This point in the cycle is creating opportunities... RAM's Scott Kelly unpacks them here

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

Decades of research has shown that humans are bad at multi-tasking. 

Only 2.5% of the world’s population are ‘supertaskers’ – i.e., those who can achieve exceptional results despite performing multiple tasks simultaneously. The best approach for the rest of us is to turn down the noise and focus on one thing at a time.

This is not lost on Scott Kelly, Group CEO at Real Asset Management (RAM), who believes that cutting through the noise is one of the most important lessons he has learned over his 30 years in markets.

“There's an increasing amount of noise in our lives and that's true of the investment world as well", says Kelly

"Seeing through all that and focusing on what's really important is critical. Otherwise, I think you can make some poor short-term decisions rather than making some decent long-term decisions”, says Kelly. 

Another critical lesson Kelly has learned is to remember that we’re always at some point in a cycle.

“It’s not always going to be like this”, says Kelly.

“I think humans tend to focus and tend to assume that the status quo will persist. It never does. So seeing through to the next part of the cycle is critical, and that's relevant right now”, says Kelly

The final lesson that has stuck with Kelly? Think about risk more than return.

“I think people generally compare returns across different types of investments, but what's really important is to compare risks", says Kelly

"There are lots of investments with similar returns. One might have a much higher degree of risk than the other, and I think focusing on return primarily as the driver is critical”, says Kelly.

Current market conditions

RAM is a fully independent wealth and asset management business focused on three main asset classes; namely credit, real estate, and private equity.

Key to RAM’s philosophy is understanding both current market conditions and long-term trends.

Regarding the former, Kelly notes that we are at the end of one economic cycle and entering another, with the expectation that interest rates and inflation will eventually decrease.

“So, in that late stage of the cycle, it's really interesting for us. What does that mean?

"It means that we can get access to really well priced real estate, that was not so well priced a few years ago, and get set in high quality assets for the longer term”, says Kelly

He also observes that in the listed space, market sentiment often swings like a pendulum, and it's clear that the pendulum is actively swinging right now. These shifting market conditions are particularly pertinent to RAM's strategy as it navigates the current landscape.

Capturing the trends and staying disciplined 

Kelly highlights healthcare as a significant investment opportunity, driven by long-term fundamentals and megatrends such as Australia’s ageing population and the rise in chronic illnesses. This growing healthcare demand is set to outpace GDP growth for the foreseeable future.

According to Kelly, RAM's competitive edge lies in its deep understanding of the healthcare real estate sector, built over nearly a decade of experience. RAM’s unique operator-led approach has enabled the business to build strong strategic partnership, which in turn create unique growth opportunities for its investors.

Patience and discipline are key themes in RAM’s approach to real estate investing.

Kelly also stresses that deals do not always materialise when desired or at ideal prices, but maintaining discipline allows RAM to seize opportunities when they align with their strategy.

Finding opportunities in a falling rate environment 

Another key focus of RAM’s business is credit and fixed income. Kelly discusses opportunities in both public and private credit. In the public market, he sees a favourable environment for extending credit duration, particularly in Australia, where expectations of rate reductions are not fully priced in.

In the private market, Kelly notes that RAM’s lending arm, Brighten, has experienced steady growth, originating around $250 million in loans per month, with a total portfolio close to $2.5 billion. These loans primarily consist of regulated residential mortgages in major Australian cities. 

Kelly emphasises that this capability has enabled RAM to offer attractive investment opportunities for its clients.

Managing risk

When addressing risk management, Kelly describes investing as essentially an exercise in taking risks, but these risks can be managed through careful planning and disciplined processes.

He illustrates this with a recent example from RAM’s real estate business, where they mitigated leasing, construction, and planning risks on a property deal, resulting in a significant increase in value shortly after acquisition.

“We bought something that was 70% complete, which is an opportunity in that late-stage cycle that I was talking about before”.

“We mitigated much of the construction risk. We took an option on it to buy at $50.25 million contingent on the fact that we'd lease it up, so we'd reduce the leasing risk, and that we had a change of use to convert it from what it was to a mental health facility.

"We did all of those things without parting with a dollar. When we settled, the day after it was worth $70 million", says Kelly

Looking ahead

Kelly highlights RAM’s strong growth, evidenced by an expansion from $243 million in assets under management to nearly $5 billion during his eight-year tenure.

While he envisions continued growth for the business, with plans to increase AUM to$12-$15 billion over the next three years, RAM’s longer-term goal is to establish itself as a leading alternative asset manager in Australia. To achieve this, the firm has invested in its people, processes, and systems, positioning itself for continued expansion and success.

Learn more about how Real Asset Management (RAM™) provide a global set of investment solutions in Credit, Real Estate, and Private Equity markets, here.