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Joint Standing Committee on Foreign Affairs, Defence and Trade
06/07/2017
Australia’s trade and investment relationship with the United Kingdom

FASS, Mr David, Regional Chief Executive Officer for Macquarie Group's Businesses in Europe, the Middle East and Africa

Evidence was taken via teleconference—

CHAIR: Welcome.

Mr Fass : Good morning.

CHAIR: Good morning. We might run you through who is with us today, bearing in mind that this is a public hearing; it is being broadcast on the worldwide web. I am Bridget McKenzie, National Party senator from the great state of Victoria and chair of the committee.

Mr PERRETT: I am Graham Perrett, a Labor MP and the Deputy Chair. I am from Brisbane.

Dr McVEIGH: John McVeigh here, the federal member for Groom, based in Toowoomba in Queensland.

Mr LITTLEPROUD: And you have David Littleproud, the federal member for Maranoa, which is western Queensland.

CHAIR: We have quite a strong Queensland contingent here, Mr Fass, today, so bear that in mind.

Mr Fass : Thank you.

CHAIR: Mr Fass, do you have an opening statement that you would like to deliver to the committee?

Mr Fass : Yes. Thank you all for allowing me to give this testimony by phone. I was in Australia about 10 days ago. I would have much preferred to be there with in person if the timing had worked out. If you require other things, the next time I am there I would be happy to see you in person.

CHAIR: Thank you.

Mr Fass : I am the Regional Chief Executive Officer for Macquarie Group businesses in Europe, the Middle East and Africa. That is a region that we have created an acronym for, EMEA. On behalf of Macquarie I would like to thank the committee for providing us with the opportunity to contribute to your inquiry. Despite my American accent and the fact that I am speaking to you this morning from the United States, I was born in the United Kingdom, and I have lived there with my family and worked there as a banker for the past 20 years. For the last six of those years I had the privilege of leading Macquarie's business in the region. As you know, Macquarie Group is an Australian headquartered global diversified financial group with services including: corporate advisory lending, funds and asset management, trading in specialist asset finance. In the EU region, in particular, our clients are primarily corporates, institutions and governments. We are recognised internationally for our expertise in sectors such as infrastructure, energy and commodities.

Our connection to the UK dates back to 1969, when our organisation was originally established. Macquarie Group opened as the Australian branch of former British merchant bank Hill Samuel, a name that might be familiar to some of you. We opened our first UK office in London in 1989. In the 28 years since then we have grown considerably across almost all of our lines of business. Since 2005 we have led more than 35 billion pounds of investment into the United Kingdom, making us one of the largest investors. We are one of the largest financial institutions in the European wholesale gas markets. We are ranked number one in agricultural and soft commodities trading. We are the largest independent owner of gas and electricity assets and the largest independent provider of smart metering and smart meter systems.

The UK is home to the vast majority of our 1,500 EU-based staff. Many of our UK staff are British nationals, with a significant minority of Australian, European and many other nationalities, including folk from the Ukraine, Norway, Estonia and Turkey, just to name a few. The diversity of our workforce is an important part of our long-term growth and, in particular as a global organisation, it remains essential that we retain the ability to deploy specialist staff to the locations where they are most needed. A focus on mobility also plays a vital role as we seek to attract and retain talent across our businesses in Australia, the UK and around the world.

Last financial year the EU region represented 24 per cent of the firm's global operating revenues, the majority of which is earned in the UK. Four out of Macquarie's five operating groups have a substantial presence in the UK and focus on those sectors where we have global expertise; namely infrastructure, energy and commodities. Our infrastructure funds management business, the largest in the world, is led from the UK. The UK is also a centre of excellence for the renewable energy activities within our corporate advisory business, Macquarie Capital. Our investments in the UK have continued from the time, the 28 years that I have mentioned, up through, to and including today. In the year since the European Union referendum, Macquarie has led investments in excess of 10 billion pounds into the UK, making an Australian-headquartered company the largest investor in UK infrastructure in that very interesting period.

Recently, in fact, Macquarie was selected by the UK government to acquire the Green Investment Bank, the UK government's renewable energy investment business. This is an organisation with an outstanding record in investing in green infrastructure and energy with a target of investing a further three billion pounds over the next three years. When this transaction is completedand I expect it to be later this monththe combined Green Investment Bank and Macquarie teams will be amongst the largest teams of renewable energy specialists based in Edinburgh and London.

