Privatised, but Macquarie sticks to all the old ways

The move to privatise MCAG after its disappointing performance as a listed private equity fund reveals several features that are standard within investments managed by Macquarie Group: Complexity. Despite investors abandoning complex financial structures in droves, the buyout of existing unit holders in MCAG by Macquarie Group and several private equity funds exposes a tangled web.

There are more than 11 different Macquarie-somethings involved in the takeover.

The document is full of phrases such as "the bidder will acquire the shares in MCAL in its own capacity, the units in MCAT as nominee for MAIT and the shares in MCAIL as nominee for MAIIL".

As per "usual", for taxation and other reasons that are never made entirely clear, part of the complexity is because the new private equity fund known as MAIG, or Macquarie Advanced Investment Group, will be yet another triple-stapled structure.

The entity includes two Bermuda mutual fund companies and an Australian registered investment scheme.

The scheme booklet warns the new unlisted status means shareholder protections in takeovers available under Australian law are no longer available, because it will be subject to laws in Bermuda where there is no public takeover code. Fees. A great beauty of the privatisation is there are fees for Macquarie Group along every step of the path. Macquarie Capital will receive base and performance fees as a manager. Macquarie Capital is also the "preferred financial adviser" of MAIG, which includes payment for advice on the many acquisitions and disposals that are the lifeblood of a private equity fund. Macquarie may also earn fees on providing financial services such as foreign exchange, hedging or swaps to MAIG.

Another beauty of the privatisation is that it sets a lower base for Macquarie to earn performance fees. On the present listed model, the share price would need to be above $4.70 for the manager to earn performance fees. On the new unlisted model, the benchmark for performance fees will gain a new lower base on the buyout price of $3.40 a share. Cast-iron management agreements. Even if the investors managed to dislodge Macquarie Group as a manager, they would still need to pay Macquarie Group as a manager.

Come again? Exactly what the above sentence says. In rather coy terms, the booklet points out that this form of ironclad management agreement "could operate as a commercial disincentive" to removing the manager.

For Macquarie, this is a fee stream in perpetuity. For investors, their fate is locked to Macquarie.

The offer by Macquarie Group and its private equity partners has been judged fair and reasonable. It goes to the vote on August 20.

There is even an opportunity for investors to participate in the unlisted MAIG, if more than 5 per cent of shareholders so choose.