Before we begin, I would like to acknowledge the traditional custodians of this land and pay our respects to their elders, past, present, and emerging. Also ask you to turn your mobile phones either to silent or turn them off at this stage. This morning, you'll hear from our CEO, Shemara Wikramanayake, and our CFO, Alex Harvey. With us here or online, we've got our group heads as well. At the end of the presentation, we'll have a opportunity for question and answer. With that, I'll hand over to Shemara. Thank you.
Thanks, Sam, and good morning, and welcome everyone from me as well. So as usual, I'll just commence by touching on our business footprint across our four operating groups, which have been in place for a long time now. Across those four, as you know, they give us very good diversification in terms of the underlying thematics to which they're exposed, and all four of them are really well positioned for medium-term structural growth with the areas they operate in. And those are, our Australian Banking and Financial Services Group that is offering a customer experience-focused digital banking offering here, with a long runway to grow in, home loans, business banking, and wealth.
And then our three global businesses, our asset manager in private markets and public investments, especially with a great real asset franchise, which is growing a lot in this environment, especially, our Commodities and Global Markets, which operates across asset finance and financial markets and commodities, agreeing long runway for that franchise to grow. And then Macquarie Capital, which is our advisory and capital solutions business, growing in many regions, as well as bringing the Macquarie balance sheet alongside, where we have deep expertise in debt and in equity. And they're supported up by our four key central services groups across our risk management group, legal and governance, financial management, and corporate operations.
Now, turning to this most recent result for the half year, as you saw, we delivered a result of AUD 1.415 billion, which was down 39% on the prior comparable period last financially and down 51% on the most recent half, and the return on equity was 8.7%. Given the change to the prior comparable period and the most recent one, I thought I might spend a moment on this next slide, dwelling on some of the key drivers. You can see that the operating group contribution as well was down 38% on the prior comparable period.
But the key point I'd note is that the underlying franchise in all four of our businesses continued to grow through this period, and the three large contributors that I'll go through as I speak to each group. But starting with Macquarie Asset Management, you'll see as we go through the presentation, that our underlying assets under management are up, equity under management in private markets and the public investments assets. And as a result, our base fees and our performance fees were broadly in line with the prior comparable period. The main contributor to the result being down substantially on the prior comparable period in Macquarie Asset Management was the timing of the realization of assets in the Green ` Group, plus increase in operating expenses.
But the prior comparable period, first half last year, we had some material realizations in our green investment assets because it was a very conducive period for realization. In this first half, we are holding the bulk of those assets for a Core Renewable Fund that we're launching in Macquarie Asset Management, which strategically is a big opportunity for Macquarie Asset Management to go into adjacent real asset businesses, and so important that we have this seed portfolio demonstrating our expertise to launch that well. In Banking and Financial Services, the result was up, and we continue our underlying franchise growth, just like in MAM, with the assets under management growing, the loan books are growing, the platform funds are growing, the deposits are growing.
Operating expenses again, up, and that's probably the second contributor to the change from the, the prior comparable period, as well as the timing of green investment realizations. It's that OpEx is up in all four groups. In BFS, we're investing a lot in technology and growing our platform and regulatory compliance. In Macquarie Capital, the franchise again, continues to grow. The fee income is broadly in line, but the client base is growing there. And also importantly, our private credit book continues to grow. So while again, we had large equity realizations in the first half last year, you may recall, the U.S. real estate asset pillar, the European fiber network Onivia, a conducive environment for realizations. This time, less equity realizations, but more contribution from the annuity-style private credit investment income.
And then Commodities and Global Markets, the franchise there again, continues to grow. So both in asset finance and financial markets, we had solid contribution. Commodities, you'll see in Alex's analysis, the client numbers continue to grow. The main reason the result was down was because we experienced greater volatility in the first half of last year, particularly in European gas and power and in resources across coal, but also gold. This period was a much quieter period in terms of volatility in underlying commodities, but the important thing is the franchise continues to grow. So that was probably the third of the contributors, the timing of asset realizations, especially green assets in Macquarie Asset Management, the OpEx being up in the CGM, less volatility in terms of the commodities.
And similar contributors in when you compare to the second half of last year, although the second half of last year, you may recall, had even greater volatility contribution to commodities in global markets. So with that, as you saw, operating income, profit, EPS, and also the dividend per share, which I'll talk about at the end, were down. Looking at some of the underlying drivers before going into the numbers group by group. Assets under management were up 2%, and that was mostly through investments made in the private markets, managed funds and favorable effects, offset by a reduction in some co-investment management rights, especially in a European situation. As well as the diversification by business lines and thematics, we're very diversified by region.
We now have about 2/3 of our income generated outside of Australia, as you probably know, and the largest regions outside of Australia are North America, as you can see all the Americas in this, and Europe, Middle East, and Africa. Turning then to looking at each of our four operating businesses. Macquarie Asset Management delivered AUD 407 million. That was down 71% on the year, approximately AUD 1.4 billion last year. As I said, big contributor to that being down was the timing of realizations in green energy assets. In the comparable period last half, Alex will take you through these numbers. We had about AUD 800 million of realizations. And in this half, we just had the OpEx and DevEx that we absorb while we hold those assets, which was about AUD 100 million.
So it's about AUD 900 million turnaround. The underlying business, as I said, the franchise continues to grow. So equity under management in private markets, up 2%. Assets under management in public markets, up 2%. We had raisings in this half year of about AUD 8 billion. Basically, that's impacted by the lumpiness of what funds are open at the time. So the prior comparable period, we had a particularly large raising of AUD 22 billion, and that was because we had our seventh European fund open, our third Asian fund, and our sixth U.S. fund, the European and North American funds being the really big ones. In this period, we had a North American fund open for raising.
We also, you may have seen, have announced that in our Energy Transition Fund, which is newer technologies in the climate response, we've closed on about $1.7 billion in October, so just after the half year inclusion. We also invested comparable amount, $7.8 billion, and have $35.3 billion of dry powder in our private markets at the end of the period. So the underlying franchise continued to grow strongly. In public investments, the main drivers there of the movements were the foreign exchange movements and net flows, offset by market movements.
You'll see there, particularly equities, assets under management, down 6%, despite net flows, mostly impacted by market and also a rotation of the market to fixed income, where we were up, sorry, equities were down 3%, fixed income up 6%, with flows to that region globally. Then turning to Banking and Financial Services, the result there was up 10%, AUD 638 million, from what I recall, was about AUD 580 million first half last year. Ongoing growth, as you can see in our home loan portfolio, Business Banking, particularly. So in home loans, we're just a bit over 5% of the market now. Business banking, we're still about 1%, I think, Greg, of the market there.
So long runway to grow, and, you know, we may talk later about the investment we're doing, particularly in that area. Funds on platform also up, supported by a 1% growth in deposits. You may recall last year, we had very strong growth in deposits, driving the asset growth that we've been able to support with that. Now, the competition has picked up a bit in deposits, but we're still managing to grow deposits. And we're still very focused on the quality of the credit in that book, so very disciplined growth. So if the markets are competing a little too aggressively, we'll pare back, and if there's opportunity, we'll grow at a slightly different pace. Commodities and Global Markets, down 31% at AUD 1.383 billion.
As I've said, the contribution from the financial markets, so in foreign exchange, rates, futures, and the contribution from Asset Finance was solid and consistent. The Asset Finance portfolio, I notice, is up about 8%. And in the commodity markets, where the franchise continues to grow, client numbers are up. The reason the result is down is because, as I said, in our risk management EMEA Gas and Power, i think everyone will recall the activity levels going on there. As a result, volatility flowed over into the coal sector as well in resources, and gold was quite volatile. Whereas North American Gas and Power and inventory management and trading, there was volatility that drove the commodities results.
This half, a particularly quiet one, but the underlying income is up, particularly on the first half of FY 2022, if you look at the underlying growth, that was, a period also with less volatility. And then Macquarie Capital, result down 28% at AUD 430 million. It was a high 500s first half last year, the fee and commission revenue is consistent with what it was in the prior comparable period and the most recent prior period. And the market activity is picking up a little bit globally. But, the big thing is that in private credit, we're continuing to invest. So another AUD 1.5 billion deployed, with over AUD 20 billion now in that private credit book. We're having good experience in terms of the quality of the investment of that portfolio, which is pleasing.
Offsetting that contribution is the timing of realization of assets. As I mentioned, first half last year, some particularly big equity realizations. In this half, less of them. I think we were taking advantage of the environment, particularly in the first half last year, where we had opportunity to realize mature assets. So that's the operating businesses. If I could touch on the capital and funding position, our funded balance sheet remains strong, our term funding comfortably exceeding our term assets, and AUD 8.3 billion of term funding raised in the last half, and the deposits now up about 1%, as I said, overall, at just over AUD 135 billion. Also, our capital position at AUD 10.5 billion, a strong capital position.
That's down from the AUD 12.6 billion at the beginning of the financial year, where we did have the earnings for the first half, but offset by the second half dividend last year, and AUD 1.7 billion of capital absorbed in the businesses across the board, pretty much as you can see here. Macquarie Asset Management drew a couple of hundred million into seed investments and core investments to grow funds, co-investment. BFS, ongoing absorption of capital at the usual sort of run rate for growing the loan books. Macquarie Capital, ongoing deployment in private credit and also some equity investment. CGM returning, releasing a bit of capital because credit exposures were lower, driven by movement in commodity prices, and the center also corporate absorbing capital for regulatory requirements.
But with that, we have still very strong capital ratios, well above our Basel III regulatory minimums. And given that very strong capital position, our board has approved a buyback of AUD 2 billion, an on-market buyback. And that on-market approach will give us flexibility to be able to respond to market conditions or business opportunities as we see them. The board is comfortable that with the surplus capital that we have, absorbing the capital return, we'll still have a prudent capital position and ability, given our conservative balance sheet settings, et cetera, to navigate the current economic environment, and also be able to support business activities as teams see opportunities.
The board has also declared a dividend of AUD 2.55, 40% franked, and there's under the DRP, not planned to be a discount consistent with the approach of the capital return. Before I hand over to Alex, the last thing I wanted to touch on is that we were very pleased to announce today that our board has appointed Wayne Byres as a bank-only non-executive director, joining Ian Saines, David Whiteing, and Michael Coleman. With Michael's expected retirement by mid-2024, he will make the third of the bank-only non-executive directors. I think you all know Wayne is the former Chair of APRA, but also his global experience in his powerful roles. So with that, I'll hand over to Alex to take you through in more detail.
I'll come back and speak about outlook, and then we'd be happy to answer questions.
Thanks, Shemara, and good morning, everyone. As Shemara said, I'll now take you through a little more of the detail of the financial results for the first half, and I'll touch on some other aspects of financial management as we move through the presentation. Starting with the income statement, you can see operating income for the group for the half was down 8% on the first half of last year. As Shemara mentioned, the principal drivers of that were a substantial reduction in investment income down to AUD 366 million from AUD 1.55 billion in the first half of last year after a really strong period of realizing in the first half of last year.
That was partially offset by an AUD 403 million reduction in credit and other impairment charges coming through, coming through the group for the first half. You can see, pleasantly, net interest and trading income and fee and commission income, both broadly in line with where we were for the first half of FY 2023. Expenses for the first half were up 6%, and you can see, primarily, increases in employment expenses and related expenses from the increase in average headcount across both the central services areas and the operating groups, partially offset by reduced share, profit share expense coming through the group, consistent with the underlying performance.
