Analysts on the sell side desks at Morgan Stanley have reportedly slapped a $140 share price target on Macquarie Group Ltd (ASX: MQG) in part thanks to the growing strength of its real estate and infrastructure asset management division.
Today Macquarie is best thought of by investors as an asset manager that does a little investment banking and its dominant operating divisions is Macquarie Asset Management that operates as a traditional buy-side asset manager in the debt and equity space.
However, it's also smart enough to carve out niche areas of expertise for itself in the highly competitive global asset management space, with it now being the largest 'infrastructure' asset manager in the world.
In infrastructure asset management and lending 'know how' is key in deal structuring, with its people being the secret sauce that allows it to consistently win new work.
In this sense it's similar to investment banking work where Macquarie is a small fish in a big pond overseas and it makes sense for them to specialise in certain areas like infrastructure to provide a competitive edge.
Moreover, Macquarie also recently bought the UK's Green Investment Bank (GIB) for around $4.3b to bolt onto its infrastructure asset management operations in a deal that has been little reported on and is hard to factor into analysts' valuations due to the bank's secretive nature.
However, I'm not surprised Macquarie reportedly pulled out all the stops to complete the deal as it reinforces its strategy to manage money and arrange huge syndicated lending deals in the green investment space in a similar way to its market-leading infrastructure asset management business.
Much of the deal making in the GIB and other multi-lateral development banks of old (i.e. World Bank, African Development Bank) is via syndicated and public private partnership lending, with the bankers acting as the fee-earning deal makers and sometime lead investors.
It's no secret that ginormous amounts of capital are now flowing into the green investment project space globally with Macquarie in the box seat to take advantage over the long term thanks to its GIB deal.
The work generally involves using syndicated-lending expertise to clip expensive tickets on a reasonably low risk-adjusted basis which means the deal fits perfectly into Macquarie's strategy of chasing strong risk adjusted over the medium term.
As such I expect Macquarie's innovation will continue to see it outperform the market over the long term.
