From GFC scars to AI data centres – this property investor has seen it all

When Stephen Hayes first began managing real estate investments more than two decades ago, global listed property was considered a niche, cyclical asset class, far from the dynamic and diverse opportunity set it has become today.

As Head of Global Property Securities at First Sentier Investors, Hayes has steered his strategy through the tech wreck, the GFC, the pandemic, and everything in between. But while market conditions and investor sentiment have shifted dramatically over time, Hayes’ core philosophy hasn’t wavered.

“Our focus has always been on capital preservation and wealth creation through efficient capital allocation and risk-adjusted returns,” he says.

Still, there have been evolutions, not least a growing emphasis on carbon emissions and sustainability. And while Hayes remains a believer in the fundamentals - asset quality, franchise value, and strong balance sheets – he’s not immune to market trends. He sees huge structural tailwinds in sectors tied to demographic and technological change, like data centres, build-to-rent housing, and land lease communities.

In this Q&A, part of Livewire’s 20-Year Club series, Hayes shares the pivotal moments that shaped his career, the lessons younger investors overlook, and why long-term megatrends are creating compelling opportunities in real assets.

Has your investment philosophy or process evolved over the past two decades?

There has been no change in the investment philosophy over the past 20 years; however, we now have a greater focus on carbon emissions than we did in the past. 

The main constant has been the focus on capital preservation and wealth creation through efficient capital allocation and risk-adjusted returns.

What have been the most pivotal moments for your fund over the last 20 years?

The two major pivotal moments have been the GFC and the Covid pandemic. 

In both major events, we relied on our team experience to look through the volatility and market noise to focus on the once-in-a-decade pricing anomalies and longer-term fundamentals to generate excess investor returns.

The single most important factor behind the fund’s longevity?

Active management delivering more compelling returns to investors, both in terms of higher returns and lower volatility.

How do you maintain conviction in your approach through cycles of underperformance or market stress?

Through experience and discipline, there is an important trade-off between pricing anomalies and opportunity cost, whether it’s a stock, a sector or a market theme. 

It’s one thing to remain steadfast on an investment or theme where you have conviction that returns will play out over time and the opportunity cost of the investment. Getting the balance right can be difficult, particularly during periods of market stress. 

However, the fundamentals of our investment approach always take precedence, such as asset quality, franchise value and strong balance sheets. Sticking to these basic fundamentals ultimately leads to long-term wealth creation.

What is the most valuable lesson you've learned that today’s younger investors often overlook?

Probably the biggest mistake investors make is sheep investing (herd mentality), where investors follow each other into a stock or theme and/or invest for a quick gain. 

Wealth creation is a patience game. 

Sticking to fundamentals through the cycle is a discipline; at a minimum, it takes nerve and patience. The outstanding investors are those with independent thought that can take advantage of the “herd” and contrary invest. This is when true wealth creation takes place.

What excites you most about the current market environment, and how are you positioning the portfolio for the next decade?

What excites us most are the long-term structural trends, such as societal change through the adoption of technology and demographic change through aging populations. 

The listed global real estate sector is a large beneficiary of these changes taking place.

Generational change is occurring through the adoption and take up of social media, influencing how younger generations interact with business and each other. One result is younger generation values are changing away from tangible goods to experiences. These value changes, combined with material housing affordability issues in most developed cities around the world, are leading to a greater propensity to rent over home ownership. 

Institutionally owned and developed purpose-built rental apartments and housing are benefiting from this long-term structural trend. We are even witnessing this in Australia, where the Build-to-Rent sector is in its infancy.

Another beneficiary of the adoption of technology are data centres. 

From cloud computing, online wholesale and retailing, social media, streaming content, the AI revolution (machine learning and inferencing) and in the coming decades, autonomous vehicles. 

The demand for high-tech storage and computation is growing exponentially, and access to power (as the world transitions away from carbon-emitting energy generation) is a large barrier to entry, inhibiting the development of data centres, with demand expected to continue to outstrip supply.

Land Lease Communities are a beneficiary of demographic change through aging populations.

These institutionally built and owned communities offer an affordable retirement home ownership solution with a great lifestyle, public amenities such as clubhouses, swimming pools, bowling greens, and pickleball courts, etc. The rental cash flow generated from land lease is proving to be a valuable, secure annuity stream.

Independent Living Seniors Housing complexes are also a beneficiary of aging populations.

These assets allow a transition through life-stage change to retirement from home ownership to purpose-built retirement rental accommodation. Another driving factor through societal change is the desire to “age-in-place”, with many governments adopting these policies and initiatives to help take the pressure off health care systems.

Managed Fund

First Sentier Global Property Securities Fund

Global Property

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