Macquarie Bank, which is to pay £8bn (€12bn) for the UK's Thames Water utility, has abandoned its first attempt to list a fund in London.

The Macquarie Growth Income Group had been expecting to raise nearly £300m through Cazenove and Citigroup. But fund managers that studied the Australian group's research on the company in the summer were unimpressed. One said: "I threw it straight in the bin." Another said: "I didn't like Macquarie trying to charge hedge fund fees for managing a pretty mixed bunch of assets." The float's failure coincides with recent price stagnation for Macquarie's specialist funds, worth £14bn, which are mainly listed in Australia. Macquarie chairman David Clarke said at the most recent annual meeting: "The past 18 months have been disappointing as investors have turned their attention to other asset categories." A Macquarie spokeswoman confirmed that plans to float Global Income on London's Alternative Investment Market had been abandoned, blaming equity conditions. Doughty Hanson recently pulled a $1.3bn (€1.04bn) private equity fund float and an oversupply of new issues has resulted in a struggle for poor-quality real estate offerings. Macquarie has an impressive long-term record. Over 10 years, its shareholder returns have exceeded 1,300%. Its share price recently rose to A$73 against a low of A$59. Annualised returns from its funds since launch are 26%. However, analysts are wary of the battle to buy assets in the infrastructure sector in which Macquarie operates. Infrastructure specialists aim to buy assets and sell them to third-party funds using finance provided by pension schemes. Babcock & Brown, one of Macquarie's Australian competitors, has confirmed plans to raise a £300m listed fund through Swiss bank UBS. One manager said: "I keep seeing the assets we've been selling popping up all over again in these funds. I'm not sure I want them back." Jane Welsh of consultancy Watson Wyatt warned recently that fees on several infrastructure funds on offer in the UK were too high. One asset manager said he was astounded by Macquarie's knockout bid for Thames Water, which will provide fuel for its funds. Part of the equity of about £2.5bn is likely to be put into its European infrastructure fund. Macquarie will take 11% of the equity, which could be covered by its fees from arranging the transaction and then managing the asset, according to bankers. The rest of the Thames purchase is expected to be funded by debt, the levels of which are likely to be close to the maximum allowed by industry regulator Ofwat. Macquarie expects to secure fees totalling A$100m (€60m) from the deal. "The price is too rich, given that the regulator wants more investment in London's water supply," said an asset manager. Global Income was not billed as a pure infrastructure play and Macquarie wanted to push highly leveraged investments into it from its balance sheet and raise £40m for acquisitions. Sources close to Macquarie said it had been planning to inject Moto, a UK motorway service station group, into Growth Income in due course. Other investments included Isle of Man Steam Packet, which had the highest leverage at 9.7 times earnings before interest, tax, depreciation and amortisation. Nearly all its income comes from twice-daily sea ferry services from Douglas to Liverpool and Heysham. Another, Icon Parking, is 7.7 times geared and operates 184 car parks in New York. It was bought by Macquarie from Goldman Sachs and the Mallah family in 2005. An additional investment is Smarte Carte, which is five times leveraged and the world's largest airport trolley company. Before it was bought by Macquarie, it filed for Chapter 11 bankruptcy protection because of increased airport security and the cost of debt that carried a charge of 11% against the current 7.5%. Macquarie expected a cashflow yield of 8.2% this year and 9.6% in 2007. But asset managers were unconvinced Growth Income had strong growth prospects. They did not like Macquarie's annual base fee of 1.5% plus a performance kicker of 20% over an 8% hurdle rate. They were concerned because Wayne Leamon, chief executive, and Alex Maby, finance director, would continue to be employed by the bank. Sources close to Macquarie said they would spend nearly all their time with the new fund, adding that Macquarie would retain 10% to 20% in Growth Income. Jim Craig, head of Macquarie investment banking in Europe, was to be chairman of the new company.