You can also see a step up in the other, operating expenses, and that largely reflects the investment we're making in data and digitalization across the group, coming through, coming through those operating expenses for the, for the first half. So operating expenses up 6%. Income tax or effective tax rate at 29.3% versus 24.2% in the prior corresponding period, and that reflects the geographic composition of income and the nature of income coming through, coming through the group for the first, for the first half. As our bottom line for the group, AUD 1.415 billion, down 39% on where we were this time last year.
If I now touch on the operating groups, obviously as Shemara mentioned, there's a little bit of noise coming through the Macquarie Asset Management P&L for the first half. The end result, AUD 407 million, down from just over AUD 1.4 billion last year. You can see the primary movers there in the center of that bar chart. You can see AUD 831 million less contribution from the disposal of green investments through the half. People will recall we had a very significant period of divestment in the first half of 2023.
We just divested some waste to energy assets in the U.K., Polish onshore wind assets, and we also divested the first of our wind farms in Taiwan. So that was coming through the first half. We didn't see that repeating in this half. The other thing, consistent with the long-standing practice we've had, in relation to this activity, a lot of the expenditure in relation to development and OpEx actually goes through in terms of those green investments, actually goes through the P&L. And so over the course of the half, we had nearly $100 million step-up in DevEx and OpEx associated with the investment we're making in Corio, our offshore wind platform, and Cero, our global European solar platform.
So that was coming through the P&L. The other thing you can see is a step-up in operating expenses, AUD 103 million. There's a couple of drivers there. FX, as Shemara mentioned, was a headwind with a weakening Australian dollar. The other thing we had in the first half for MAM was a provision associated with a legacy matter that we had to take in the first half. So that's the sort of noise coming through the P&L.
On the other side, obviously from a base fee viewpoint, really pleasingly, we had, we had a 13% growth in base fees on private markets, and that reflects the significant period of raising that we saw in Macquarie Asset Management over the last 12 months and investing the team's been able to do in a whole range of assets around the world. Partly offsetting that was a AUD 45 million reduction in base fees associated with our public investments business, and that mostly reflects the, the asset allocation, that we've seen consistent with other, asset managers around the world, where people are shifting from equity portfolios to fixed income portfolios. From a, from an asset under management viewpoint, you can see AUD 892 billion, so, up 2% on where we were at 31 March.
And within that figure in, is, is $35 billion worth of dry powder across our, across our real assets, real assets stable of funds. A record level of dry powder, obviously consistent with the significant raising we saw in, in FY 2023, $38 billion, and the $8 billion of raising that, that Shemara mentioned earlier in the, in the first half in, in the Asset Management business. Now, we added an additional slide here. There's obviously been a lot of, a lot of commentary in relation to the, the economics of renewable asset development around the world. So we thought it'd be useful, just in the context of, of these results, to, to actually add some.
An additional slide here to give a little bit of context to what we see going on around the world. So firstly, on the left-hand side, you can see, on the bottom of the left-hand side of the graph, you can see what's going on in terms of short-term capital expenditure volatility, particularly in wind. So in recent times, we've seen a step-up in the CapEx associated with wind development. That's largely related to commodity price increases that we've seen through the back end of the last couple of years, together with the supply chain disruptions that emerged through COVID. That's normalizing to some extent in a very recent term. You can see solar, by contrast, has basically been continuing its long-term trend.
But overall, I guess, in the top left-hand side, you can see the long-term CapEx, both for wind and for solar development, continuing to head down, which is obviously a reflection of the economies of scale as we start to get more renewable energy assets developed in both solar and wind, wind all over the world. On the right-hand side of that slide, we've got two graphs there that are showing you what's going on with power purchase agreements in the corporate sector, both in relation to solar and in relation to wind. And you can see, you know, across a whole range of markets around the world where we're operating, you can see a pick-up in PPA prices over the near term.
And the reason for that, obviously, they're reflecting inflation, they're reflecting increase in wholesale electricity prices in lots of markets around the world. And they're also reflecting the fact that there's a significant demand for renewable power, as lots and lots of commitments have been made by corporates around the world to actually source power from renewable sources. So all that's coming through on the demand side, and you can see that reflected in the prices. Obviously, this price reflection is counterbalancing some of the CapEx inflation to preserve project economics on transactions. In our own case, we've obviously seen these dynamics play out in a number of markets around the world.
One thing I want to draw everyone's attention to in relation to our offshore wind platform, Corio, we were really pleased just recently to be awarded the opportunity to in partnership with Total and a local investor, to develop a 1.4 GW offshore wind farm just off the coast of New York in the United States. And indeed, in that auction process, we're able to secure a material step-up in the offtake price from the prices that were available to people who bid in prior rounds. And the contract that we're awarded allows us to adjust the offtake price for the cost increases on certain components that occur between now and when we actually reach the decision to commence the development of the project.
So the market is adjusting to the underlying factors to enable the development of renewable energy, and we're seeing that in lots of markets around the world. Obviously, more broadly, there remains significant capital requirements to fund energy transition and really strong demand for investors. Albeit, the current environment is providing some challenges from, as I said, inflation pressures, increasing interest rates. One of the things we talked about before, the shortage of talent to develop these assets around the world, and obviously, the supply chain challenges. We remain confident, obviously, in the significant embedded value in our own portfolio, and we might talk about that over the course of the morning.
As Shemara said, we're really pleased with the progress the team is making in moving this activity from a balance sheet activity, which we had in Macquarie Capital, toward that fiduciary offering in Macquarie Asset Management, and in particular, the reaching the initial close of our energy transition fund in October this year. So turning now to Banking and Financial Services, the second of our annuity businesses, another strong result, up 10% on where we were this time last year. And you can see that coming through all the core verticals, if you like, in BFS. So you can see mortgages up AUD 47 million in terms of the contribution.
That reflects a growth of about 14% in average terms in the mortgage book. Business banking up AUD 85 million. You can see a growth in the volume of lending, you can see a growth in the deposits that are supporting the business bank and improved margins that we're seeing come through there. And we're also seeing a growth of AUD 57 million in Wealth Management, which is both improvement in margins that we're seeing come through there, together with a growth of funds on platform up about 10% from where we were this time last year. Partly offsetting that is the increase in expenses, and we continue to invest in BFS to improve the customer offering, the digital, the data capabilities to improve the customer offering.
We think that's paying dividends in terms of how the business is developing. We're also upgrading the system or high-grading the system to ensure that we can meet the regulatory and compliance, important regulatory and compliance obligations that the bank and financial services business face. So we're seeing that come through. That expenses is really reflecting of headcount. So the headcount is up, and we also had salary increases coming through over that period of time as well. Our underlying drivers from a BFS perspective all basically moving in the right direction. Obviously, car loans are down a little bit again, although the decline is slowing, which is really encouraging in terms of what's being done for product development there.
I think excitingly in this half, we've seen a big pickup in the business banking loan activity up to AUD 14.6 billion from AUD 13 billion, AUD 13 billion at 31 March. So it's good to see the work the team's doing in digitizing and upgrading that capability and the offering we have for customers in the marketplace. In terms of maybe turning to the first of our market-facing business and now the Commodities and Global Markets business, another really strong half from CGM.
And I guess, you know, Mike, the point that I'd make here is that we talked a lot about the diversity of the franchise in CGM, and I think the result that we're seeing coming through this half really reflects, you know, the diversity or the benefits of the diversity that we've talked about in the past. We talked earlier in the year about the fact that CGM in the first quarter, in particular, experienced more subdued trading North American Gas and Power business, albeit the client franchise remained quite solid through the half, and market conditions toward the back end of the half have improved materially from where they were in the first half.
In terms of the drivers of the result, you can see commodities income down AUD 421 million. That was down 24% from the first half of FY 2023. And you can see the big driver there, risk management income down AUD 380 million, which is really about 25%. And mostly that's coming through our European gas and power business and our resources business. Both of those segments of CGM had very strong first half of 2023, consistent with the underlying volatility we were seeing in the business.
Despite the drawdown in terms of the contribution this half, the underlying client franchises in both of those aspects of CGM continue to perform very well and grow really well into the future as well. The other thing we saw was a AUD 55 million reduction from inventory management and trading. Again, more subdued trading environment, as we talked about, partly offset by the timing of income recognition associated with transport and storage contracts coming through the P&L in the first half. Our financial markets down AUD 27 million or 5%. A really solid contribution again against a very strong comparable period.
Of course, people recall that was the big step movement up in interest rates in particular, and the impact that had on both interest rates and currency movements. That obviously was coming through in the first half. We didn't see that in the second half. I think the growth, the improvement in the franchise and the growth of the franchise over the course of the last twelve months. The Asset Finance business continues to produce a solid result, and we've been able to grow our exposure to that market through increased lending to shipping and TMT in a range of markets around the world. As Shemara mentioned, costs were up AUD 302 million for the half.
It's quite a big step- up in costs, about 24% step- up in cost. That really reflects the investment that the team is making in data to support the business, in digitalization of the business, both to support the growth of the business and the growth of the franchise, but also, again, the investment we're making to support the regulatory and compliance obligations that are associated with the global Commodities and Global Markets business. In terms of the underlying drivers, again, this is a slide that hopefully everyone's pretty familiar with now. We've had it for some time.
So if you look on the operating income side on the left-hand side, you can see that the vast majority of income coming through the first half of 2024 was the underlying client, client business. Obviously, a smaller contribution from inventory management and trading, consistent with the more subdued environment. Interestingly, if you look at that, particularly on the commodity side, if you look at the commodities income coming through for the first half, it's actually up 17% on the first half of FY 2022, which again, is a reflection, I think, of the growing franchise and the customer franchises coming through. And you can see that customer franchise reflected in the client numbers on the top right, which continue to grow.
Of course, what we have seen from a capital viewpoint is capital coming back to the group as activity levels have come down and commodity prices have come down. So most of CGM's capital is exposed to credit, and you can see that credit capital reducing with both activity and with actual commodity prices. Market risk continues to represent a relatively small portion of CGM's capital, and in fact, a slightly smaller portion than we saw in 2022 and 2023, again, consistent with the environment that the business has [inaudible] from Macquarie Capital, down 27%. And you can see the drivers there in the middle of the page. Investment-related income down AUD 247 million.
Again, the first half of last year was a really strong period of realization in Macquarie Capital. We were able to take advantage of that. We didn't see that repeat in the first half of this year. That was partly offset by a growth in the contribution from our private credit book, up AUD 195 million. That private credit book, in terms of average drawn balances, has grown by AUD 3.8 billion. The other thing we didn't see in this half was the losses we took on our DCM underwriting positions that we saw coming through the first half of last year. We obviously didn't see those repeated. So that's coming through that net income activity as a net income line as well.
Our fee and commission income down slightly, down 5%, on where we were last year, but quite a solid result, particularly M&A. Capital markets have been a bit weaker, and we've actually seen equity volumes come up in Macquarie Capital. So, a little bit lower than where we were last year, but quite a strong result, and the pipeline looks quite good there. And operating expenses, consistent with other parts of the organization, up largely reflecting the investment the team's making in technology and infrastructure to support the global platform. Pleasingly, from a capital viewpoint, you can see the capital we have alongside Macquarie Capital, up from 4.2 to 4.7.