Bringing the Green Investment Bank into Macquarie allows us to build on an already strong track record of investing in UK green infrastructure. This track record includes: building the world's largest bioenergy plant at Teesside in the north-east of the country; investing in Race Bank, one of the UK's largest offshore windfarms; installing over two million smart meters in homes across Britain; and retrofitting energy-efficient street lighting in Nottingham and the Tay Valley in Scotland.

In addition to those, many of our investments have a direct impact on local communities including the Edinburgh sick kids hospital and the 2.3-kilometre Murphy Gateway Bridge, as well as some national infrastructure, such as a company called Arqiva, the communications infrastructure company that includes the BBC amongst its customers.

We also play an important role in keeping the United Kingdom moving through our ownership of the Aberdeen, Glasgow and Southampton airports. In fact, our European airports alone handle over 64½ million passengers every year.

Our investment in Britain following the European Union referendum also includes a 61 per cent stake in the national grid gas distribution network which delivers natural gas to more than 11 million British customers. In relation to Brexit in particular, we are optimistic as we explore new opportunities that may arise. These investments and the nature of our business mean that our commitment to the UK goes beyond London and into the regional centres, as well as Scotland, Wales and Northern Ireland, whose devolved governments operate semi autonomously.

As one of Australia's largest exporters of financial services, we are supportive of frameworks that facilitate trade and the movement of capital around the world. Australian governments have historically supported exporters, including through the efforts and expertise of the Department of Foreign Affairs and Trade. The department is an accepted advocate for Australian businesses operating offshore, and we remain confident of its ability to represent Australia's export interests as the UK embarks on its exit from the European Union.

Finally, should there be a decision to negotiate a free trade agreement between Australia and the UK we would welcome it as another means of supporting Australian business. We would be supportive of a trade agreement that includes financial services, and we would also welcome an agreement that allows for mutual recognition of qualifications and licences.

Given the similarities between Australia and the UK in terms of systems of law and governance and our shared heritage as Commonwealth nations, we are hopeful that there is scope for this mutual recognition. Thank you for allowing me to make my opening statement. I would be happy to take the committee's questions.

CHAIR: We will go to questions.

Mr PERRETT: Thank you for your presentation. I had a briefing in Taiwan on Monday morning last week actually from your team there, and they were telling me about the great stuff they are doing with wind energy in Taiwan. It was a very professional outfit.

My question goes particularlyrather than renewable energyto your financial services in the City of London in particular. I think you said many of your 1,500 staff are connected with the United Kingdom. I was wondering what risks you see coming post-Brexit and post the general election in terms of the City of London as a financial centre and its role in terms of servicing Europe.

Mr Fass : I would have to say that obviously the recent election has not really made a material change at this point. You would be aware that there has been a lot of discussion back and forth between the EU and the UK about what position different people are going to be taking and why they may have felt a bit more aggressive before the election and maybe a bit toned down since the election. The overall mood and spirit that I sense in the City of London and with many of my colleagues is that we will continue to prosecute and look for businesses in Europe, just as we have over the last several years. We think that we can continue to grow on the continent as well as maintaining our presence in the UK and do not really feel that the City of London per se is at great risk.

If there is something that we are focused on, it is making sure that we continue to attract talent and that London is a good city for people to live in and to dedicate their careers to.

Mr PERRETT: But surely the London weather and cuisine are only part of the attraction. I would have thought the financial passport and London as a gateway to the other 20-plus countries of Europe was going to be severely curtailed when all the negotiations for extricating the United Kingdom from the EU were finalised. Has your presence in Europe been growing anyway or are you now looking for rental accommodation in Paris or Brussels or Frankfurt or wherever?

Mr Fass : Thank you for the clarification. I will speak really just about Macquarie, because I think that is the most important thing. We looked very hard at what ramifications would come long before the actual EU referendum itself last year, and we had a steering committee and a working group in place for about a year leading up to that. And while we were surprised, like many other people were surprised about the outcome of the vote, we had put in place contingency plans if the vote had gone that way.

The issue that you mention about passporting is an important element of what has attracted many people to London. But we have travelled around to visit many of the central bankers and many of the regulators in many of the other 27 jurisdictions over the last year, and we have been made to feel very welcome and that we would be a welcome applicant for a new banking licence or banking licences, whether they be in Ireland or in Paris or in Luxembourg or in Frankfurt or wherever they happen to be. And we are in the process now of trying to figure out which jurisdiction we want to start that application process in and how many people we will need to have in a continental office that will allow us to continue to pursue our businesses there.

