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By Lee Jae-myung, staff writer

In the space of little over a decade since taking its first steps into South Korea in 2000, Macquarie has enjoyed rapid growth. It now manages close to 22 trillion won in assets in ten different financial service areas in South Korea, including infrastructure funding and stock derivatives.

Macquarie Korea Asset Management (MKAM) is one of the South Korean affiliates of Australia’s Macquarie Group. The group has some 70 offices in 28 countries. They got where they are today through investment in social infrastructure such as highways and ports. Macquarie has reportedly been pushing recently to acquire management rights for N Seoul Tower (479.7m) in Seoul's Namsan (South mountain), a landmark found in central Seoul.

The company directing the group’s infrastructure investments in South Korea is the Macquarie Korea Infrastructure Fund (MKIF). MKAM has de facto management authority for MKIF’s investment, fundraising, and distribution. The structure is one where MKIF develops a fund through investor contributions for the various privately funded projects, which is then invested in special purpose corporations that execute the efforts.

When the group initially entered South Korea, Macquarie Shinhan Infrastructure Management was a partnership with the Shinhan Financial Group, which owned 19.9%. But Shinhan sold its stake in February of this year, making the company, now called Macquarie Korea Asset Management, fully owned by the Macquarie Group.

MKIF was established in 2002 as South Korea’s first listed infrastructure fund. Between 2003 and 2007, it invested in 14 privately funded projects including Seoul Metro Line 9 and the Mt. Umyeon Tunnel. It had approximately 8,500 investors as of late 2011, consisting of 61% domestic institutional investors, 21% individual investors, and 18% foreign institutional investors. All 14 efforts were “build-transfer-operate” (BTO) projects in which the private sector raised funds and built the infrastructure, ownership of which was then transferred to the government in exchange for recognition of facility management and operation rights for a certain period of time, which provided operational profits.

Financial experts said MKIF’s rise to become a major player in domestic infrastructure investment in a relatively short time was the result of an effective niche market strategy married with expertise.

The Macquarie Group is one of the world’s largest financial companies in infrastructure investment. It has sought to use its expertise to set itself apart from other foreign investment banks that focused solely on company restructuring and bank selloffs. And at the time of its early efforts, the government was seeking to bring the domestic market back from a slump in the wake of the foreign exchange crisis by actively bringing private capital into investments in infrastructure like highways and ports.

“Right now, Macquarie is being accused of earning big profits from monopolizing social infrastructure investment, but back then the officials were all hard up and asking for help,” a prominent financial world figure said.

“It was time when officials in the central and local governments were all asking for investment, since they could recruit private funding for social overhead capital running in the hundreds of billions and trillions of won,” the figure recalled.　

An official at one domestic bank said, “South Korean banks back then hadn‘t invested in twenty or thirty years.　"In some sense, Macquarie gave this a structure and framework, and the domestic banks picked up some of its know-how through participating," the official explained.

What gave it "wings" was the minimum revenue guarantee (MRG) system. With this system, the presiding government office bears a fixed portion of the market risk when the revenues fail to meet predictions. While soliciting investment, MKIF pointed to this system as greatly increasing the possibility of recouping investment outlays and ensuring high and stable profits. Indeed, it was earning an average of about 1.5 billion won a day in traffic revenues as of late 2011 following a year-on-year rise in traffic through its highway and tunnel investment assets.

In essence, it was a "win-win" situation where MKIF had a stable source of high profits with the MRG system, while the central and local governments could get large-scale infrastructure built through private investment rather than government outlays. According to figures Wednesday from the Ministry of Strategy and Finance and the Ministry of Land, Transport and Maritime Affairs, the central government paid 427.9 billion last year in MRGs to the providers of ten private investment projects, including highways, railways, and ports. In the period between 2003 and 2011, the government paid a cumulative total of 2,087,700,000,000 won through the system. And with the MRG periods ranging from 14 to 30 years, that amount appears poised to rise steadily in the future. When local government payouts are factored in---such as those for Seoul Metro Line 9, which has been the subject of recent controversy---the burden on South Korean taxpayers looks set to increase further.

Macquarie is known to have recently altered its investment strategy after determining that infrastructure investment was a less appealing option with the 2009 abolition of the MRG system and the evaporation of government support.

Analysts said the investment structure for Line 9, which draws high-interest subordinated loans from major shareholders, is intended to avoid paying taxes.

A prominent financial world figure said, "It’s a structure where you don‘t really need subordinated loans, since the government guarantees a minimum margin."

"They would have to pay corporate taxes for any dividend payout to shareholders in the event of future investment profits, so it’s designed to save the tax money by having that paid out in interest," the figure explained.

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