It's good obviously in this cycle that, you know, we're, we're pretty encouraged by the investment the team's making. We've been able to grow the private credit book, and you can see that coming through the investments over the period. The other areas where the team has seen opportunities really in relation to digital infrastructure, things like fiber networks that the team's been able to grow over the course of the last six months. Government services in the United States, business services, those areas that have been a core component of Macquarie Capital's activities for a long period of time. We saw them, the teams saw opportunities to grow our exposure.
And obviously that capital, both in the private credit book and the equity book, underpins, we think underpins the, the story going forward for, for Macquarie Capital. So we're really pleased with how that book's, actually performing. Now, turning to some of the other aspects of the financial management of, of the group, turning to the cost of regulatory compliance and, and technology spend, another, another chart that hopefully people are familiar with. Maybe just a few things to point out here. The, in terms of the, the reg and compliance spend, you can see that, AUD 622 million in the, in the first half. Now, that's up 31% on, on where we were for the first half of 2023.
Interestingly, it's only up 9% on the expenditure incurred in the second half of 2023. So you can see the growth rate actually slowing. And so we pointed out one of the things that was a significant piece of work in the Australian marketplace was the introduction of the "Unquestionably Strong" regime, the new Basel III regime. That's obviously now happened, so that project has drawn to a successful conclusion. And so some of that's starting to play its way through into the cost of regulatory compliance. The other piece on this page, which is worthwhile drawing out, is the technology spend. And I've mentioned it a couple of times on the way through.
Technology spend's up about 18% on the prior comparable period. Interestingly, one of the things that is happening, though, is that the proportion of our technology spend that we're spending on change the group has actually increased from 22% back in FY 2018 right up to 35% today. A lot of that change is obviously improving the capabilities of the organization, which we think will pay benefits into the future. The balance sheet continues to be strong. We raised just over AUD 8 billion in the half. Most of that raising was done in the bank.
And the weighted average life of the funding out at 4.4 years, I guess, consistent with the approach we've taken for a long period of time, and we've continued to try and diversify the owners of our paper all around the world, and we've been successful over the course of this half in doing that. From a deposit view, deposit growth, obviously, this half was a little less than we've seen in prior halves. I mean, people will recall, I think, in FY 2023, we had, we grew deposits by $33 billion. So we're obviously ahead of the curve in terms of the competitive environment for deposits. It is very competitive out there.
We've obviously slowed our growth in deposits over the course of the half, consistent with the slowing growth that we've seen on the asset side in BFS. The one thing I would say is that the team continues to broaden and diversify the deposit products in the market and continues to upgrade our capabilities, particularly our digital capabilities, to capture those deposits for customers and make sure the experience is as good as it possibly can be. The loan books for the period were up 6%. Mostly that's BFS on both the business loans and the home loans, and you can see at the bottom of that page, the growth in Macquarie Capital's private credit book.
On the equity investment side, you can see up from AUD 9.6 billion at March up to AUD 11.4 billion. The main driver there is the green energy movement you see in the middle, and there's a couple of things, a couple of things going on there. Firstly, we're able to complete our project, one of our offshore wind projects in Asia. So, we're able to complete that investment, which was good. So that's now reflected on the carrying value of the on the balance sheet. We're also continuing to grow.
We have a significant solar platform in, again, in Asia, in India, that we've been able to develop over the course of the half, and money's gone in there. And as I said before, we're really delighted in partnership with Total and a local partner to be awarded the opportunity to develop a large offshore wind farm in the U.S. And again, the seabed lease for that is coming through that value at the half. We also saw opportunities for Macquarie Asset Finance, the air finance at least, to acquire a portfolio of aircraft, and some of that's coming through in this half.
As I said before, Macquarie Capital growing its investments in digital and technology investments in a number of markets around the world. From a regulatory viewpoint, the Australian regulatory environment continues to evolve. The main focus over the next little while will be in relation to liquidity, interest rate risk, and obviously the consultation paper that APRA's released in relation to additional Tier 1 capital. Obviously we will participate in those consultation processes and we think we are well-equipped to manage any changes that might arise from any of that. There's obviously no update to the disclosure in relation to Germany.
The CET1 ratio for the bank continues to be very strong at 13.2%, as does the LCR position and the liquid asset position. And finally, just in relation to capital management, as Shemara mentioned, the board has elected to leave the dividend reinvestment plan on at no discount, and we'll be buying shares on market to satisfy that any applications under the DRP. In relation to the on-market share buyback, we'll go through a process of getting the docs cleared by ASIC, and then we'd anticipate that we'll be in the market buying shares toward the end of the month.
With that, I'll hand back to Shemara. Thanks very much.
Great. Thanks very much, Alex, and I'll take you through the outlook, starting with short-term outlook, and as usual, we'll go through this by each of our four operating groups. So starting with Macquarie Asset Management, as we've been discussing, the franchise is growing nicely, so we expect the base fees to be broadly in line. But in relation to the net other operating income, subject to market conditions, we expect that to be substantially down on FY 2023, principally due to the timing of realization of the green energy investments, for the reasons Alex and I have been explaining. And we expect the net other operating income for the second half of 2024 to be broadly in line with the second half of 2023 financial year.
Now, banking and financial services, we are seeing ongoing growth, as we said, in the loan portfolio, the platform volumes and the deposits. But the market dynamics will continue to drive margins there, and we also expect to see ongoing investment in our cost base, in technology and in regulatory compliance, as we continue to grow that business. Macquarie Capital, subject to market conditions, we expect the fee revenue from the transaction activity to be broadly in line with the prior financial year, FY 2023. Investment-related income, we're expecting will be broadly in line with the first half of FY 2024 in the second half, where we expect to see increased income from the private credit loan book, but partially offset by lower revenues in terms of realizations of equity investments. But we're continuing to deploy balance sheet in both debt and equity there.
Then in Commodities and Global Markets, solid contribution continuing from the financial markets and the Asset Finance business. In the commodities business, we had, of course, an exceptionally strong year in FY 2023, partly contributing to the buyback the board has approved. So what we can give in terms of short-term outlook is that we expect the commodities income to be broadly in line with the prior year, FY 2022, and Alex has shown you some data showing how the franchise grows from FY 2022, and that's of course, subject to volatility, which could create market opportunities. I'd note, we're exposed to those across a range of commodities, some energy ones, but also hard commodities, base, precious, et cetera, agri commodities. For compensation ratio and effective tax rate, we expect those to be broadly in line with historical levels.
The factors, which include things like market conditions across global economic conditions, inflation and interest rates, volatility events, and geopolitical events. Also, the completion of period-end reviews and completion of transactions, the geographic composition of income that drives foreign exchange impacts, and potential tax or regulatory uncertainties. Given that, we continue to maintain, even after the announced buyback, a cautious stance with a conservative approach to capital funding and liquidity that should position us well for all environments.
For the medium term, we think we remain well-positioned to deliver superior performance, given, as I mentioned right at the beginning, the diverse range of businesses in which we have deep expertise, being our customer-focused digital bank here in Australia, our global asset manager, our global commodities and financial markets business, and Macquarie Capital's advisory and principal investment business, supported by ongoing investment in our platform, our strong and conservative balance sheet, and our proven risk management framework and culture. And over the last 17 years, you can see on that slide, that's helped us deliver from the annuity businesses a 22% return on equity, 17% from the market facing, and post our surplus capital of 14% net return on equity over the last 17 years.
But in this particular period, for the reasons we've been discussing, the annuity businesses were at 11%, the market facing 13%, and the net return was 8.7%. So with that, I will hand back to Sam to take questions. I'd note we have most of our group heads and Stuart Green, CEO of Macquarie Bank, in the front row here, and I think Ben Way and Michael Silverton, the group heads of Macquarie Asset Management and Macquarie Capital, are available online.
Yeah.
And our Chairman, Glenn Stevens, he is here as well, and lots of hands up, so I will hand over to Sam.
Great. Thanks, everyone. So we'll start with the questions in the room, and then we'll go to, we'll go to the lines. We'll start with, Ed. Ed, any? We have a microphone just to the middle here. Thanks.
Thank you. A couple questions from me. Can you just start on a little bit more why you're so confident in the asset realizations coming through in the second half? There's obviously a big market bid-ask spread at the moment. And then also within that, you talked about the Core Renewable Fund. How much of the realizations are actually gonna go into seeding this new fund? That's the first question, please.
Okay. Yeah, I'll give an overall comment and let Alex speak as well. But, I guess starting with your second point first, 'cause it's related to the first one, I think, in terms of, confidence we have as to why we think in the portfolio of renew, realizations, we think we can achieve what we want. I would first say, in Macquarie Capital, I think, Alex, we're pretty much done in terms of the realizations we're looking to do. So, the fee levels Alex showed you for the last three halves are running pretty consistently, and even on the fee levels, we have good visibility in terms of the book for the second half, subject to market conditions, the realizations as well. There's not a lot to be done. It's principally driven by private credit, and we're pretty much done.
In Macquarie Asset Management, to your second question, we have a lot of green energy assets to realize, and I know the market justifiably would have questions seeing some of the write-offs that have been happening recently. I might take a moment to talk about those, but Alex showed you we have about a AUD 2 billion book. Part of that is being held for the Core Renewable Fund. Part of it that is more mature and has a large gain accrued in it will be realized to third parties, because usually when we're seeding funds, we don't want to have a question afterwards as to whether we sold it at too big a profit. So the more mature assets we will be selling externally.
I think the important point to note is that our portfolio, we feel comfortable, is very different to the situations where these large write-offs have been announced recently. And I'd say the write-offs have all been happening in relation to assets that, unfortunately, were bid in this most recent period, where they agreed to offtakes in sort of 2021, and the prices have gone up a lot in the period since. And we happily don't have assets that are impacted by that, or out of the AUD 2 billion, a very small portion. I think, about—y ou know, a large portion of it, 40% is solar, which is not being impacted, 60% is wind.
Out of the wind assets we have, there's a couple of large ones which basically have already reached operations and are making profits on the offtakes that were agreed, that were agreed well below these problems happening, and so they're already generating good earnings. We have good interest in the asset, and that gives us comfort. Just as examples, and I'm sure this is a question on everyone's mind, so I might spend a little bit of time giving a bit more color on this. But I think we've had a few examples in the U.S. where there have been problems. Ørsted has pulled out of some New York offshore wind projects. BP and Equinor pulled out of a joint one, and Avangrid pulled out. We were just awarded another round of with Attentive, which is a Total JV.
I think, NYSERDA, which is the New York authority that awarded them, has come out and said they awarded $145, in terms of the pricing for the offtake there on average across the three. Ørsted has announced that they had prices of $84 and $94 on the PPAs they'd agreed. They've also said costs have gone up 40% since they bid those. It was the same with the BP Equinor project. We're aware of the PPAs. I don't think it's public—
No.
But I think they're broadly in line with those 2020, 2021 numbers. Same with Avangrid. Avangrid stepped away for about $50 million. Equinor and BP have taken a few hundred million. Ørsted has taken several billion across a lot of projects that were impacted by that. Also in the U.K., we've had, I think it was Vattenfall has walked away from a project, and there's been no bidders in the latest round of bidding. The latest round of bidding we can talk about, and again, we're aware of the Vattenfall price.
Yeah.
I don't know if it's public, but the latest round of bidding was at GBP 44. And when the bidding started, so we have East Anglia ONE as a project, as an example, that price was about GBP 140. Came down to about GBP 120. It's dropped by about 70%. There were rounds done at GBP 37.5. And unfortunately for the people that bid that, the prices went up a lot, and they were caught in this period where now, when you're bidding the new ones, we're aware prices are going up. We're bidding higher prices, but we're also bidding protection for increased prices, and that's what we're doing in our recent bids. So happily, we don't have any that were caught by that unfortunate period.
