've been servicing our clients consistently. And that's something that they recognize. I tried to mention that in the slide up there with the TTF volatility. And we've had competition since we've started this business. It's not really true that it's that much more intense now than it's sort of been before, I would say. You will know that it is an expensive platform to run, but that also means the barriers of entry are very high. If you want to replicate this, you have to be patient for a long time, multiple, multiple years. That puts actually quite high barriers of entry. There isn't really any other financial institution that has the depth of commodity expertise that we have. There are a couple that are competing with us fairly regularly.
In terms of the depth of the markets we operate in and the products that we do, I think we are probably the leader.
Yeah. On the war on talent, a year ago, super hot as people were trying to enter the market. What has been that competitive advantage that Eric's alluding to is that we haven't seen anybody leave that we wanted to stay. Fundamentally, the difference is from a client perspective, we've got the balance sheet capability, the rating, and the platform. On the trading side, we've got the physical assets. If you leave, inquiry, whether it be EUPG or a North American business, and go and join a hedge fund with a big checkbook, that's good for about three months until you actually have to. You don't own the pipes. You don't own the FTR. You don't own the storage. That gives you a competitive advantage as a trader in the market. That is a distinct advantage for us.
So far, we haven't had that problem. Lots of conversations. Lots of staff saying, "I'm actually more important to you than I ever been," and all the usual sort of stuff that goes on. That's pretty healthy. That's okay.
Just another question. If you look at kind of where you are in the market actually, I just might leave it there, actually. Thank you.
Sorry. How are you?
That's right. All right. Yep.
Just from Ryan. Thanks. Just in terms of the process of actually going out and winning new clients, can you talk to that? Just in terms of trying to incentivize everyone across the organization to come up with ideas to offer new products to clients, that whole cross-sell piece, how all that works.
Perhaps I'll do the cross-sell piece. Ben is the king of origination, so I might hand it to him.
I'm just going to say there's absolutely no way we're answering that question. I think there's nothing more frustrating than when a client goes through the hassle of building a relationship with a counterpart and that counterpart goes out of the market. We've seen it happen multiple times with especially European banks and to some extent U.S. banks. I think the stability is a big selling point. The credit ratings obviously are a big selling point. The physical platforms are a big selling point. Acquiring a client, so to speak, in the commodity space, it takes time, right? For the client to do the KYC process, to do the legal documentation, to build a relationship with your trading team, for example. Once that client is there, as Simon mentioned, 85% of our business is client-repeat business. It is quite sticky.
The refinery deals I mentioned earlier, once you have them on the books, they stay. It is a real hassle for the clients to move them over. It is about spending the time, planting all those seeds, explaining what we can offer that some of our competitors cannot. Hopefully those seeds grow. It is actually a medium-term thing. It is not like I go and call a client, "We are trading with them next week." It is a 12- to 18-month cycle. We are constantly growing the business and planting those seeds.
Yeah.
Yeah. Ad hoc. No, it's definitely not ad hoc. Sometimes ad hoc stuff falls on our lap. If you think of Macquarie, we're not a traditional retail lending bank. We haven't got hundreds of millions of balance sheet out to clients. We don't have a natural right to ancillary business. We actually have to, I mentioned in my presentation, we have to be proactive. We have to actively go out and talk to clients, which means we have to innovate. Otherwise, we don't get those clients. We go by sector. Clearly, not wanting to give all our secrets away, but renewables, biofuels, these sorts of things are a sector that's probably going to grow.
We'll think, "Right, who are the next clients that we can target in that sector?" I remember 15 years ago, to think, "Who's going to be the big hedges of the next five years?" Probably going to be airlines. Let's go and target airlines. Wasn't so good during COVID. It is very much what are the cyclical aspects of the commodity markets, what are the thematics, which we work on with our economists, our strategists as well. Our global head of oil strategy will feed into our ideas. We'll go and speak to clients, and then we'll come up with sectors. If you think about growth, which seems to be a bit of a theme today. If I think about our global oil EMEA client P&L, only 25% of that comes from MBE.
Now, we've only had the Paris office, I guess, properly open for, say, the last four years or so. We've now got people on the ground actively marketing, speaking local languages to local people. We've got over 30 clients in the pipeline there that we're in the process of onboarding. For us, it's targeted. It's not ad hoc. Hopefully, it's along the lines of certain thematics.
Perhaps where the real opportunity is, I think probably where you're going to go to is this is we're pretty good at being strategic about picking up clients division by division. What are we doing amongst divisions? I mean, what has happened very deliberately in the financial markets business, particularly in Craig's and Sarah's business, is that we have seen client sectors that we've deliberately gone after 10 years ago and built that up. And surprisingly, not surprisingly, but pleasingly, with the sponsor set or private equity and private credit, we've actually established really strong footprints from decisions made 10 years ago. The real question is how we leverage them across the group. There is a good story here and a bad story. Of the 3,700 clients we had, only 15% deal with two or more desks. That is a little bit shocking when we do the numbers.
