Macquarie's river of money

Earlier this year Macquarie Group's Nicholas Moore articulated his strategy for the group. It would, he said, grow its global market shares across its business units as competitors shrank or exited the market and nominated funds management as one business earmarked for expansion.

The agreement to buy the Philadelphia-based Delaware Investments for $516 million is a major expression of that strategy and one that gives Macquarie's global ambitions for its funds management business a very big kick-along.

Delaware Investments, one of the oldest funds managers in the US, with roots that go back, ironically, to 1929, is the funds management arm of a US insurer, Lincoln Financial Group. Lincoln meets the description of Macquarie's version of opportunity meeting planning.

Late last month Lincoln announced it had lost $US161 million in the June quarter. It has just completed $US2.1 billion of capital raisings including, revealingly, a $US950 million injection from the US Government. Its problems provided Macquarie's opportunity.

Macquarie has made no secret of its ambitions to grow what has been a reasonable sized (but not large in the global context) funds management business from its base of about $80 billion of funds under management. The existing business is also predominantly an Australian business. It has been rumoured to have been in talks with a range of stressed vendors and potential vendors.

Delaware Investments is a conventional funds manager with $US126.7 billion of retail and institutional funds under management and a particular expertise in fixed interest. Putting the two businesses together would give Macquarie – which has $US190 billion of assets under management if its Macquarie Capital funds are included – assets under management of more than $US300 billion ($A360 billion).

About 20 per cent of Delaware's funds under management are on behalf of the Lincoln insurance business, which it will continue to manage.

The deal will roughly double the number of employees within its asset management group, adding 580 new employees to the 600 or so within the Macquarie business.

The combination of its own US asset management business (about 20 per cent of its overall portfolio) and Delaware's will give it a beachhead of scale in the US and a network through which it can distribute its broader product range. It also now has a US base that it will be able to build on via organic growth and smaller acquisitions.

For a funds manager with global ambitions, it was imperative that it develop or acquire a substantial presence and capabilities in the US, the largest of the capital markets.

Macquarie has been steadily adopting a counter-cyclical approach to expansion, acquiring energy trading and advisory businesses in North America and poaching a string of senior investment bankers from its former Wall Street rivals.

Most of Macquarie's big moves in the past – the 1999 acquisition of BT Australia from Deutsche Bank and the ING Asian businesses in 2004 – have come at the tail-end of financial shocks. The Delaware Investments deal fits that pattern, although it is a considerably larger deal than the bolt-ons Macquarie has generally pursued.

Macquarie raised $1.2 billion of new capital in June, despite already having a buffer of more than $3 billion over its regulatory capital requirements, presumably to position itself precisely for the type of expansion it has now announced. Moore has also nominated global broking, global capital markets and the globalisation of its advisory businesses as ambitions.

With equity markets, and Macquarie's own share price, rebounding, but plenty of wounded institutions looking to raise cash and capital remaining, the Delaware Investments acquisition may not be the last Moore announces in this part of the cycle as he tries to establish the foundations of the latest version of the 'Macquarie Model'.