The other thing I'd note is that, you know, the U.K. have said they want 50 GWs of offshore wind by 2030. They're at 20-something GW. They're going to have to step up the prices, and the alternative wholesale price is volatile, but it's currently sitting in the 80s. The forecasts are for that to go to 90s and 100s. So they can afford to put the bidding up. It's been amazing in the U.K. how they've brought on offshore wind and brought the price down so much, but they can still afford to pay a bit more and bring on offshore wind projects. We're going to continue to be disciplined in whether we bid or not, as will others, I expect. And the same in the U.S., you know, the Biden administration has said they want 30 GWs by 2030.
They're running it at current forecast, at a max of 21 GW, even with the IRA. So I think what this has done is hopefully given a bit of a wake-up call to people that are putting these offtakes in place, that if they're going to get the supply, they're going to need to offer pricing that will attract private capital. And we're in the situation where we haven't actually bid into those. Oh, we've got one very small one, I think, that we haven't put a lot of money into it, and we're assessing whether to go ahead with it or not. The other thing I would note, and probably Alex not leaving a lot of air time for you to add to this—
Right.
But is that our approach is we're expensing all our OpEx, DevEx. We're not capitalising. Alex showed you that we've got a triple-digit million that we're expensing. So we're very disciplined about what we will take onto the balance sheet, and we're provisioning as well if we don't see the opportunity. But I guess apologies for the long, detailed answer, but that hopefully gives you some sense of why we feel comfortable that the things we're looking to exit to third party, we have good reason to believe that these are operating assets with good PPAs, earning money, and we're seeing interest in them. We've already sold a portion of East Anglia. Formosa 2, in Taiwan is another one. And then the ones that are being held for the fund, they're earlier stage.
We're pretty much transferring them at cost, plus a small markup, as we've always done. When we cede funds, we don't look to make huge profit on transferring them to the fund, because the bigger opportunity there is to create the big fiduciary business, and the trust element with our investors is super important. So we want them to have a very happy experience always, but especially with the first fund.
Maybe just, maybe just— I'll just add just a couple of points. I mean, Shem obviously covered it, really well. The two other things I'd say is that we'd obviously not anticipated a significant period of realisation in the first half, which is what's happened. We were expecting a better result in the second half, which is obviously what we're, what we've said in terms of the outlook. You know, often in these processes, it takes a period of time to actually preparing the assets for sale, and often they're obviously multi-multi-month periods, so multi-month processes.
So we're obviously well sort of advanced on some of those processes now, Ed, which I think, you know, as we look through the portfolio, we've obviously got some visibility as to where we think some of those assets might go to third parties and obviously some visibility around the fundraising environment. So I think that, you know, that's giving us the confidence obviously to give a view as to what the full- year outlook might look like. You should— I guess the background a bit, I mean, obviously we've been in the business of developing and selling these assets for a long period of time, so a lot of the people we're actually trading with are people we've traded with in the past.
So I think that also gives us some confidence in terms of what we're going to likely see in the second half. The one thing I would say, obviously, we, as in the outlook, we obviously said subject to market conditions. So to the point that you're making, you know, plainly, we don't want to sell these assets at, at less than their fair value. So we're, you know, we don't, we don't feel like we need to sell them. We feel like they're good quality assets, so we want to get the right result for shareholders in doing that. Market conditions are a bit uncertain. They're not just uncertain because of what you see in the renewables market, they're obviously uncertain in terms of what's going on with interest rates and a whole range of things. So that's why we added the subject to market conditions.
But we've got a fair bit of experience and a fair bit of visibility on what we see. Obviously, you know, at the end of the day, these are complex processes, and they take many months and so, you know, we're working hard, and you know, we'll see how the second half plays out. But I think it's the sort of planning for that process and the fact that we always thought there'd be a second half of the year, which gives us confidence in terms of the outlook.
I would just say one last thing, which is that, this is not the only business we do. So some of the people that have had issues, they have to be bidding all the time 'cause it's their core business. We have a very diversified book and, you know, as our teams know, we're pretty disciplined about whether we're giving capital to one part of the business or not, depending on what's going on, because we have opportunity to invest in other areas.
Just to clarify, from what you said, obviously, you invest the fund.
Can we get the microphone turned on?
Sorry?
Yeah, not getting to you.
Just to clarify what you said, the majority of the gains, it sounds like, is going to third party other than going into the funds that you're seeding.
Maybe I'll just—t here's a combination of both, Ed. I mean, so to the point that Shem was making, obviously, a lot of those assets that are gonna go into the fund, we've obviously, consistent with what we've done elsewhere, we've spent development capital, and we've expensed that through the P&L. So, obviously, we'll see some recovery coming out of that.
But in terms of the ones that have big gains on a carrying value, they're typically going to go to third party. So it's a combination of both.
Thank you, and just—sorry, just one more question. Today, you talked a lot about expenses. Can you just talk a little bit more about the outlook, the continued need to invest, and how we should think about expense growth going forward?
Yeah, sure, and that's probably a question that others are going to ask as well, so I'll cover it again and, you know, if people have further questions. Basically, we've been investing a lot in a range of areas over the last several years. And I'd say since FY 2022, our headcount and our costs have been going up a lot. A chunk of that is revenue-driven, so Macquarie Asset Management bought Waddell & Reed, AMP, et cetera. There was a big revenue-driven investment there. BFS, Greg, a lot of what we're doing is investing in our digital platform. So, revenue driven, a lot of it in technology, because we're trying to upgrade our platform to be more competitive. And then, obviously, regulatory compliance is the third big area we've been investing a lot in.
Alex gave you some detail on that over many years. As a highly regulated global organization, our license to operate and having that available for our franchise to operate areas like CGM, we need to make sure we're front-footed, and frankly, that's all stepping up. We've just invested a lot in net zero reporting. Now, the world is moving to, in addition to measuring and reporting on emissions, looking at biodiversity and nature-based reporting. So all of this is part of license to operate in the world today. We are still very focused on return on investment, and I think over FY 2022 and FY 2023, there was less focus from investors on the cost going up because the revenues were going up so much. We certainly have been focused on it all along.
We're looking at, you know, where it's revenue-driven, are we getting that benefit? Where it's tech-driven, often, you know, there's benefit because not just the revenue we drive, but we'll take costs out through automation, and we've seen some of that happening in BFS recently. The reg spend is spend we have to do to make sure we are, you know, hopefully delighting our regulators ultimately, by delivering what they want. Now, our headcount has gone up from about 17,500 people in FY 2022 to over 20,000 people, and again, some of that is buying the businesses we've bought. There's been a lot of investment in tech, reg, et cetera, that should hopefully start to now see benefit come through.
For example, and I don't know, Greg, if you want to talk about it, but in Business Banking, you're doing a lot of investment now in systems. In the home loans, you've said you've got the front end well covered, but the middle and the back need investment, and this drives greater return. Do you want to speak to that? But I guess the short answer, I'd say we're very focused on what the return on the cost investment is, and we're comfortable that these investments we're making are driving our ability to deliver better revenue, albeit in this period, timing factors have reduced the revenue. We should see ongoing revenue. Which, apologies, Greg, do you want to briefly comment? Because it's a good example of where we're investing OpEx.
Yeah, thanks, Shemara. It's a great example. We have been investing a lot, and you've seen that play out in the home loans business. We've been investing a lot in the home loans business, and you've seen the growth come over years in that space. But we continue to invest. An example in the last year or so has been variable rate reviews, which have been a big factor in the market, and through investment in technology there, our productivity has improved over fourfold, so 400% improvement in productivity, and that has meant we've been able to achieve savings in that space. So we continue to invest, and we would like to see our home loan volume continue to grow over time.
But as you said, in business bank, we've made some significant investments, particularly in the originations capability. That has been pivotal to the success in home loans, and we haven't had a retooling of the origination capability in business banking in, probably 20 years or something like that. And so we've invested in the origination capability. You've seen that start to give some dividends already, and Alex talked about the volume growth in the last six months. But we only have a small proportion of clients yet on that newer technology. Likewise, in business banking, we have clients now on a contemporary internet and mobile banking suite of products, which again, will bring dividends to us in terms of the servicing of those clients. And now we're also investing in our wealth platform, which again, has—
It is an older platform now, 'cause it's been around over 20 years, and we expect to see efficiency dividends come through in the next couple of years there.
With a bit of a timing gap always. So I might just let Alex comment. Nicole's here in the front row as well, who can comment on our investment in the platform if needed. But for now, why don't you just comment briefly, and then I'm sure there'll be other questions—
Yeah, I'll just comment briefly. Not much to add, I think. I mean, obviously, one thing we are seeing, Ed, is we're probably seeing a slowing growth in the headcount. You can see that just if you look period on period, so you're seeing a bit of a slowing growth. And that obviously reflects the big step up we've made in the last three, you know, two or three years that both Shemara and Greg spoke about. So we had a big step up to not only improve the capabilities from a data and digitalization perspective, but also, importantly, to meet the regulatory and compliance obligations that the organization faces, you know, in lots of markets around the world. So that's slowing a little bit.
I think the other thing we've seen probably is some of those regulatory compliance projects, you know, unquestionably strong was a, well, Basel III here was a very, very significant project for the whole industry. Obviously, we've now implemented that, so that's, that's helpful, some of those larger projects coming to a conclusion. I think the other thing we've seen, and we talked a little bit about this before, is that there's clearly some labor constraints over that, particularly over that COVID period, where, you know, in order to get people with the capabilities that we want, we obviously needed to pay significant, significant amounts of money for those people. Some of that pressure's come out in the, in the market, so we're seeing we're sort of slightly benefiting that.
I think the broader point that both Shem and Greg are making is that, you know, we're in terms of digitizing the organization and making the organization data centric, we really think in terms of future-proofing it and enabling the growth of the business going forward, those investments are really, really important to the medium-term success of the organization, so we intend to keep investing.
And Nicole's got a mic, and both HR and COG Tech sit under Nicole. So did you want to just briefly comment at all on people or?
I'll just add a couple of things. I won't certainly won't repeat anything that's been said. There's a huge investment in data platforms, both centrally, also in MAM and CGM. We also are doing a lot of work with CGM, modernizing their risk systems. MacCap, we're doing a lot of work, refreshing their equities platform. And in terms of building a scalable operating model, you know, now we have less than 10% of our platforms in on-premise infrastructure. So, and we're at the stage now where we're starting to decommission legacy data centers, so we've really been investing heavily, and we're starting to see the dividends.
So apologies, everyone, for those long answers, but we might take the follow-up.
We'll start on the side. So Jon?
Jon Mott from Barrenjoey. A couple of questions, if I could. The first one, you talk a lot about the dry powder that you've got. I think it's $35 billion that you've got, within the funds that you're looking to deploy. Yet at the same time, you come out and you've just announced a $2 billion buyback, which would suggest that you don't have the opportunities to invest shareholders' money for principal or other opportunities. Usually, when you're trading at 2x book, the market's wanting you to continue to deploy, to continue to grow.
[inaudible] of other people's money, you're happy to deploy, but you don't think you've got opportunities for the AUD 2 billion of your own money?
