The real income fund that does what it says on the tin

Note: This interview was taped on Wednesday 18 September 2024.

Unless you’ve been living under a rock, you’re no doubt aware of the rise in private markets and, in particular, private credit.

A lot of capital, a lot of demand, and a lot of operators have flooded into the space in the same way that the goldfields were flooded in the 1850s.

As with any flood, there are ripple effects, and one of those has been a rethink by some of the longer-term players about how they position themselves.

That’s the case with RAM, which recently rebranded its private credit income fund to the Real Income Fund.

What’s the reason behind this?

As Group CEO Scott Kelly explains, it’s really about doing what it says on the tin and characterising risk.

“There are a lot of funds out there that label themselves private credit and they vary dramatically in terms of the risk they face.

"So you never quite know what's in the tin, and that assumes, of course, that people will let you see what is in the tin”, says Kelly. 

He adds that RAM felt it better to reflect the conservative nature of the portfolio, given it is not exposed to many of the risks that other private credit funds might be, such as development risk or corporate lending to SMEs.

“Ours is very basic, very boring, and we felt that we should differentiate that accordingly”, says Kelly.

What does the Real Income Fund invest in?

The Fund invests in asset-backed securities, predominantly Australian regulated mortgages. Kelly notes that the Fund delivers a return of cash plus four - so 400 [bps] over [RBA cash rate] - in a way that's very consistent, very capital stable. 

“So you get capital stability, you get a healthy income stream, and you get liquidity. The underlying assets are liquid, which means that we can offer monthly liquidity”, says Kelly.

In the following Fund in Focus, Kelly shares that RAM has a seven-year track record and has “never lost a cent” across its credit strategies. The fund's credibility is reinforced by independent validation from SQM Research, which highlights its unique end-to-end risk management process, robust credit assessments, and borrower analysis. Investors also benefit from true diversification, with exposure to over 5,000 first mortgages, a weighted average LVR below 63%, and a highly diversified borrower and geographic base.

He emphasises the protection nature of securitised credit, making it a resilient option for income-focused investors.

“No rated ABS or MBS in Australia has ever gone into default, so fundamentally the underlying assets are attractive from a risk adjusted basis”, says Kelly

Kelly also points out that the asset class has historically been popular with institutional investors, adding that investors in the Real Income Fund can take comfort in knowing that some of the largest domestic and global banks, as well as some of the largest institutional investors in the world, have poured over the underlying books.

Additionally, Australian mortgage-backed securities benefit from stringent regulatory oversight and well-established lending standards, ensuring robust risk management.

“So if you put all that together, you have simplicity, transparency, regulatory oversight and inherent capital protection, which means overall we think they are very attractive class for investors” 

Time codes

0:00 - Intro
0:24 - What should investors expect?
0:49 - Track record and what sets RAM apart
1:41 - Doing what it says on the tin
2:56 - The floodgates are open
3:52 - Securitised credit and managing risks
5:12 - Fund rating from SQM Research

Learn more about how Real Asset Management (RAM™) provides investors with an enhanced income stream through Australian secured credit here.

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Real Income Fund

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