What's pleasing about that is that's grown actually from single digits in the last year. What's driving that growth is sustainable. That's basically programs we've put in like these client referral award programs, distribution credit award programs. Recently, we are taking advantage of our friends in Macquarie Capital, and we're basically joint now owning the sponsor client coverage team to basically further pursue that kind of thematic or clients across all three divisions. Those clients are common in strategy that we've built up over the last year. We believe it's all the work we've done over the last 12 months in defining those strategies, looking where we want to grow, is now common across those three divisions. We actually can be more strategic about knowing where Ben's going with clients, where Sara's building her business, where Art's building.
We can then, Eric and team and Mark, we're actually getting much better at building that 15%-25% as the goal. We think we have a fair handle on what that means in real dollars. The good news is that so that's kind of bad there, 15%. The good news is these are clients we're already dealing with. We've already done all the hard work. We just have to bring that across the group. There's really easy money to bring on that front. That's the positive. There's a lot of upside for us.
The referral program, that's just another layer on top of how people are paid. There's other financial benefit or how that.
Yep. Yes, sir. Yeah. It's independent. It's generous. It works. We've demonstrated it works. We'll be doing more of that.
Right. We've probably got time for one more question if anyone's got one. We've got a timer, and then we'll wrap that up.
Yeah. Thanks for the presentations. When you talked about the new strategy and the work you've been doing over the last 12 months, and I think you've presented a good case for the business growing. When you think about the timeframes of making that pie bigger, are you looking at three to five years? Are you looking at tomorrow, one to two years? I mean, just understanding when you stand up here in two years, what you want to see, I suppose.
Yeah. The forward-looking is three to five years, but we've set yearly incremental targets. Even so, part of this is basically getting the agility back and not back in power, but getting the platform scalable. That requires a lot of discussion with R&D to make sure they're along for the ride for that risk appetite, which we basically met this week formally to go through. Now, we've already had the buy-in. We're all aligned. We're now just going through the detail. What has been really pleasing so far? The asset finance guys, so Mark's group actually got a head start on the rest of us. We basically met in Singapore nine, ten months ago, actually defined what those strategic goals were.
As a result, we have seen already in the last six to seven months as it's been deployed, financial assets being deployed, we are seeing already meaningful revenue coming in. As a business that was kind of flatlining, we're now meaningfully in this last year in that business up 10% in that six months. We're actually seeing real tangible benefits already. There are some strategic focuses we've had where we're seeing ticket size increase, new products. We took that, all the refinery deals. We're doing more of that and bigger of that. We are seeing revenue now already being generated. Now to the question, yep, we've got a view as to what it looks like in three to five years' time, but we'll grow over that time. It's not going to be, it's not like growth equity.
We're going to see results straight away as we deploy. We have to. Alex won't give me any more capital funding unless I'm returning on it. He'll be very unhappy with me.
Great. If you can join me in thanking Simon and the team, that was.
Thank you.
I'll ask Alex Harvey to come up and give us some closing remarks. Thanks.
Thanks, mate. My clicker here. Maybe just to start, obviously, I want to say thanks to Simon. I can't see him. Simon and the CGM team. It's an incredibly fascinating business. I think you all did a fantastic job actually articulating what the opportunity is for CGM. Really well done. I also want to acknowledge and thank all of you. We get a lot of questions on CGM. We obviously try to make the teams available, actually doing the work too. We really appreciate the candor of the questions and the informed nature of the questions. We hopefully have found the last couple of hours incredibly helpful. My job is relatively easy, and that is just to spend a few minutes between you and lunch. For those who attended the US investor tour, I referred a lot to Texan barbecue there.
Texan barbecue was not served at the end of that tour. Texan barbecue is not being served today either. Rest assured, lunch is going to be fantastic. I just wanted to do a couple of things really just to finish and try and summarize. Obviously, the point of the next few minutes is not really to try and—you'll all have your own thoughts having heard the three operating groups and Rachel talk about the business in EMEA over the last three and a half days. You'll all be formulating your own views on the conclusions and what it means for the group. A few things that I think sort of stand out for me, and hopefully when you reflect on the last few days, they'll stand out for you as well.
Actually, Ben made the point in response to the client question. Thanks, Ryan, for the client question. Ben made the point that I think is a really valuable point here, that the group has been in the region for a long period of time. We have consistently been in the region for a long period of time. There is a real longevity to this, over 35 years in the region. The second thing that I think is consistent across the three operating groups, and hopefully I am sure you heard this come out, clients are at the centre of what we do, right? Clients are at the centre of what we do. Trying to find a solution to the client's challenge is core to whether it be the asset management business, whether it be the Macquarie Capital business, or you have heard that in volume today.
