Macquarie Group: Inside the Millionaires Factory and Its Two-Engine Model

Every few years someone predicts that Macquarie’s model will break, and it has not yet. The firm has recorded unbroken profitability since listing, through the global financial crisis, the commodity crash of 2015 and the pandemic. That record is not luck; it is the product of a deliberate structure that most financial institutions have tried and failed to copy. This article explains how the pieces fit together and where the genuine fragilities lie.

Where did Macquarie come from?

From the Australian arm of the British merchant bank Hill Samuel, which began operating in Sydney in 1969 and was granted an Australian banking authority in 1985, listing as Macquarie Bank. The merchant banking DNA — small teams, principal risk, deal-by-deal accountability — survived the transition into a listed institution and still shapes the firm.

The transformative insight arrived in the 1990s: governments across the developed world were privatising infrastructure, and those assets — airports, toll roads, ports, utilities — produced long-dated, inflation-linked, regulated cash flows that pension funds wanted but could not source or manage themselves. Macquarie built funds to buy them, then charged management and performance fees for running them.

That structure earned the nickname “the Macquarie model”, and its early listed-fund version attracted heavy criticism for gearing, related-party fees and asset revaluations. The model was subsequently rebuilt around unlisted institutional funds, which is what Macquarie Asset Management is today — and which turned out to be far more durable than the critics expected.

How does the annuity versus markets split work?

Macquarie reports its businesses in two groups. Annuity-style comprises Macquarie Asset Management and Banking and Financial Services, which generate management fees, net interest income and other recurring revenue. Markets-facing comprises Commodities and Global Markets plus Macquarie Capital, which generate trading income, advisory fees and investment realisations.

In FY2025 that split produced exactly the intended result. Asset management contributed A$1.61 billion, up 33% on higher performance fees and investment income, and banking contributed A$1.38 billion, up 11% on loan and deposit growth. Meanwhile the markets-facing side went backwards as global energy and commodity market conditions became more subdued, with Macquarie Capital roughly flat at A$1.04 billion.

This is the design working. Commodity volatility is unforecastable, so Macquarie does not attempt to forecast it — it builds a fee base large enough to cover the cost structure regardless, and treats trading upside as a bonus rather than a budget line. Very few investment banks have been disciplined enough to do this.

Why is commodities trading so central?

Because Macquarie occupies a niche most banks abandoned. Commodities and Global Markets provides physical and financial risk management across energy, gas, power, agriculture and metals — not just paper trading but physical logistics, storage and delivery for industrial clients. It became one of the largest gas marketers in North America almost by default when US and European banks retreated from physical commodities after the global financial crisis.

The business earns money from client flow and from the optionality embedded in physical positions, and it performs best when markets are volatile and dislocated. The European energy crisis of 2022 produced exceptional results; the calmer, better-supplied markets that followed produced substantially weaker ones.

The risk is genuine but well understood internally. Physical commodity trading requires large amounts of working capital, sophisticated collateral management and rigorous risk limits, and has destroyed institutions that lacked all three. Macquarie’s risk management framework — explicitly independent from the businesses, with a long-standing culture of stress-testing against worst-case rather than expected scenarios — is the reason it has survived where others did not.

How significant is Macquarie in Australian mortgages?

Far more than most people realise. Banking and Financial Services has grown its Australian home loan book aggressively, passing A$130 billion and making Macquarie a genuine fifth force in a market long treated as a four-player oligopoly. It has done so with a digital-first model, a lean branch footprint and a focus on higher-quality borrowers.

The strategic logic is that mortgages provide a stable, capital-efficient earnings stream that stabilises group results, while deposits — which have grown to record levels — provide funding diversity. The same recurring-income philosophy that governs asset management applies here.

The competitive effect on the incumbents has been real. Macquarie has repeatedly grown household deposits and home lending at multiples of system growth, taking share from banks that assumed the market structure was permanent. Our analysis of the Big Four oligopoly covers how the incumbents have responded.

