Funds Management Group
Chairman's and Managing Director's Report

Funds Management Group's funds under management increased by 23 per cent to $A51.5 billion. There were strong inflows into the Group's currency, private equity and cash investment funds.

The Group will continue to develop and commercialise higher-margin funds, to develop retail products and to seek small acquisitions where they expand our investment capabilities.

Funds under management

Funds Management Group's (FMG) profit increased by 35 per cent on 2005, driven by increased average fee margins and growth in Funds Under Management (FUM), which grew to over $A51.5 billion during the year.

In equities, our flagship funds performed strongly against their respective benchmarks, with the Macquarie Long Short Equitised and Macquarie Small Companies funds delivering first quartile performance over one and two years (to 31 March 2006) .

During the year we were successful in raising funds with active mandates and in growth asset classes. This, together with the broadening of our distribution channels, saw our average fee margin increase.

In alternative assets, hedge funds and private equity funds sourced from Australia and overseas grew by more than $A850 million, with a further $A847 million from the retail sector in Australia .

The Alternative Investments Division opened an office in Carlsbad, San Diego to manage international private equity fund-of-funds and advisory mandates. Since the close of the financial year, we have opened another office in Hong Kong.

International

Our 65 per cent owned Korean joint venture, Macquarie-IMM Investment Management, achieved strong growth in funds under management, up 54.6 per cent to $A5.5 billion. The joint venture also successfully launched the Macquarie-IMM Global REIT S Fund.

Outlook

We expect to benefit from continued growth in demand for quality funds management products both in Australia and internationally over the medium term.

FMG will continue to focus on opportunities to develop and commercialise higher-margin active and growth asset funds and to develop products for the retail sector. Small-scale acquisitions will be considered where they expand our range of investment capabilities.