Yeah, well, the $35 billion, as a percent of our equity under management, is just growing proportionately. So our equity under management has been growing with that in line as well. We typically have a four-year period to invest the equity in our funds, and we're pretty disciplined about making sure it gets invested. In Macquarie Asset Management, we saw we invested $8 billion just in the last half of finding opportunity and pursuing things as they see opportunity to invest. As far as the balance sheet is concerned, we have ample to support what we're seeing from our businesses. And that, for us, is very important, because we do get lots of opportunities still shown to us, and you'll have seen even over this half, we've continued to deploy capital.
What we're saying is, we have even more than we need to support the ongoing investment, and particularly after the exceptional result we had last year, which raised our capital position quite a lot. Given, looking forward, the earnings we see from the business after the dividend continuing to grow our capital position, we feel we're sitting on a surplus now that's well above what we need to support our teams in driving opportunity, and the responsible thing to do is return that surplus to the shareholders. We have two options if big opportunities come up beyond what we're seeing anyway. One is to slow this down because it's an on-market approach, and we can pivot any time we want. The other, of course, is to come back to our shareholders and ask for capital if we have something particularly compelling.
But our normal rate of investment, Alex—
Yeah?
Please, please feel free to comment.
Yeah.
But we feel we have, you know, the board looks at making sure we have a buffer of capital available for investment to do those one-off things that come up, and even after that, we're sitting with surplus capital. So we think the responsible thing to do is give that back to shareholders, given the—
Maybe I'll just add to that, maybe just to dimension in terms of, you know, what's going on, the thinking, John, obviously, we've got AUD 10.6 billion worth of surplus over reg minimum, so that's the first thing, and obviously not all of that's available to support the growth initiatives of the group, but a good portion of that is available to support those initiatives. The reason we're sitting on such a high surplus, if you went back to 2021, when we raised the capital, you know, from that point on, 2022's earnings were roughly AUD 4.7 billion, and 2023 were obviously AUD 5.2 billion.
You know, we made the point along the way that, you know, that period of time, a few things happened. You had really good conditions for realizing assets, so we saw a really strong realization in MAM. We saw a really strong realization in the green investments portfolio, particularly the back end of 2022 and the first half of 2023. And CGM's business through that whole, really through 18 months to the back end of last calendar 2022, had really strong conducive conditions, particularly in energy markets, and there were a whole range of factors that were contributing to that, but more broadly across CGM, really strong results. So the consequence of that meant that we earned, you know, superior returns in both 2022 and 2023, AUD 4.7 billion and AUD 5.2 billion.
So as we sat down and looked at the capital, now we're saying: Well, that's a lot of additional capital beyond what we expected to earn, given the normal rate of growth of the organization. It felt prudent to us, therefore, to actually announce a buyback. That buyback obviously doesn't take away from the fact that we're still sitting on a significant surplus, even after the buyback, to support the initiatives that might be done across the group. We feel good about that. I mean, the first half absorbed about AUD 1.2 billion worth of capital across the group, excluding the corporate piece.
You know, we feel like there's plenty of opportunity for the team to invest and plenty of capital support that if those opportunities arise.
Can I just follow on from those comments? So you raised equity at the end of 2021, AUD 200, I think it was, and then you've had great profit the last two years.
Yep.
We've now come back down to—w ould you describe this as a more normal year? Obviously, less volatility than the extreme that we saw last year, especially in commodities, and, you know, I think we had a polar vortex year before that.
I think that—
So that was—
Yeah.
You made more money than you anticipated.
Yep.
We're now at a more normal year.
Right.
And from our perspective, you know, giving guidance to the second half, but when we look forward to FY 2025, 2026, it's pretty hard to sort of estimate what you guys are gonna make, and the market's contemplating that at the moment. Is this the more normal year we should be thinking—
I—
To model from? This is a more realistic year after two extraordinary years.
Yeah, I mean, I'll have a go first, I suppose. The way I would think about it is, firstly, the organizer. We think in a medium-term sense, so what we're trying to do is grow medium-term sustainable franchises that have a unique proposition in the market that's attractive to the customer base. So if you think about Greg's world, you know, we've obviously gone from, you know, 1% share in the mortgages to 5% share. We're still 1% of the business bank. We're slowly but surely growing a digitally enabled financial services business that we think is attractive to customers. We're growing deposits. We're growing deposits to continue to grow that franchise. We think there's a long runway in that franchise.
From an asset management viewpoint, you know, we're now at nearly $900 billion of assets under management. That's obviously a record amount of assets under management. That assets under management, we think, you know, and you know, the superior position we have in infrastructure, for the sake of the example, and renewables, these are long-term secular trends that we think, you know, we're well placed to participate in. From a CGM viewpoint, we've talked a lot about the customer franchise, and we've given you those slides that talk about the customer franchise growing in a whole range of different markets. Macquarie Capital, you know, growing the private credit portfolio, growing the equity. So what we try and do from a management viewpoint, we're not trying to forecast the next six months or the next, you know, three months.
What we're trying to do is, we're really trying to say: Are we, is the organization positioned well in structurally advantaged sectors? And we think the answer to that question is yes. I mean, obviously, what we did say, and we, we're very clear about this, John, obviously, last year, we talked about the exceptionality of the conditions. Those conditions were exceptional in 2022. They continued into 2023, and there were a whole range of circumstances which gave rise to that. Energy markets, we talked about. They're also great opportunities for us to realize. That allowed us to outperform what we expected to, to do, but what we're really trying to do in the medium term is grow the franchise. And, and so that's the question that I guess, you know, you all need to have a view on.
Great.
I don't know.
We'll stay on this side, and then I'll come to this side. John?
Thanks. John Storey from UBS. Alex, just following on from what you were saying there in terms of how you're deploying capital into structurally attractive markets, one of them has been private credit. I think it was Blackstone a few weeks ago on their results call, just called out, just changes in their expectations just around loss rates and asset quality. Is, is that something that you're concerned about, particularly in a potential recessionary environment in the U.S.?
Shem, you go ahead.
Okay, I'll go first and we can. Yeah, look, we have about a 20— private credit, we've been investing on the balance sheet, so, you know, green investments, we're just moving to a fiduciary offering private credit we've been doing on the balance sheet. And we have about a $20 billion book. The team that's been investing in that has been with us since before the GFC, and we've been very disciplined in patiently growing that from, I think it was about $7 billion at that time, into more adjacent sectors and regions. And frankly, we have a disciplined approach to the expected credit loss provisioning of that. So about half the first year's margin is provisioned in expected credit loss upfront every year.
We are finding that the loss experience we're having is actually very low, because typically we're going into higher cash flow businesses. They're more resilient ones. That happens to be where our expertise has been, and with sponsors and partners we've known very well. So we certainly have been watching carefully to see whether there's stress coming out in that. At this point, we're not seeing it. If we were, you can be confident we would be taking that in our expected credit loss provisioning, 'cause we're very disciplined about the provisioning. So Blackstone has a much bigger business exposed to way, way, way more markets. We just have AUD 20 billion, very U.K., Europe-focused and some portion in the U.S., but it's channels like insurance broking that we know super well, so.
I mean, maybe just I'll, I'll just add a couple things. The portfolio is about, there's about 160 positions, so it's a pretty diverse portfolio. And, yeah, generally speaking, and this is a long historical, I guess, affinity, there's cashflow, yes, significant cashflow generating businesses typically are the ones where we want to lend money to, so they're generally good cashflow generators, typically good sponsors with a large amount of equity underneath them. So we feel good about the capital structure that we've invested or been part of.
The other thing, and as you know, I mean, from a IFRS viewpoint, the ECL provisioning, sort of, it requires you to have a forward look at what you think is gonna happen, as the economy cycles through whatever your view is of the economy. So, as Shem said, we're holding, you know, about AUD 700 million worth of ECL against that book, and to some extent, that's, you know, a view as to what the impact of the economy will be on those exposures. I mean, inevitably in a book of 160, there's obviously a few situations that, yeah, are gonna underperform our expectations.
But one of the great things from a private credit viewpoint, obviously, is it's got, as we've talked about before, about 4.5% running yield on it. So you actually get quite a bit of running yield coming through, which, which obviously allows you to offset some of those losses. But inevitably, over the course of the cycle, you'll see some of those assets underperform. And in fact, in COVID, for the sake of example, we, you know, we had an exposure to PADI, right? Now, obviously, dive shop wasn't a great place to have an exposure to in the middle of COVID. This, this half, we're able to refinance that, and we're able to write some of that back, which is why the ECL has turned around this—o ne of the reasons the ECL has turned around this half.
So inevitably, we have things that underperform. It's a diverse portfolio, defensive sectors, good sponsors, and generates a good deal of running.
The other thing, Michael Silverton's on the phone. I don't know if he wanted to add comments, but he's just reminded me I should also share that it's 90% first lien, so we're doing a lot of senior secured.
Yeah.
You know, in terms of where we are in the capital stack, we're not covering the spectrum that other private credit managers might do. We're in, you know, the spreads, we're getting a 4.5-5 post- funding costs and transfer pricing. And so it's a more low-risk area of private credit, I think.
Uhm-
So sorry, Michael, did you wanna add anything or?
No, I think you covered it.
Okay, thanks.
Maybe just then the next question is, you've spent obviously a lot of time this morning talking about private assets and impact of rising interest rates, but on your more public side, you know, which we would think is more annuity, you've obviously had outflows there. That business has been quite acquisitive over the last few years. How concerned are you about some of the trends that are emerging within that business?
Yeah, I'll give a brief comment. Might let Ben Way comment as well, because they're all dialed in from around the world. But, in public investments, we've not had flows that are materially different to market. Our performance has been driving inflows. The main area where we've had higher outflows was in relation to the Waddell & Reed acquisition, where, we bought that business in partnership with LPL, where medium term, we've got onto the LPL platforms. They're one of the big, handful of players in the U.S., and that's benefiting our broader business. But it meant that the Waddell & Reed advisors had a broader offering to sell from. So early on, we saw some outflow above what we'd already budgeted. But basically, at the moment, I think that's out of the system, and the business is running like it would.
The bigger thing impacting that business is the value of assets, obviously, really impacts the revenue lines, and we've been in a period where equity markets have come off. So I think that's the bigger factor that's affected earnings. But ultimately, we've now grown to a really good quality franchise there. The thing that's been amazing about these acquisitions is that we have managed to deliver on the integration cost savings that we targeted. So we've been able to bring far more teams across in terms of revenue generation without having to step up the OpEx, and that is driving, hopefully, as the markets recover, much greater earnings out of that public investments business.
It's a very much scale business, where once you've invested—f or example, Delaware getting the investment in all the operational platform, the legal, the compliance, the distribution into the wholesale market, you can add a lot of revenue and volume on without the cost moving a lot. So that's been our experience in public investments. Ben, did you want to elaborate?
Thanks, Shem. I think that was a good answer. I'll just maybe add a couple of additional items. I think, you know, when you look at MAM, the way you need to think about it is as a integrated global asset manager that can provide solutions to our current and future client base, and be able to do that where relative value is shifting between different asset classes. And so I think the public side is a good example of that. It's obviously been much more attractive to be in equities over the last 15 years, where the market has moved up. We've obviously acquired some assets in the last few years, and those assets have been affected by the market and haven't really reinflated yet, but will over time. But we bought those businesses and are running very efficiently.
So I think that's partly how you look at equity. There is, you know, the market has been relatively subdued, and so that is holding down that fee load. From a fixed income point of view, though, the reason why that's up is we've got a growing franchise there, and also clients at the moment are reallocating. So rather than that business go away from them, that business can be reallocated from an equity into a fixed income, and that also obviously opens client opportunities up on the private side, where we can better serve those clients. So, I think, you know, we're looking at a whole range of initiatives, including things like, you know, active ETFs, that allow us to enhance our distribution to be more relevant in the equities and fixed income area.