What is the profit share model and why does it matter?

Macquarie pays a large share of staff remuneration through a profit-share pool that is calculated from group earnings and returns above a cost-of-capital hurdle, with a substantial portion deferred and invested alongside shareholders over several years. Senior staff therefore accumulate large personal holdings that vest only if the firm keeps performing.

The commercial effect is that the cost base flexes with earnings. In a weak year, compensation falls sharply, which protects shareholder returns and removes much of the operating leverage that damages other investment banks in downturns. In a strong year, staff are paid extraordinarily well — the origin of the “millionaires factory” label that has followed the firm for three decades.

It also solves a retention problem. Deferred, at-risk equity makes it expensive for a senior banker to leave, and aligns individual incentives with multi-year outcomes rather than annual bonuses. Chief executive Shemara Wikramanayake, who took the role in 2018 after running the asset management business, is herself a product of that long-tenure culture.

What are the main risks for Macquarie now?

Three. The first is regulatory. Macquarie has faced supervisory action from APRA and ASIC over risk governance and reporting failures in its banking and markets operations, and additional capital requirements are an expensive way to be told your controls need work. For an institution whose reputation rests on risk management, these findings matter more than their financial cost.

The second is the private markets cycle. Roughly A$941 billion of assets under management is a formidable fee base, but infrastructure and real asset valuations are sensitive to long-term interest rates. A sustained higher-rate environment lowers valuations, slows fundraising and delays the realisations that generate performance fees.

The third is simply that the model depends on judgement. Macquarie’s edge is a decentralised structure in which business teams take genuine risk within a strong central risk framework. That works while the framework holds. The half year to September 2025 delivered net profit of A$1,655 million, up 3% — a solid, unspectacular result that fairly reflects a firm generating steady income while waiting for the markets cycle to turn.

Why have other banks failed to copy the Macquarie model?

Because the model is a culture as much as a structure, and culture is the part that does not transfer. Macquarie runs a deliberately decentralised organisation in which individual business teams have wide latitude to originate transactions, constrained by a central risk function that has genuine authority to say no. Most institutions have one or the other: either tight central control that kills entrepreneurialism, or loose control that eventually produces a disaster.

The remuneration structure is the mechanism that holds the two together. Because a large share of senior pay is deferred equity that vests over years, individual bankers are personally exposed to the long-term consequences of the risks they take. A trader who books a profitable but fragile position is not paid out and gone before it unwinds — they are still a shareholder when it does.

The third element is patience about adjacency. Macquarie has repeatedly entered new markets and products in small increments, building capability over years before committing significant capital — infrastructure funds, then green energy, then private credit, then digital banking in Australia. Institutions that attempt to buy their way into an adjacent business in a single acquisition usually discover they bought the assets without the people.

For finance leaders, the portable lesson is that decentralisation is only safe when three things are in place simultaneously: a central risk veto that cannot be overruled commercially, deferred personal exposure for decision-makers, and enough capital surplus to absorb being wrong. Remove any one and the model becomes dangerous rather than distinctive.

How does Macquarie use its balance sheet differently?

Sparingly, and as a tool rather than a product. Unlike the major Australian banks, whose earnings are a direct function of how large a loan book they can fund, Macquarie uses balance sheet primarily to originate assets it intends to place with clients, to seed funds, and to support trading positions with disciplined limits.

The group has consistently held a substantial capital surplus above the minimum APRA requires, which is expensive in return-on-equity terms and invaluable in a crisis. It is what allows the firm to keep making markets when competitors are withdrawing capital, and to buy assets when distressed sellers appear. Several of Macquarie’s most profitable positions have originated in exactly those moments.

The trade-off is visible in the numbers. Macquarie’s return on equity is lower than CBA’s in a normal year, because it holds more surplus capital and takes less balance sheet risk per dollar of equity. It is also far more durable across a full cycle, which is the point.

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