The separate entity. It has become commonplace to have one entity responsible for a piece of infrastructure, giving out fees to the sponsors. “That created a misalignment of interests between those who were managing the assets and longer term investors,” says Douglas. “Mum and dads thought they were buying to secure yield-oriented assets, and the people supposed to be looking after the money were taking out fees.” Macquarie has already gained A$110 million in fees from the venture. Combining all of this with highly geared debt created what Douglas calls “a perfect storm: misinformed investors, misaligned manager, and leverage on an already risky asset.”

Macquarie. This model is classic Macquarie, and its method of using separate listed vehicles to house infrastructure or other assets while paying fees into the mother ship looks bereft today – although at least, unlike imitators like Allco and Babcock & Brown, it’s still alive to tell the tale. Macquarie is sponsor, lead arranger and underwriter on the float, arranger of a banking syndicate for a bridging loan: it’s everywhere. And this deal was full of conflicts: Trevor Rowe, chairman of Queensland Investment Corporation, is also chairman of Queensland Investment Corporation, which put A$25 million of government pension money into BrisConnections, and a director of the stock exchange which approved the structure for listing.

Macquarie, perhaps in a slimmed-down form with many of its listed funds cut adrift, will survive this crisis but BrisConnections is emblematic of the demise of a structure that in better days drove much of the profitability of the whole group. Macquarie declined to comment.

So where does this all lead? Probably to infrastructure finance falling back to the private markets, with more direct involvement of Australia’s vast and growing superannuation funds; an end to instalment listed structures; an end to the use of listed markets for developing infrastructure; and greater scrutiny of related parties in complex transactions. But, as always, the real question is for how long the lessons are learned.

To see the article in its published form, click here: http://www.euromoney.com/Article/2192425/BackIssue/71779/BrisConnections-Infrastructures-disconnect.html

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