But we're still—w hile we're at much bigger scale than we were two or three years ago, there's still a lot of room for us to grow in across different strategies, including in fixed income and areas, for example, like leverage, like, like leverage credit. And there's also opportunities for us to move into different geographies. So we continue to see that as an important part of, you know, our investment capabilities, as a solution provider for clients.
Thanks, Ben.
Great, thanks. We'll move the other side. Go to Brian first, and then Andrew.
Brian Johnson, MST.
Yep, Brian.
I had two questions. The first one is kind of related on the cost side. Could we just get a feeling for the declining ROE, what that did over the last three consecutive halves? As vague as you possibly can, but just directionally. How did that flow through into the costs that we actually see? I would have thought last year, when I was not doing anything, the profits were so high, you probably abandoned the methodology a little bit, or you had the ability to kind of wander away from it a bit. Could we just get a feeling how that drove the costs over the last three sequential halves? And then the other one is on the cost, and I do have a question to follow this, is if we have a look at the cost environment that we're in, I'd just be interested.
Your messaging today seems to be that it's a lot about investment, but you're also saying that there's some kind of wage rate pressure. I'd just be intrigued, Alex, when did you have visibility that the costs were a little bit worse than perhaps you'd been thinking previously? Was it something that was bang on, in line with what was budgeted, or is it something that's come through as a bit of a shock? And then I had one more question.
I'll let Shem answer the first one, because I'm not sure I quite understand the question, Brian, so I'll-
Right. Let me— I'll have a go.
You have a go first.
But basically, Brian, Alex put up, I think his first slide would have been around page 24, where he was showing the movement from 1H 2023 to 1H 2024. And you can see that there's about AUD 300 million of that that comes out of OpEx and AUD 700 million out of revenue. So I think the ROE you're talking about of 8.7% in this half is impacted a lot by the timing of revenue in this half. So as I mentioned, revenue-wise, the huge realizations we had in the prior comparable period in that half, it's lumpy in both Macquarie Capital and Green Investments in macquarie asset management, emea gas and power, resources in coal and gas, North American Gas and Power.
Compared to Nick, what has been a particularly subdued half this year, the revenue factors have had much more impact on the bottom line and the ROE. Having said that, yes, the costs are up AUD 300 million, net of the profit share, absorbing a big chunk of, you know, gross costs. Half of that is sucked up in profit share, so only half of it comes to the bottom line. Although our tax rate as well, this half is up for reasons Alex can explain. In terms of you're saying, when did we see the costs coming through? I think we saw it like everyone else, when labor markets were tight, inflation was high, wage growth was happening. We see that. It's part of what we absorb into the investments that we're making.
That's now easing a lot, but we didn't sit through FY 2022 and FY 2023 saying, "We're just going to spend like there's no tomorrow." We remained disciplined on where are we investing, why, what return are we getting on it, and certainly as an executive committee, we focus on that a lot.
Is that, is that the question, Brian?
Well, it's just that with an ROE-driven bonus pool—
Yeah?
There's always going to be a degree of cost mechanism. I suppose what I really want to get a feeling at, if we were to strip out the volatility of that, what would have been like the pre-bonus pool cost growth? Because it looks to me as though in each of the divisions, it's perhaps bonus pool goes through the middle. At the divisions, the cost growth was probably a little bit disappointing. Is that a fair assumption?
Oh, well, yeah, yeah. I mean, so as Shem said, obviously, profit share absorbs some of that. And I can assure you that, you know, the business units, Brian, are very focused on-
Yeah.
What does the cost impact mean to the net profit they're delivering, and what does that therefore mean to their, their profit share? All right, so I think there's a real focus on that. You know, what we have seen over the course of the last—i f you look back at costs, you know, 2021, you probably had just under AUD 9 billion worth of cost. FY 2023, that was, that was about AUD 12 billion worth of cost, right? So there's probably and of that, there's probably like, I don't know, a third of it's probably profit share, something like that, right? And the balance is, the balance is underlying costs. And so, yeah, what we have—
Well, yeah, there's also brokerage payments, legal costs, et cetera.
There's not a lot of that, yeah.
Out of that 3, 1.5 is probably stuff that's not reflecting profit share movements and also external costs—
External costs
That vary with activity levels. So it's probably a AUD 1.5 billion step- up.
So I think of that cost, it partly it's been supporting the growth of the business. You know, so we talked a lot about, you know, in Greg's area, we've seen significant growth on the mortgage side. We've seen, you know, investment made in the business bank. We're seeing investment made in the wealth side. That's obviously supporting the revenue story that's coming through. But equally, you know, there's been significant investment made across the organization in things like regulatory and compliance cost, and they're really, really important. Obviously, we operate in lots of markets around the world, and we need to make sure we're meeting all the obligations associated with that. There's also been other factors like ESG reporting that Shemara mentioned previously. There's financial crime, there's cyber risk.
There's a whole range of things that, you know, the organization is investing in to make sure the platform is appropriate for to support the business going forward. The other thing we've seen, obviously, is as Nick's, you know, in, in CGM, as Nick's business has expanded into Europe, you had Brexit over that period of time. So we now have a European bank, MBE, that's been set up. That obviously is really important in terms of being able to service European clients, but it's a, you know, it's a regulated financial institution in Europe that requires all that support. So there's been significant investment in that. So I don't think there's a—
I think there's a really strong focus on cost from the groups, and I think the groups, you know, all understand exactly what it means when you're spending the money and what it means for the profit share. I don't think there's any doubt about that. At the same time, there's been some external environment issues that have impacted the cost base. COVID being one of them. So what COVID did, obviously, is it restricted the supply of staff at a point where you need to invest in technology and, you know, regulatory and compliance and business growth. So the cost of, you know, wage pressure came through over that period of time.
So there's been some external factors that I think have probably put additional pressure on the cost base that we've seen over the last few years. The point I was making before is that some of those issues have started to moderate a little bit, where you know some of the regulatory change has actually been implemented, so that's really positive. And that obviously takes a bit of pressure off the cost, and some of the wage pressure has come out, obviously, as the economy has slowed down a little bit. So you know as we look going forward, I think we continue to be really disciplined about it. Some of the key drivers we think are dissipating a little bit.
But the more important point, I think, is that when we think about the organization, you know, it's got to be data enabled, it's got to be digital in order to service customers all over the world, and that's really the medium-term story we're trying to work—
And I think, Brian, if you go back and look at our presentations, Alex shares the cost change every—l ike last year, BFS, it was a AUD 250 million cost step- up. He had that in his slide. So we're focusing on this all the time.
We'll be reporting it to you every period we report. In his walk across bar charts, we watch it in every business.
Just a second question, if I could push my luck, because I've got years of questions to catch up on.
Please.
Just, if we have a look at it, Macquarie's accounting, no doubt about it, way more conservative than the peers, which means you've probably got far less impairment charge risk than, say, we would have seen during the GFC for Macquarie. But that said, I just wonder, the bond rates, even though they're a lot lower than they were two days ago, they're a lot higher than they were six months ago, a hell of a lot higher than they were two years ago. We've also got a lot of concerns kind of percolating out there about unlisted assets kind of sitting on entities' balance sheets where the valuations are still a little bit wrong. What I'd be intrigued about is that when you buy the asset, inflation protected, which sounds great, you term out the debt funding when you buy it.
Is there a problem for the new buyers, though? What does the stress that we're seeing on these kind of asset valuations, what is that actually doing to the demand or the capacity for the counterparties to actually buy the assets from Macquarie?
Yeah. I'm happy to go—
And then if you could wrap that into what you think happens next year, as far as the realizations go, which is the question, that would be really useful.
Yeah. Well, we, we don't buy the index. As you know, we're invested in a few core areas where we have deep, deep, deep expertise. So, for example, our asset manager is very focused in the infrastructure sector. Last time we had rates rising, we put together some really good analytics for Macquarie shareholders on how inflation-resilient infrastructure was as an asset class. So the revenues are moving in line with the increase in these base rates. We match the funding to the revenue profile of the asset. So some we might term out for a very long time. If it's a U.K.-regulated asset, where every five years, rates are reset, we will match our funding to that because we don't want to get caught with funding costs that are different to where the regulator will reset the rate.
But typically, the revenue line, compared to other asset classes, is responding much more to underlying inflation, and because the profit margins are so high, the profits tend to grow faster than discount rates come off, with the increase in rates. That's infrastructure. We talked at length about green energy and what we've been doing there and what the big drivers are. Yes, underlying interest rate environment affects the cost environment, but we're being very disciplined about making sure when we bid an offtake, we either have a massive spread there or we bid it in a way that we can pass on costs now, and we just mentioned that the world is probably going to move to something more like that. When we do venture capital investment in MCVC and MacCap, really, underlying rates are not a huge thing.
You're putting in tens of millions of dollars of checks, taking out hundreds of millions. It's all about delivering a tech solution, so it's not a big player there. Similarly, in our MCGT investment franchise in the Macquarie Capital world, what we're doing is software and services, investments, et cetera, for governments, where the growth is very, very strong and the driver of our gain as an investment is really not hugely impacted by what the underlying rate environment is doing. The rate environment, Glenn and I were discussing this this morning, you know, it's gone to a sort of 4%-5% rate. When we started our careers, they were like 15%. So yes, it's gone up a single-digit number of %, likely to sit there for some time now, and so we will operate in a more 4%-5% world.
The implications of that are not just on the cost side, they're on the revenue side as well, as well as the discount rates, as you mentioned. So we're pretty disciplined about thinking about every vertical where we have deep expertise and invest, what are the implications for that, and should we be paring back? Should we be pivoting the way we invest, or should we be doubling down? So if you want to add—
Maybe just, I'll just add just a couple of things. I mean, obviously, transaction flow, not just for us, but across the sector more generally, Brian, is down, and that's partly a function, I think, sort of uncertainty as to the outlook. So you think about sort of economic uncertainty, that you know is out there. So that's one thing. Second thing is, given the transaction activity is relatively lower, I guess we probably haven't seen the full effect of, you know, what does the interest rate changes mean from an availability of debt perspective? What does it mean to the values? But you have to imagine that, you know, given that we've talked about the gap between buyers and sellers, part of that gap, I think, is how much, you know, credit you can get to enable your bid for an asset.
I suspect inevitably for transactions to start flowing again, you'll need, you know, sellers will need to come down a bit, and buyers will need to go up a bit to, to make a market. But I think that's still playing out. What I would say to you is that, two things that are really interesting for me: one, there's a lot of capital out there. A lot, a lot of capital needs to get invested, you know, whether it be in private equity hands or whether it be in private credit funds, and so it's pretty interesting. You know, we thought, for instance, you know, we slowed the growth of the private credit book. We did that because we thought there'd be expanding margins.
We haven't lost margin, but we really haven't seen an expansion in margin because there's a lot of capital out there looking to get deployed. So it'll be interesting to see how that plays its way out. And then to the point that Shem is making, it's not, obviously not, and I know you're not asking the simple question. It's obviously not just a function of the availability of debt. The real question for buyers is, how does the asset perform in the economy that they're going to hold it in over the next three or four years? So what happens to the top line? What happens to cost? Then, obviously, you know, financing is part of it. So I think there's still a way to go in terms of, you know, how impactful those, how those interest rate movements are.