Clients at the centre. One of the things really key about a client business, really key, is you've got to be consistent, right? You've got to be there in the good times and the bad times. You've got to be there when the markets are dislocating. You've got to be there providing a solution through cycles. That's what we've been able to do, I think, over a long period of time across all three businesses. Third thing is expertise. We work in a very competitive market. I think all the businesses have talked about the competitive landscape that they operate in. The key to the business is expertise. It's about having people and teams of people that deeply understand the solutions that can lead to solutions or the opportunities that lead to solutions for clients, right? It's really important.
Our whole business rests on this idea of expertise. You saw it today, but you also saw it in the presentations over the last couple of days. Adjacent organic growth, right? That's been the principal driver of the growth of the business over a long period of time. Adjacent organic growth. We don't step way away. Why don't we step way away? Because we don't feel like we've got the expertise. We don't feel like we know enough about the industry. We want to give ourselves the opportunity to pivot. We think there's too much risk. Whatever it is, we tend not to jump way away from what we're doing. We tend to slowly, patiently, adjacently grow as we try and solve problems for the clients. Really, really important. Next thing is risk management. Absolutely central to this idea.
If you think about the business we talk about, we talk about this idea of bottom-up. We talk about this idea of people finding opportunities all around the world and turning their opportunities, turning their ideas into solutions for clients. If you've got a really diverse business like that, you've got 20,000 people sitting around the world, absolutely key that they all feel like they not only have the opportunity, but they have to own the risk, right? They have to behave with integrity. You heard this come through the other day. Absolutely crucial. Simon sitting in Sydney can't manage every desk every day, every minute of the day. Got to rely on people who really understand that it's their risk, right? It's not one-way optionality. It's not just to get paid if it all goes well.
It's actually you've got to own the risk if there's a challenge as well. Really, really important. Risk management, ownership of the risk at the group level, ownership of risk at the individual level, ownership of the risk at the desk level, absolutely key. The other thing that came through, and I think that came through on each of the three businesses, the other thing that comes through, of course, is that there's an enormous opportunity here in Europe. There's obviously an opportunity around the world. We spent the last three and a half days talking about Europe. Enormous opportunity in Europe for all three operating businesses. Again, you'll have your own conclusions. If you just maybe to leave you one statistic in Europe. 2011, I mentioned this the other day, 2011, 14% of the operating income for the group came from EMEA.
Today, 2024, 23% of the operating income came from EMEA, right? That is in a period of time where markets have been, the environment here for doing business is not always straightforward over that course, that period of time. The business is growing. It is taking advantage of, and it is realising opportunities for clients. You will have your own conclusion, I am sure, having listened to the last three days. There are a few observations from me. Secondly, we took the opportunity to introduce this diversity of income profiles, this continuum of income between annuity style and market facing. I guess one of the things that hopefully you have seen is the depth of the client franchise across Europe. The fact that that client franchise actually generates a really stable income, right?
On the one end, on the left-hand side, a very stable income in terms of the annuity business. In the middle bucket, that light blue, obviously some market characteristics, but by virtue of the scale, by virtue of the maturity, by virtue of the capabilities, by virtue of the repeatability, we are actually generating annuity-like income coming through the group. That is absolutely crucial to the stability of earnings across the group. Obviously, what we are trying to do is create a group that has annuity and annuity-like income, stable cost base. That gives you a nice return on equity. On top of that, you get the market-facing elements, this optionality that we have talked about expressing itself in various ways across the group. Now, all four of our operating groups have that stable annuity-like income. Of course, that includes our Banking and Financial Services business.
We haven't spent time talking about BFS here in Europe because obviously BFS doesn't have a presence in Europe. But as you know, for those who know the business well, of course, it's a core customer-driven business, providing digital financial services in Australia. Really a strong period of growth over the course of the last decade. We've obviously got the last three and a half years or so here. But across the course of the last decade, as we invested in the core banking platform, as we've expanded our digital offering, as we've grown our deposit base, as we've grown our loan base, really strong, stable income coming through BFS. You can see across all four groups, you've got this strong annuity-like income coming through the groups.
Now, one of the things that you will have heard over the course of the last couple of days, of course, is the work that the European team does with governments all across the region. Of course, governments and this idea that we're working together with stakeholders and with governments to deliver solutions to economic challenges, deliver solutions to social challenges, community challenges, absolutely crucial, key to the organization that we are and we have been over the course of the last 35 years. We do this in lots of ways, right? There are just some examples on this page here. If you think about developing and managing community infrastructure, I think globally, right, globally, 290 million people are engaged in assets that we own and manage on a daily basis. 290 million people on a daily basis.
