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Macquarie Airports flies the coup -

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PETER CAVE: To finance now and there have been more cracks appearing in the model that Macquarie
Bank pioneered for developing infrastructure and collecting fat fees along the way.

Macquarie has already been hit by plummeting share prices and asset values in separately listed

Now one of Macquarie's biggest satellite funds Macquarie Airports will no longer be managed by the
parent company. The fund owns Sydney airport amongst others.

Macquarie announced today that its airports fund is "internalising" its management, meaning that
millions in management fees will be retained by the fund rather than going to the parent at

Our economics correspondent Stephen Long was one of the first journalists to question the
sustainability of the Macquarie model and he's joined us now.

How do you think this affects the Macquarie model?

STEPHEN LONG: Well Peter it certainly puts a strain on it. What's happened in broad terms with this
is that the Macquarie Airports Trust is buying out the management rights from Macquarie and another
Macquarie entity. And in return Macquarie Group, the parent company, will gain a bigger slice of
the shares in Macquarie Airports - upping from 22 to above 27 per cent.

But in terms of the model yes, it raises all sorts of questions because over a long period of time
you have had a situation where Macquarie raked off a triple layer of fees with these satellite

It set up funds, scoured the world looking for infrastructure assets such as airports and toll
roads, spun the assets off into these funds, took fees for acquiring the assets then for managing
the funds and also performance fees if they outperformed benchmarks on the stock exchange and the
like - a triple layer of fees.

Well it looks like the fees are going and this key fund and that raises questions about whether
they will stay in other funds.

There have been a lot of complaints over time about this system as well because it was perceived to
involve a conflict of interest for these separate companies which are meant to be responsible to
their own shareholders but were operating as a fee factory for the parent.

PETER CAVE: So is the core of this critique the lack of independence for the funds and the fees
going to Macquarie or are there other aspects to it?

STEPHEN LONG: There are other aspects to it. There's a couple of cores if you like or separate
cores to this critique of how Macquarie operates.

One is the conflict of interest for these supposedly separate funds which had directors appointed
by Macquarie and were channelling fees to the parent company and questions about whether that was
actually good value for the shareholders.

But the more fundamental critique of this model was that Macquarie was placing valuations on its
assets that many thought were too much. And we've seen with key trusts such as the Macquarie
Infrastructure Group the values that it placed on its assets halved in the recent period from their

But apart from that key Macquarie trusts were also borrowing against those high asset valuations to
pay distributions to the unit trust shareholders, unit trust holders or shareholders, borrowing out
of supposedly future earnings.

Now the income streams for a lot of the Macquarie trusts have actually fallen with the global
recession despite denials by, despite assertions by Macquarie that these trusts were essentially
monopoly assets and largely recession proof.

And yet it's borrowed money in advance against the future income streams and paid it out on the
basis of asset valuations in many of the trusts which have actually plummeted now.

And so the whole sustainability of the model that Macquarie built is certainly open to question.

Now you know it has also raised questions about the fees that were being paid when you've seen the
share prices collapse in these listed satellites and definitely there are cracks appearing and this
forging of some independence for Macquarie satellite is a sign of that.

PETER CAVE: There has certainly been opposition to the amount they're milking off people who go to
Sydney airport. Is this specifically a problem of Sydney airport or could it mark the beginning of
the end for those other satellite funds?

STEPHEN LONG: Well it certainly goes beyond Macquarie Airports Trust which owns airports around the
world, Sydney being one of the beacons, one of the highlights of its portfolio.

But it goes well beyond this trust and raises questions about whether you will see a spill over to
other listed trusts and whether they will be seeking more independence from the parent company and
whether that fat income stream will remain over time.

PETER CAVE: Our economics correspondent Stephen Long.