You know, to the other point that I guess Shem's making, a lot of the assets we've got on the balance sheet, you know, are defensive assets, or they're assets that have some capacity to respond to a different inflation or interest rate environment in their concession agreement. So they feel like they're good places, generally speaking, good places to invest. You know, on the point about, you know, the conservative accounting, we obviously just follow the rules, as you know, Brian. But, you know, what we haven't done is, as the cost of capital went down, we didn't mark up assets, and so as the cost of capital comes down, we're not expecting to have to mark those assets down.
Inevitably, we'll have, you know, one or two situations where we'll need to impair an asset. But generally speaking, two things: we think the expected credit loss, you know, interpretation of IFRS 9 here in Australia allows. It requires you to take a forward look. We've obviously had overlay provisions in our expected credit losses for many years now, so that's partly us anticipating, you know, the point that you're making. And generally speaking, obviously, we don't mark to market. We basically hold these things at cost. And indeed, in the case of renewables, obviously, we've expensed a lot of development and OpEx, which, you know, means that you effectively feel like we've created these assets and the embedded value.
So we'll go to Andrew in the middle here. Just, g reat, t hanks.
Thank you. It's Andrew Triggs from JP Morgan. First question, please, Alex, I think your comments implied a decent improvement in commodities environment in the second quarter. Perhaps ask you to elaborate on that point and to what extent had that been driven by volatility from recent geopolitical events?
Just if you could weave into your comments, obviously, the second half is very important in the energy business, so, you know, tightness or otherwise of the gas markets in the U.S. would be helpful, too.
Yep. Do you want to go, or you obviously— I mean, I'm happy to answer, but—
Well, I think we could let Nick speak as well—
Yep.
But why don't you answer first, and then let Nick-
Let me just make sure to make the point I was talking about before. I guess, so what we did see in the first quarter, particularly a more subdued trading North American Gas and Power, and so, you know, when we updated our outlook at the AGM, obviously one of the comments we made then was that, you know, for the first quarter, gas and power in North America had been more subdued than we were expecting on the trading side. What we did see through the first half, I think, is reasonably solid client activity across most of the commodities complex.
You know, we didn't see, as you know, from the results, we didn't see as good, as significant a contribution from the mega gas and power or resources, but that was more a function of just how strong the first half of last year was. As we went through the half, I think, a few things have happened. I mean, as that client activity continues to bubble along, which, you know, we're really pleased about, and we've obviously seen, you know, some more conducive trading conditions, you know, both in North America, but also more generally around the world.
That's really just reflecting, I think, you know, a level of uncertainty, whether it be the economic uncertainty, whether it be the interest rate environment, you know, whether it be the FX implications, or as you're talking about, whether it be the energy side. So I think we saw a better second quarter of our first half. But again, I think put it in context against the point we made at the AGM was a weak first quarter. So I'm happy to talk about outlook, but, Nick, do you want to add to that?
I, I was just going to preface what Nick said, saying you talked about energy, but as I mentioned, CGM is exposed to so many other commodity and financial markets. So at the moment, you know, foreign exchange has calmed down a bit, rates have had more volatility, but, Alex and I mentioned, you know, areas like gold, coal, all of those. So with that, Nick, might let you talk about-
Thank you. Yeah, as you mentioned, from a commodity markets perspective, we did see a significant reduction in the amount of volatility versus the prior corresponding period. However, I think the story is around the underlying growth in the franchise. If you wanna take a look at the performance of—let's just concentrate on the commodities business for a moment, versus, say, FY 2022, what you'll see is actually the quality of that franchise coming through. Even though the underlying volatility in the markets was lower, we still see—we still were able to see growth in that business.
And again, to a couple of things that you've already mentioned, Shemara, it was substantially lower than the previous period, but it was also lower than we might have expected. We have seen some volatility return to the market more recently. I wouldn't necessarily say that is completely as a result of most recent geopolitical results, but perhaps a result of some underlying change in dynamics as it related to supply and demand. As we look forward into the second half, it's very hard for us to forecast what a market might do, one way or the other.
However, I think that some of the longer-term constraints that exist in some of the commodities markets that we operate in are still there. So from that perspective, we remain ready to respond to the conditions and to respond to what our clients require for us to help them to manage those markets as they play out over time.
Thanks, Nick.
Thank you. Just a second question, relates to the guidance from Macquarie Asset Management around net other operating income. Just interested in to the extent to which that guidance relies upon lumpy performance fees. Obviously, AirTrunk's been in the press as being a viable transaction for you. So, you know, for example, with AirTrunk, would that realize a performance fee in the MAM fund that it sits in?
I mean, obviously, we do expect some performance fees in the second half of the year, but look, the way I would think about performance, I don't think there's anything particularly special about the second half of the year, Andrew, is my point. I mean, we still think the right way to think about performance fees is, you know, 50 basis points of equity under management. I mean, obviously, it's a pretty big portfolio now, pretty diverse portfolio. So where those performance fees are coming from will vary from period to period. But I think just, you know, given the increasing diversity of the business, you know, that 50 basis points of equity under management still feels like, you know, a sensible place to be.
Well, obviously, it may be slightly different, slightly above, slightly below one period after the next, but that feels, you know, through time, a sensible place to go.
It's been running at 35 basis points-40 basis points more recently. I'm understanding that was probably the more realistic level for the medium term.
No, I don't. Well, I think, I mean, it was. And, and if you went back a few years before that, it was probably running at 70 basis points or 80 basis points. So, you know, it won't be 50 basis points every period, period on period. But, you know, I think as you start to think about the, you know, the increasing diversity of the business, you know, I think the regularity of those performance fees, I guess, is getting further reinforced, right? I mean, the last couple of periods have been slightly lower than 50 basis points. The period before that was slightly higher than 50 basis points.
But I still think we're very comfortable, and we talked about this in the operational briefing, that the 50 basis points feels like the right indication to give to give shareholders or to give stakeholders, but recognizing there'll be some variability from one period to the next. I mean, I won't speak specifically about AirTrunk, but more generally, what we talked about before, you know, the team have been really active on the digital side. You know, plainly, one of the areas that you know, I think there's been there's been real value accretion, and we're really happy with the performance, you know, not just for AirTrunk, but more generally, is the focus of activity across fiber networks, across data center networks.
You know, all of those assets have obviously been, you know, real beneficiaries of the sort of environment we've found ourselves in the last couple of years. So, you know, we're really pleased with how the portfolio is positioned, but anyway, sure.
Yeah. No, good.
Right, we'll just go to the back. So we'll start with Andrei, and then we'll go to Brendan. Thanks.
Good morning, Andrei Stadnik here from Morgan Stanley. My first question, can I ask around MAM and the private market side? So I think the fundraisings were a little bit slower in this half at about 8 [inaudible] been in the news, you know, looking to raise over $10 billion for a range of infra and renewable funds. So how are you thinking about the fundraising environment, and how differentiated do you think infra and green energy will be versus some of the challenges more vanilla, you know, state or private equity?
Right. Yeah, well, you've probably all seen, Andrei, and everyone, I guess, that the raising level in private markets has been down, and that's because we're in an environment where the public markets have come off. So people are having this denominator effect of being overweight, private, and not allocating. They're not getting as much cash back from realizations because the transaction activity is slower in private markets while people wait for visibility on pricing. So the overall raising has reduced, but within that, people are allocating more to the managers they know and trust and have dealt with for ages. So I mentioned in the prior comparable period, we had our seventh European fund open. We managed to close that at record level. We had our third Asian fund. We managed to close that at record level. We have our, sixth U.S. fund open at the moment.
Under U.S. laws, we cannot comment while we're raising, but, you know, we'll be able to announce that hopefully when we give you results for the next half. We also just had an Energy Transition Fund, which is the first fund to go out and raise, and raised nearly $2 billion. That's a more venture capital style fund, so it will be smaller scale. Again, good raising there compared to what we'd hoped to raise. And we're out raising our Core Renewable Fund now. It's not a first time fund because we had two predecessors, and part of the reason we haven't been able to go out sooner is we needed the predecessor fund to reach its required investment level before we could take the new fund out.
Hence, the reason why into the second half, we'll be doing the first closes of that, hopefully. Can't comment because we're out raising. Hopefully, in the second half, we can tell you about the interest we're seeing, et cetera. I would just say, you know, we have a really good group of global investors that now come with us into other areas, and that's why we've been doing record raisings for our funds. Even in this environment, we have a very good track record in green, in the asset manager, but 20 years on the balance sheet.
So we would hope you've seen others raise multi, multi-billion-dollar green energy funds. Macquarie hopefully should be there with them, but, A, we're not allowed to comment legally. B, our practice is not to comment on things till we've got them done. So we'll hopefully share with you down the track.
Thanks so much. My second question, just a strategic question around data or data. So you mentioned you're investing, and some of your big alternative asset management peers also investing, you know, so, you know, try to marshal, organize their data. So what kind of—y ou know, given the breadth of your underlying investments and operating assets, you know, what kind of advantage and over what timeframe, Nick, can you expect to derive from actually, you know, looking through better into the data coming from your businesses?
Yeah, well, I mean, it's basically going to be a structural change that's going to play out for a very, very long time from here, I think, and it's impacting our business in a whole lot of areas. Macquarie Capital is principally investing in earlier stage in digital technology. Macquarie Asset Management is a very big player in this, and we have data centers in every region of the world. I mean, reference was made to AirTrunk, but we've got the Aligned portfolio in the Americas. We've got the, which is bigger. We've got the VIRTUS portfolio in Europe. We also have done data centers in Macquarie Capital in Europe.
But it's not just data centers, it's fiber optic networks, it's towers, et cetera, that we've been investing in for a while, but it's- a growth area in infrastructure. So I think that thematic will affect many parts of our business over the next while, and then, you know, centrally as well, we're capitalizing on the opportunities there. Anything you want to add, Alex?
Oh, no, I was just— I wondered whether Ben wanted to comment. The only other thing I was going to say is—
Please.
When we think about data, I mean, obviously, and Nicole made this point, I think at a in response to a question at the AGM. When we think about data, and I suspect, you know, Ben can comment in a second, but it'll be the same across his portfolio. The sort of nearer term uses are probably productivity enhancing type opportunities across the group, whether it be, you know, people doing jobs, but you know, manual process removed or better insights or faster insights or, you know, some of the repetitive tasks actually being, you know, improved through the use of digital capabilities and better access to data. I suspect that, and that probably applies, I would imagine, through the MAM portfolio as well.
Into the longer term, oh, Andrei, without trying to put a timeframe on it, there'll be, as you start to think about, you're getting, you know, high integrity data, you know, available all the time in the, in the hands of the right, you know, people, whether they be in the MAM assets or whether they be in, you know, the group's activities. The capacity to, to stitch all that together and to draw insights out, to deliver a better service to, to customers, I think we're pretty excited about the—
Yeah, and—
T he revenue potential there, but I suspect that's longer term. But Nicole or, or Ben—
No, I was going to say, apologies, I misread your question. You were saying how can data—
Yeah.
Data disrupt? But yeah, it's like, climate change, you know, it's one of the big structural changes happening in the world, and we are trying to align all our businesses to benefit from it. So if we're talking on that scale, BFS, CGM, our central world.
So what, Ben, I don't know whether you're still there. Do you want to add anything just from, you know, the MAM portfolios? I think Andrei was interested in that. Anyways.
