Derivatives house of the year: Macquarie

Energy Risk Awards 2018: Cargill acquisition fuels growth for commodities-focused bank

Nicholas O’Kane, Macquarie

Buoyed by several acquisitions and the growth of its business across multiple product lines, Macquarie’s commodities and markets finance (CMF) division has enjoyed a stellar year of growth. Despite low volatility across commodity markets for much of 2017, the group has retained its steadfast focus on the delivery of bespoke services across the 25 markets and 115 products in which it is active.

“Low volatility has been the biggest challenge for these businesses over the past year, even though it has rebounded to some degree in 2018,” says Nicholas O’Kane, head of commodities and markets finance at Macquarie in Houston, Texas. “Client relationships become more important than ever in this environment, because our clients need logistical and risk-management services throughout the cycle and we have to offer the services that best meet their needs.”

US food and agriculture giant Cargill last year divested both its petroleum business and its North American gas and power business to Macquarie, marking a major step in the growth and evolution of the CMF franchise. The petroleum business, which transferred to Macquarie in June 2017, comprised 70 staff and led to the bolstering of the business in Houston, London, Singapore and Shanghai, as well as new offices in Geneva and Minneapolis.

Most importantly, this first phase of the acquisition represented a significant foray into physical oil markets, giving Macquarie a more comprehensive product offering in commodities. “Our physical oil business had previously been very tactical and targeted but, through Cargill, we acquired a very experienced, talented team with a host of new client relationships,” O’Kane says.

The subsequent acquisition of Cargill’s North American gas and power business, completed in September 2017, added a significant presence in Canada, where Macquarie had been looking to expand for some time. The deal added a further 40 staff while also putting the bank comfortably into second place for North American gas marketing – behind BP.

With these two acquisitions, the CMF division now boasts roughly 530 employees in 16 countries, offering physical, hedging and financing capabilities in metals, agriculture and energy. Some particular successes over the past year have centred on the Brazilian and Mexican markets.

“We have a very active business in Brazil that provides a range of risk management services and enables soft commodities customers, including sugar mills, to hedge their ethanol production,” says O’Kane.

The firm’s London-based derivatives expertise means it can also help firms manage volatility in domestic currencies, he adds. In Mexico, for example, Macquarie is one of five licensed gas marketing companies, sourcing gas from domestic suppliers and US importers and distributing it to commercial and industrial clients. With general elections on the horizon in July and ongoing negotiations over the North American Free Trade Agreement (Nafta) between Canada, Mexico and the US, currency volatility is an increasing concern and hedging has become more important than ever for the bank’s Mexican clients.

Our physical oil business had previously been very tactical and targeted but, through Cargill, we acquired a very experienced, talented team with a host of new client relationships

Nicholas O’Kane, Macquarie

“For one Mexican airline, we delivered a Mexican peso/US dollar hedge against its liabilities as the company was concerned about potential devaluation of the Mexican peso during Nafta negotiations and the elections,” O’Kane explains.

Elsewhere, Macquarie has continued to see strong demand for access to the Chinese market through its wholly owned onshore entity. CMF desks around the world have collaborated with the China team to bring bespoke hedging solutions to offshore entities, including a recent structure created by the London, Sydney and New York agriculture desks referencing Chinese canola meal and oil contracts.

Macquarie has also recently made its entry into the physical biomass market, agreeing to intermediate 20 biomass cargoes under contract with a large agricultural processor and food ingredient provider. During the course of 2018 and 2019, CMF will procure 540,000 tonnes from two European suppliers and deliver it to one of the UK’s largest renewable power generators. 

“Having not historically been involved in the physical biomass market, the deal in London combines our ability to strategically deploy balance sheet with our deep expertise in physical operations,” O’Kane says. “This reflects how we approach our physical commodities business more generally, taking on exposure to alleviate balance sheet pressure on our clients, while also providing logistical services to facilitate the transaction.”

Technology is also a major focus for Macquarie, and the bank recently invested in Connected Energy, a UK-based company focused on energy storage solutions. The £3 million investment was made in partnership with French energy group Engie and will support the growth of Connected Energy as it works with vehicle manufacturers including Renault to deploy its system, E-stor, which is designed to provide the same performance as first-life batteries in a cheaper and more environmentally friendly format.

“We continually look at opportunities to invest in technology that has the potential to revolutionise parts of the market and Connected Energy is a good example of this,” O’Kane says. “With the global move towards renewable energy, battery storage solutions will become increasingly important, so we believe the company has significant potential.”