But we have also been talking with the UK government about what its plans are and what type of dialogue it is involved in with the EU 27, and we have obviously a very important watching brief over what ultimate decisions are made. But we feel positive about our relationship with the UK and we feel confident that we will be able to establish a similarly strong relationship with the European Union regulators and central bankers in the 27 EU countries post the actual Brexit event, in whatever form that might take.

Mr PERRETT: Putting aside financial servicesand I notice you particularly mentioned renewable energy in your opening remarkswhat do you see as the sectors that give the most opportunity in the UK post-Brexit and beyond?

Mr Fass : Energy, as I mentioned and as you reflected back, is a very important growth element for us. But we are growing in a variety of different areas. Our lending business is growing significantly there as we are working with corporate customers that are looking for alternative forms of growth capital. Our asset management business is continuing to raise significant amounts of new capital for international investors who are still very keen to deploy capital in the UK post the referendum.

In fact, we raise European infrastructure funds every three or four or five years, depending on the cycle of how they go. In fact, we had one that we were raising in the midst of last June. We ended up concluding it successfully in July. We did not lose any material investors through that process. The investor sentiment towards the UK, while careful, continues to be quite solid. So I think that the UK as the destination for expertise in asset management will continue. I think you will have seen reports coming out of the UK about the growth of the financial technology sector and some of the innovation that is happening around the country. It still has very much of a growth mentality in spite of the referendum, and we see continued opportunity, as I have mentioned in my opening statement. We consider ourselves to be one of the largest investors in the UK post-Brexit.

I think when it really gets all told, the Brexit event of 2017-19 will be an important event but the UK as a destination for us and for other people in the financial services sector will continue to grow.

Mr PERRETT: A final question: I remember hearing an Australian super fund had an investment in maybe Luton airport or one of the airports. I was just wondering if you have anything to do with financial services between Australian superannuation funds and infrastructure that return an investment to superannuation shareholders.

Mr Fass : I do not have information with me that would specify how much or how many of the Australian superannuation funds have deployed capital with us or with others into the UK. But I do know from some of the superannuation funds that we work with here in the UK or in China or in the Middle East or in continental Europe that those large superannuation funds and pension funds from Australia, from Canada and from some of the countries that I mentioned, are quite robust. I can take it on notice if it is helpful to you to try to collate some information about

Mr PERRETT: No. It is just my own personal interest. That is all right. It is probably outside this brief.

CHAIR: We might stick to the terms of reference.

Dr McVEIGH: Your evidence, your submission and your comments just now for this inquiry, I guess, paint a very optimistic picture of continued investment, growing investment from Macquarie in the UK going forward. You mentioned in particular in the submission the great interest in Scotland. Can you expand on that a little for us please?

Mr Fass : Sure. We have foundnot necessarily for any particular reason; I just think opportunistically over the last couple of yearssome very interesting projects in what I will call the northern powerhouse between Liverpool and Birmingham and Manchester in the northern part of the country and then all the way up into Scotland. I mentioned the possible building there and the bridge in Liverpool that is under construction at the moment.

I think because we had that focus on the northern part of the country and away from Londonand I will come back to that in a secondwe really began to promote and think about our growth in the renewable energy sector and we found quite a few professionals, entrepreneurs and innovators that were actually in Scotland. That brought us to increase our engagement and focus with the Green Investment Bank, which I talked about back in the opening statement.

But I think the real interest in Scotland and some of the regional cities of the UK comes from the fact that there are many international investors who are very focused on London and the south-east of England. Therefore, the competition for those types of projects is severe. We feel that we can get the same type of opportunities outside of London and the south-east by still taking the risks of the UK but without having to be in a competitive situation where we are finding ourselves in what I will call a very crowded environment. You would all appreciate London and the south-east of the UK is really the hub of a lot of that activity. That we are finding opportunities to move outside of that hub I think is what is behind it.

Dr McVEIGH: Thank you. One of the contrasts that we have encountered in this inquiry is evidence from industry, commercial operations and industry representative organisations that suggests that Australia should proceed as soon as it can with a free trade agreement with the UK once that is possible. Alternatively, we are getting the view from a lot of commentators, particularly from academia, that it is too complex to proceed at this stage politically and economically, from a trade relationship perspective, in relation to both the UK and EU member countries and that, therefore, we should hold off, bide our time and wait to see how the dust settles. Again, as I said earlier, your approach is obviously quite optimistic and quite forward leaning. Can you help this committee inquiry with this contrasting evidence where industry are saying we should proceed forthwith and a lot of commentators and academia are saying we should hold off and wait to see how everything pans out?