Yeah, I'd say two things. Thanks, Alex. The first one is in terms of just the digitalization of the world and the disruptions it's creating, the beneficiary of that is obviously digital infrastructure. As you know, we just see a massive demand from particularly the wholesale clients, so you know, the best credit quality companies in the world who traditionally are building and bringing online just-in-time capacity. And really now what they've done is realized that there's been a huge growth in their need for capacity, driven by things like AI and just ongoing digitalization. And so they're now going to much more proactive arrangements with long-term inflation-linked contracts, where you know, any sort of megawatt of capacity is hotly contested.
And so to have big franchises, like Shemara said, in that particular world, is very advantageous because you just can't build the capacity as quickly, and you've also got great partners to do that with. So those businesses continue to benefit from the tailwinds. If anything, the tailwinds have taken off. And I think at the same time, you know, having a portfolio set of companies of 175, you know, servicing hundreds of millions of people around the world with thousands of employees, obviously, the amount of data that they're generating and the insights that they can be used in terms of modernizing and fast-tracking their performance is huge.
And if you just think about, you know, some of our more traditional assets, things like ports, you know, there's a huge opportunity to get an uplift in the underlying performance of that business by using things like automation and electrification, which allows us to increase the throughput, but also to be able to better service clients because we understand the flows better and can make sure that, you know, we service both the shipping companies, but also the transport companies in a much more efficient way. And therefore, you're able to not only charge more for that, but build better partnerships with those sorts of companies. And a lot of that is data-driven and has an underlying digitalization.
So I think, you know, what's incumbent on us is making sure that we've got the right leaders with the right experience in place to help us not just transform our portfolios, but also take advantage of those opportunities in the marketplace. And that's certainly occurring.
Yeah.
Great. Thanks, Ben. So we'll just go to Brendan, then we'll go to Matt, then we'll go to the line. Thank you.
Good morning, it's Brendan Sproules from Citi. I've just got a couple of questions. Firstly, on your tax rate.
Do you have the microphone turned up?
Alex, the first—
Can you speak up a bit?
Your mic's—
No, it's just the mic. It's better now.
You can hear me better now?
Yep.
Yeah, that's better.
Thank you. The first question on the tax rate, it was very high—
Yeah
In this half, but you've sort of guided in your short-term guides to more in line with historical levels. Are we to imply here that the, the shift in the mix of revenue is going to lead to a, a really below average tax rate in the second half?
The yeah, so the first half tax rate up at 29.3% was, you saw the step up in, I mean, just the Australian component of income for the sake of the example. Obviously, you know, the geographic composition of income is driving the average tax rate. The other thing is the nature of income coming through. So some non-deductible expenditure hybrids, for the sake of example, create a permanent difference there, which is coming through the effective tax rate. Yeah, the point of the change in guidance on the tax rates, we would expect, I think, that the overall tax rate will be slightly higher than what you're seeing in historical periods.
And that's just what we expect, what we're seeing in terms of both the geographic composition of income and the nature of some of the activities. So obviously, there's different tax treatments for disposal gains versus income, for the sake of example, and all of that's obviously affecting the overall tax rate. So I guess it's obviously still consistent with historical ranges. But we saw a little bit more in the front half, and we'd expect the tax rate overall to be slightly higher for the year than we've seen in recent historical periods.
Just a second question on the amount of capital that you're putting into each of the business units. Now, notwithstanding the impact of currency, yeah, I think it was about AUD 1.7 billion. How representative is that going to be of the need to put capital into these businesses going forward?
Shem, do you want to?
Okay, I'll comment briefly and elaborate.
Yeah, sure.
But BFS, you've seen, is on a sort of run rate because we're growing our mortgage books and our business banking books at a certain rate, subject to competition in the market and being disciplined about credit. MAM is constantly using some capital for seed investments and co-investment in new strategies, and we'll continue to do that. Same with MacCap. There are four verticals that they invest in, and they're constantly drawing capital, including the private credit book, where we grew AUD 1.5 billion. Having said that, the Green Investment Group should release a lot of capital as it transitions to a fiduciary model, but I'm sure MAM will find other areas that they'd like seed capital in.
Then in CGM, it varies a lot because it's mostly credit capital, as we've shown, that it absorbs some capital in, and that depends on activity levels with clients and where we're needing to step up. So, and then centrally, you know, it depends on regulatory developments. But I think that run rate that we've had in this, half is not unrepresentative because BFS, MAM, and MacCap would be running at this rate, and CGM will move with market.
Yeah. No, I think that's the right summary. CGM, I mean, one of the great things about the CGM, from a capital viewpoint, it's actually quite short-term capital. So it sort of recycles quickly, and it can respond to market conditions. So as a combination with, you know, the other parts of the organization, which are slightly longer-term capital, it's actually a nice, nice diversity story there. So, so in next business, you'll see, obviously, if market conditions are more conducive, I suspect you'll see a step-up in both activity levels and in capital, because most of the capital there is credit capital. So you see that step up.
You know, from a BFS perspective, we're seeing consistent growth, and obviously, our forecast is talking about growth in, across the, the loan activities. It's good to see the step up in the business bank. Obviously, we, you know, we think that from a, from a margin viewpoint, it's attractive, and we like the, the, the offering we've got in the market.
So we think there's runway to grow there, as there is in the mortgages. As Shem mentioned, MAM's a bit more, little bit more lumpy in terms of, you know, seeding assets or putting assets on the balance sheet that might ultimately make its way into another fund. And then from Macquarie Capital's viewpoint, I mean, obviously, we've now got the credit book at about AUD 20 billion. We, you know, we've got appetite to continue to grow that credit book beyond that AUD 20 billion. It's been a relatively quieter time, probably for the last 18 months, in terms of equity investing. As I was saying to an earlier question, we divested a bunch of assets at the back end of calendar 2022, which was a good time to do it, and then the front end of 2023.
It's been a relatively quieter time to invest, but the team is starting to see good opportunities to invest. Now, I guess the way we think about it is, you know, there's organic generation that's coming from the group. You've got a dividend payout ratio of 50%-70%. You know, we obviously feel good in terms of we've done a buyback because we feel like there's surplus based on the excess earnings. But we feel like the group with that profile of net retained capital can support the growth that we'd expect coming through the groups, you know, on average over time.
Right. So we've just got Matt on the front, on the second front row. Thank you.
Thanks very much. It's Matt Dunger from Bank of America. I just wondering if I could ask on the impairment charges and the reversals in the period. Are you able to unpack some of those, where they came out of Macquarie Asset Management and MacCap and also whether there's more to play out here?
Yep. Yeah, no problem at all. Thanks for the question, Matt. So from a MAM viewpoint, it's a relatively simple story. It's obviously not a credit story. It's typically equity impairments, and there were just a handful where we were able to reverse a provision that we'd taken a couple of years ago. One was in relation to an offshore wind farm that we had up in Asia. In fact, it was a—y ou know, I made the comment at the time that we were having supply chain challenges, that asset's now been completed and is operating, as Shem mentioned before. So we're able to reverse some of the impairment coming through there.
And then we, we'd taken an impairment a few years ago in relation to our stake in, in Macquarie Air Finance, just when, when that air finance business was, obviously, the airline industry, more generally, was having a more subdued period. So we, we wrote back that in the, in the first half. I mean, generally speaking, MAM's not sitting on significant, other impairments, Matt, so you know, I wouldn't expect you wouldn't expect a sort of, you know, a sort of either an ongoing or, or a regular recurrence of those, of those write backs. BFS is, I think, a relatively straightforward story. As we grow the books, we're obviously just accruing, you know, Stage 1 E CL against, against the, the BFS business.
There were a couple of exposures in the business bank that had underperformed their expectations that we took some Stage 3 provisions on. From a Macquarie Capital viewpoint, there were, again, as is often the case, just a couple of things that happened during the half. So there was a credit impairment that I mentioned earlier that we were able to refinance, so we're able to recreate that back to face value. And there was a small equity investment that we're able to recreate just based on the performance of the underlying asset.
And we had a little bit of ECL coming through from the growth of the private credit book, but obviously the ECL was slightly smaller than we saw in the first half of 2023 because of the growth, the growth of the book was slightly smaller. And then finally, from a CGM viewpoint, we had an overlay last period of time. You recall the volatility in energy markets, so we had an overlay that I guess was anticipating some underperformance from a couple of credit exposures in the energy markets. That didn't eventuate, so we're able to release that overlay. And then in this half, we had a couple of positions in the U.S. that under—
That, you know, we don't think we'll be able to recover our face value, and so we impaired those, so. But, you know, I guess it's a story probably more generally, you know, we feel like the equity book across the organization is obviously basically held at cost, and so, in reasonably good shape. And obviously from a credit perspective, we're not really seeing anywhere at this point any deterioration in credit performance. And we're obviously holding quite a big ECL, which is, I guess, you know, the ECL is trying to anticipate what the impact of the future environment will be on our credit books. We've got that on a model basis, and we're still holding about AUD 340 million in overlay provisions as well across the group.
Hopefully, this helps you.
Thank you. Great.
Thanks, Matt. So we'll just go to the line. I think we've got one question on the line.
You have a question from Matthew Wilson with Jefferies. Please go ahead.
Team, can you hear me okay?
We can. Thanks, Matt.
Oh, that's good. I didn't realize being in Melbourne was such a disadvantage, but that's apparent. A quick question on green assets. It seems very clear that margins in this space, you know, to build and develop the green assets are very thin, given some of the reasons that you also articulated in your presentation, and hence it's much better to manage an operating asset. But the reality is, the world wants more green assets, and it wants less inflation. So what needs to be done to make sure capital finds its way into that space and generates an appropriate risk-adjusted return?
Yeah, and thanks for the question. Thanks for waiting so patiently. Basically, what needs to happen is that the PPA prices need to go up. I think, as I said, in relation to the very first question, the costs have gone up. If we're going to attract private capital to this sector, they have to be able to make a decent return. And I think what's playing out at the moment, which we, you know, fortunately, through, well, good luck or good management, we've managed not to be a big player in this.
But what it is showing is that if governments and communities want renewable energy, they're going to have to step up and pay for it, and they can afford to, when we talked about where the alternative energy costs are, if they want to attract private capital to the sector, and that's not just by the developers, but it's all the OEMs, the operators, the construction companies, et cetera. So I think, I think that will actually play out. We told you, you know, the U.K. latest round of bids that failed were at GBP 44 a MWh . The wholesale energy is at GBP 80 a MWh . They've got scope to step up. They've happily come down from bidding GBP 140, or when we did East Anglia, it was GBP 120.
We're just going to have to be disciplined now as we bid, and as we said, not just in getting the PPA up front, but making sure the terms of the contract allow us to pass through cost increase. But accept that it is difficult for governments in the bids they've already done to go and renegotiate price because that creates a very bad precedent for them. So it's an unfortunate environment playing out, but hopefully it will result in people responding to draw the investment needed. So I think that was our—
Yes.
Oh, sorry. Did you have another question, Matthew? Sorry about that.
No, that's. They've all been done. That's great. Thank you.
Good on you. Thank you. And I was just going to say, thanks also to the group heads for answering. We've got Andrew Cassidy, our Chief Risk Officer, and Evie, our Head of Legal and Governance, and Stuart Green, our CEO of Macquarie Bank, who are also with us that didn't comment. But thanks to everyone, and thank you all for—
Thanks, everyone—
The questions.
F or staying with us, and, we'll look forward to catching up over the next couple of weeks. Thank you.
Thanks.