July 19 (Bloomberg) -- Macquarie Bank Ltd., Australia's largest securities firm, said first-quarter profit rose ``substantially'' as the company scoured the world for acquisitions and increased fees from its listed funds.

The bank forecast continued strength this year in initial public offerings, mergers and acquisitions, and growth of investment funds, Chief Executive Officer Allan Moss said in a statement today before the company's annual shareholder meeting in Sydney. Moss didn't provide figures for quarterly earnings or a full-year forecast.

Macquarie is stepping up expansion abroad after leading more than $30 billion of overseas acquisitions last year, helping international income surpass sales at home, where it failed in takeover bids for Qantas Airways Ltd. and energy transmission company Alinta Ltd.

``They're moving from Australia to global markets where they've got unique advantages and a competitive edge in financial structuring, and that's going to add to deal flow momentum, which the market is pretty supportive of,'' said Sean Fenton, who helps manage $832 million at Jenkins Investment Management in Sydney.

Sydney-based Macquarie, the world's largest private manager of infrastructure, vies with firms including Goldman Sachs Group Inc. and Kohlberg Kravis Roberts & Co. to lead buyouts of assets it bundles into funds for investors.

Highest Pay

Moss, 57, the highest paid executive of a publicly listed company in Australia, helped the bank to its 15th consecutive record annual profit in the year ended March 31 of A$1.46 billion ($1.28 billion).

The company today said profit for the three months ended June 30 was ``substantially'' higher than a year ago as performance fees increased for its listed infrastructure funds such as DUET Group and Macquarie Infrastructure Co. The bank failed to earn bonus fees a year ago after its biggest funds trailed stock indexes used as benchmarks.

``We're very comfortable with the language used in describing the first quarter's trading, which suggests the bank is lining up well at this early stage for another good full-year result,'' said Angus Gluskie, who manages the equivalent of about $380 million at White Funds Management in Sydney. ``The return of bonus fees is a big plus, and it's going to provide a big boost to Macquarie's earnings.''

DUET, an energy-asset investment company, in April said its dividend for 2008 will be 9.1 percent higher than its forecast payout for the year ended June 30 after the completion of the acquisition of energy distributor Duquesne Light Holdings.

Record Inflows

Macquarie Infrastructure, based in New York, invests in airport services, liquid storage and gas distribution businesses.

Macquarie said its adviser unit received A$17.7 billion in pension inflows in the three months ended June 30, the most ever in a single quarter, after the government changed laws on the way Australians contribute to their retirement funds, known locally as superannuation accounts.

Macquarie also cited acquisitions including Gateway Casinos Income Fund and Boart Longyear Ltd. for the result.

James Packer, Australia's richest man, in April joined with Macquarie to buy Gateway Casinos in western Canada for C$886 million ($847 million).

The A$2.35 billion initial public share sale in April of Boart, a Salt Lake City-based drilling services company, was the largest initial sale in Australia since 1997. A Macquarie-led group bought a 60 percent stake in Boart for more than $1 billion in cash and assumed debt of $502 million in 2006, according to data compiled by Bloomberg.

Holding Company

The bank said it remains in talks with the Australian Prudential Regulation Authority to form a non-operating holding company, owning both banking and non-banking units as its fund management business grows faster than its domestic banking operations. Macquarie expects to hold a shareholder meeting in the fourth quarter to discuss the changes, it said.

Almost 79 percent of shareholders voted for directors' remuneration, while 21 percent voted against, the bank said in a statement following the meeting. Moss's pay jumped 58 percent last year to A$33.5 million while Nicholas Moore, head of the firm's investment banking unit, received the next highest total salary of A$32.9 million.

Chairman David Clarke rejected criticism that Macquarie paid its executives too much, saying the bank had to offer competitive remuneration to attract the best staff.

`Very Happy'

``The system has served us so well over a period of nearly 40 years now,'' Clarke said. ``We're very happy with the way the system works and I think shareholders are too.''

Shares in Macquarie rose 84 cents to close at A$91.74 in Sydney today. They've climbed 16 percent in 2007, peaking at a record A$98.64 on May 17. That compares with a 15 percent rise in the 11-member S&P/ASX 200 Diversified Financials Index.

Macquarie trades at 15 times estimated 2008 earnings, compared with the current 20 times for the financials index. The seven-member S&P 500 Investment Banking & Brokerage Index in the U.S. trades at 8.9 times earnings.

``The shares are pretty attractive given the long-term growth prospects,'' said Fenton. ``They are good value. They're not on an overly demanding trading multiple for the business.''

Investors should sell credit-default swaps based on Macquarie bonds because increased market volatility is unlikely to hurt its earnings, Craig Saalmann at JPMorgan Chase & Co. in Sydney, said in an interview yesterday.

Moss said the bank doesn't have any exposure to the problems in the U.S. subprime mortgage markets, which have caused losses at funds worldwide.

More than 115 million people a year use Macquarie's airports and 1.7 million cars a day travel on its toll roads. Its buses carry 300 million passengers a year, 2.7 million people catch its trains and 6 million use its ferries, the bank said today.

Utilities owned by Macquarie-managed funds supply gas to 6.9 million homes, water to more than 5.2 million houses and electricity to 1.2 million houses.

To contact the reporter for this story: Stuart Kelly in Sydney skelly22@bloomberg.net

Last Updated: July 19, 2007 02:40 EDT