We provide essential services, really important services to communities all over the world. I think the answer here in Europe is 165 million, by the way. 230,000 people are actually employed in those assets that we own and manage around the world. We have a very big employment base, right? We are responsible for the lifestyle, if you like, or the outcomes for lots of employees all over the world. You can see in that second picture, this idea of shaping policy to mobilize private capital. That is actually Shemara, as I am sure everyone knows. That is here next to our Australian Treasurer, Jim Chalmers, and Scott Bessent. Shemara and the other Australian superannuation funds were in Washington a few weeks ago, actually talking about the opportunity to mobilize Australian capital into the opportunities in the U.S. market.
Shemara has also played a role here in the U.K., actually chairing the infrastructure subsector of the Invest U.K. Summit. Really important, leading thought leadership in terms of how you mobilize private capital. Securing public funds to catalyze private capital. This one here, this chart here is electric buses in India, right? Really important to actually crystallize public capital. Public capital has to come along to actually develop the market to create the opportunity for private capital. We saw that yesterday. You remember when Mark was, Lee Harrison talking about the PPA market, right? What happens in the renewable market, of course, if you want to create energy transition, you want to create new power sources, in that early stage, you have to subsidize that. You have to subsidize that through feed-in tariffs. You have to subsidize that through contracts for difference.
That subsidy enables you to develop assets, establish a supply chain. As the market matures, you get corporate PPAs. That is what we are seeing. The corporate PPA story last year, I think, and Steven Moyes in the room there can tell me, I think there were 56 gigawatts of corporate PPAs signed last year. Just out of interest, that was up 35% the year before. Just out of interest, half of those were signed in the United States, okay? There is a big role that we are playing in helping sort of catalyze private capital by bringing the public sector to there. Modernizing and uplifting public services. Obviously, we do a lot in the sovereign resilience capability. You have seen the data center story. That idea of data sovereignty is really important to what we do.
Actually working with governments to upgrade and modernize their infrastructure to support the new economy is a role that we're playing here in Europe. We obviously play it around the world. Finally, maybe to return, I guess return to home, placemaking is another thing that we think is a very core component of what Macquarie does around the world. You heard Ben talk yesterday about Goodstone, which is our build-to-rent platform here in the U.K. Obviously, in Australia, we've developed or redeveloped our head office in Martin Place. We focus very much on creating value for the communities in which we operate. We think this is a great example. We're obviously a trusted partner to clients in EMEA doing this. We play this role, this placemaking role globally. I won't dwell too much on Martin Place. It's obviously a long way from London.
We're really proud of this development. Six years in the making, 10,000 people involved in Martin Place, and 10 million hours of work over the course of that period of time. What we're able to do is reinvigorate, we think, a central part of the Sydney CBD. We're able to develop our own home office or head office, consolidate all of our activities in Sydney into one building for the first time in 25 years, which is fabulous. We're able to develop 39 Martin Place, which we then sold. Of course, we're able to work importantly with the New South Wales government on a critical piece of infrastructure. That's the development of the metro system in New South Wales. Absolutely critical to being able to move people around in Sydney. We're really proud of that development.
We're also really proud that in the context of that whole six-year period, and people will recall that six-year period also included COVID, we're able to deliver that project on budget and on time. Absolutely critical, right? This is the opportunity that exists when the private capital sector comes together with the public sector. That's enough for me. As I said, I'm standing between you and lunch. I just want to do just two more minutes, if you can. Firstly, I wanted to acknowledge all of the people from Macquarie who presented over the last few days. It's been a fantastic three and a half days. A huge amount of work goes in. Obviously, the CGM team sitting here, the MAM team yesterday, the Macquarie Capital team on Monday, and of course, Rachel Palmer, our original CEO, sitting with us in the room.
Huge amount of effort goes into the presentations. I wanted to acknowledge all of those people and thank them. The other group of people I want to thank, Paul Marriott here, who runs our people and engagement team, which includes our corporate communications team, Sam Dobson, and the IR team. I have no doubt that I'm going to miss people. To all of you, these events take an enormous amount of planning and coordination, some rehearsals from time to time. A lot of effort goes in from all of you. I wanted to say, on behalf of the whole organisation, how delighted I am. Just to thank you all for your contribution.
Obviously, finally, to all of you, as I said when I started on Monday, we recognize that when you give us three and a half days of your time and you come to the other side of the world, in some cases, it's a big commitment. We try and make these sessions as informative as they possibly can be. We try and give you access to people who are in the region actually doing the work. We try not to script the Q&A in any fashion. We try and stay. Thank you to Simon for staying longer than your allotted time for the Q&A. We try and stay until all the questions are exhausted. We hope you find it incredibly useful. With that, I might close the European tour. Thank you again, and look forward to lunch. Thanks very much.