Mr Fass : I appreciate you asking me such a broad-reaching question. My sense of the opportunities that the UK has and the relationship that the two countries have together is deep enough and has lots of history. While I am not a historian, I would imagine that that relationship, as special as it is, is probably going to withstand the UK's exit from the European Union. Therefore, we are taking the approach at Macquarie that getting on with it and being prepared to continue to do business in the UK as an Australian company and continue to be able to do business in Europe as an Australian company is what we are doing. There will be a fair amount of short-term volatility, a fair amount of commentating and a fair amount of dusty winds blowing in a variety of directions, but we have a responsibility to our stakeholders, our shareholders, our employees, our clients, our customers and the governments that we interact and interface with to keep putting one foot in front of the other and keep growing, innovating and moving. If commerce needs a framework for free trade agreements then my inclination would be to be supportive of that type of commerce and provide the commercial sector with appropriate agreements and regulations to be able to continue the growth path that those two countries have been on together.

Dr McVEIGH: Thank you, Mr Fass; I appreciate that.

Mr LITTLEPROUD: Thank you, Chair. Mr Fass, thank you for your evidence. Obviously you have made significant investments in the renewable energy space in the UK. Can you just give us some background? Is that subsidised in any way over there? Probably going forward, in your mind, around capital investment back in Australia from the UK, what would that look like and what could be done to facilitate that in a far more attractive way?

Mr Fass : Mr Littleproud, it was a little bit difficult for me to hear, but I think you were asking about investment actually coming from the UK into Australia; is that right?

Mr LITTLEPROUD: That is right.

Mr Fass : Again, it is a little bit off my remit in that I focus particularly on what is happening in the UK. In talking with investors, whom I talk with quite a bit, when they talk about where they are interested in deploying capital for these types of projects, Australia is often mentioned as being at the top of most international investors' lists when they are looking to deploy capital into the energy world, the commodities world, the mining world or the infrastructure world because I think you have a reputation as having a very stable regulatory regime and stable environment to welcome that type of international investment. Therefore, when people are trying to figure out what to do with scarce capital I think Australia continues to bubble to the top of many lists.

Mr LITTLEPROUD: Just your analysis on the renewable energy infrastructure in the UKis it subsidised? Does government lend a hand?

Mr Fass : The energy policy in the UK has worked to incentivise investments in new types of technologies. As the price of those technologies and the technology changes over time, those subsidies are designed to fall away so that there is open competition. It can get very specific with respect to what types of technologies are being deployed in which regions of the country. There is not a huge amount of variability to it over time. The UK, like Australia, has a regime that has been stable and is perceived by the investment community to be stable, which, as I think I said in my opening statement, is one of the reasons that I think we and others continue to feel that the UK is an attractive place to deploy long-term capital.

Mr LITTLEPROUD: Thank you.

CHAIR: Thank you, Mr Fass. I am going to touch on a couple of things. You mentioned a financial service chapter within any future free trade agreement. What are the sorts of things that you would like to see addressed in such a chapter?

Mr Fass : I think the things that are probably most relevant to us would be threefold. Number one is to take the question a little bit off. I think we have had a very supportive experience with the Australian High Commission here and Austrade over many years, so I would hope that that commitment to assisting Australian companies as they are offshore would remain. I think that is an imperative. There is a very strong equivalent that the UK have in their Department of Trade and Investment that supports UK business interest, and we find that those two parts of the two governments have really been very helpful to us. I think that the other area that would need to be preserved is some of the legislation that exists with respect to licensing and qualifications of people and institutions so that we can have the free mobility of staff or exchanges of views and exchanges of expertise.

I would say, in summary, that one of the three things that I think would be most important is the continued commitment to continue to support financial services exports. My experience is that Austrade, the High Commission's office, the Department of Trade and Industry here in the UK and the professional services firms need to be able to operate seamlessly with one another. That would be most important, in my mind.

CHAIR: Thank you, Mr Fass. It sounds like you are talking about the maintenance of existing arrangements, so why does the financial service sector need an FTA?

Mr Fass : When I talk about the maintenance of existing arrangements, I think what I am suggesting or asking for is that, as the UK and the EU go through their separation, there is a keen eye put on preserving or making sure that it will not crumble apart as a result of what happens between the UK and the EU and that there is still a stable regime for financial services firms to operate in.

CHAIR: Just in terms of mutual recognition, the committee has had some evidence around law degrees, engineering and a whole range of professions that there seems to be a lack of harmonisation and recognition. But it sounds like your evidence is that that is not the case. Can you just clarify, when you talk about mutual recognition, what specifically you are talking about?

Mr Fass : I think the mutual recognition is maybe not as formal. I cannot comment on what type of an engineering degree or an engineering certificate exists, but I would say that, as we are hiring people and moving people around the world, we feel that folks with qualifications in the accounting profession, the legal profession and the financial services or actuarial profession are freely accepted in both of the different geographies. I think that the fluidity of those types of things is part of the bedrock that makes that type of exchange of personnel work so smoothly. I would not want to see that get complicated.

CHAIR: Thank you for clarifying that. You mentioned how helpful Australia House has been. We have had a variety of states make submissions to our inquiry. Given that you are operating globally, can you give us your perspective on how well states interact with Australia House, and indeed with Austrade more generally, and what could we be doing better as a nation and a federation?

Mr PERRETT: Competitive federalism.

CHAIR: What can we be doing better to make that more streamlined and focused?

Mr Fass : I am not sure that I can advise the committee of experts on what they or the High Commission or Australia House could do better.

Mr PERRETT: Mr Fass, do the states play nicely together?

Mr Fass : I am sorry?

Mr PERRETT: Do the states play nicely together?

Mr Fass : In the six years that I have had a keen focus on all things Australia, I have never seen any conflict amongst the states that has gotten any air time, other than sports stuff, that gets people really agitated.

Mr PERRETT: That is nice to know.

Mr Fass : The Australia House presence in London in particular and I think around the UK more broadly is well-known, highly regarded, very forward thinking and willing to experiment with doing more as opposed to being a passive presence waiting to be called on.

CHAIR: That is good to hear. Does Macquarie have any advice on improving Australia's appeal for attracting direct investment from the UK, and what sectors are UK investors most interested in?

Mr Fass : I do not think I can give you a crisp answer to that. There is lots of investment capital that is available, frankly, all over the world, but in the UK at the moment as well.

CHAIR: Do we need to be better at articulating the opportunities?

Mr Fass : I cannot think of anything that the country per se can be doing differently as far as having the flag on the beachhead that Australia House provides, the reputation that the country has as a safe home for investment, the growth and the 24 or 25 years of unbroken success that you have had; that puts you at the top of the world as far as a stable business environment goes. I would be hard pressed to find anything that you could be doing better than to keep doing what you are doing.

CHAIR: Mr Fass, I thought you would have some good suggestions for us, but it seems we are doing everything so perfectly. Does the Macquarie Group see any need for better coordination between the federal government and states when organising trade missions or other investment issues in the UK?

Mr Fass : I have seen these trade missions get organised on international scales and on state-by-state scales, and I think there is a reason for both. I think it is very difficult to do some of these types of things at a national level because the opportunities become very diffuse and diluted, especially in a country as large and diverse as Australia. My sense is that what global investors are looking for todayand I sense it here in the UKis that they would way rather engage with something that is specific and actionable than be given a nationwide week-long tour where they are just touching the wave tops of hundreds of different projects and opportunities. If there is a suggestion in my comment, it is that a narrow and deep exposure is something that the investment community is looking for today, and wave top 'come and look at all these things that we have', with none of them being actionable, is not very helpful.

CHAIR: Noted; thank you. Going to your submission, it says that Macquarie sees opportunities to broaden its investment, including in the devolved administrations in Scotland, Wales and Northern Ireland. Could you give us a bit more information about where you see those opportunities and how they may be strengthened through any FTA negotiations?

Mr Fass : Dr McVeigh asked me specifically about Scotland before, so I will not repeat that. It does key back into what I just said about specificity. We are finding that, in order to get things done and in order to generate opportunities and projects for our clients to invest in, having very deep local knowledge and a local understanding of how towns work, how cities work and how those devolved administrations work is critical to us being able to continue to fill up an actionable pipeline of investment opportunities. We feel that having a broader exposure to those devolved administrations and really understanding what the opportunities are there, what the populations are like there, what the innovation and the technology are like there, is making us more valuable as an adviser to our clients than having a London-only view.

CHAIR: Thank you, Mr Fass. There being no further questions, thank you very much for your time today; we appreciate it.

Mr Fass : It is my pleasure, and I hope the rest of the inquiry goes well.

CHAIR: Thank you.