Real returns, real restraint: why RAM won't budge on risk

By now, most investors would be aware of the large pools of capital that have been directed towards private credit. Even within the last five years, the market size has grown at a rapid pace, increasing from around $100 billion to more than $200 billion over the period. 

And whilst investors have enjoyed a halcyon period, punctuated by healthy returns and low volatility, with more and more capital chasing the same amount of opportunity, they need to be mindful that it’s not a bottomless pit.

Economics 101 tells us that when there is more demand for something and the same or not much more supply, the dynamics start to change. In this case, there could be a temptation for managers to move up the risk curve to chase new deals.

For James Chapman and the team at Real Asset Management (RAM), whilst aware of the increased competition, they’re not changing their stripes.

"We would rather sit back, be selective and ensure that we're going through our proper due diligence process and comfortable with the assets, than chase new deals", says Chapman.

The Real Income Fund aims to provide a balance of capital stability, diversified exposure and regular monthly income. I recently sat down with Chapman to discuss how he and the team are managing the Fund through a rapidly shifting environment. He also lays out the risks and opportunities that matter most to income-focused investors today.

The nuts and bolts

The Real Income Fund has delivered on its objective of capital stability: since inception, the Fund has maintained a Net Asset Value (NAV) of $1, with 0% drawdowns and no credit losses. Class A1 currently targets a return of RBA cash rate + 4%, net of fees, approximately 7.85% p.a. as of June 2025. Investors benefit from regular monthly distributions and a diversified, low-volatility credit portfolio.

That steady capital base is underpinned by a diversified portfolio, currently comprising over 7,000 first-ranking mortgages, averaging about $530k per loan, with a weighted average Loan-to-Value Ratio (LVR) of ~64%. No single mortgage exceeds 0.05% of the total portfolio, mitigating concentration risk.

As Chapman notes,

“Our net asset value since inception has always sat at $1...we've not experienced the volatility that more traditional credit asset classes have experienced, and that's what our investors sign up for.”

Independent quantitative risk oversight

To strengthen its risk oversight, Chapman explains, RAM has layered independent quantitative models over its internal risk analysis.

“We just don’t have the internal data set available that the banks do from back in the day…so we get access to that pool of data and that independent credit analysis on our portfolio", notes Chapman.

These third-party analytics leverage bank-owned historical data, including lending patterns dating back to the early 1990s. That enables stress-testing not just for a mild recession, but for “tail events” – even 1-in-10,000-year scenarios – without losing focus on actual cycles like the 1990s downturn.

The Fund also leverages independent valuations and impairment analysis, with ongoing assessments against Australian standards (AASB-9) that adhere to industry best practices.

Strong performance through diversification

The Fund’s 90+ day arrears rate stands at a mere 0.19%, far lower than the 2.12% Australian RMBS Non-Conforming SPIN Index as at 31 May 2025. Credit quality is backed by securitisation notes and whole loans, and with full recourse lending, borrowers’ other assets can be pursued in case of default.

The Fund manages liquidity through exposure to short-cycle direct lending via Brighten, a non-bank lender backed by RAM. Roughly $300 million per month of first mortgages are held for just 1–2 weeks before securitisation.

“Risk-wise, these are still high quality – average 64% LVR first mortgages in a high-quality loan book that's never experienced a loss, and we have that added liquidity benefit – we can exit this exposure in a matter of days”, says Chapman.

This strategy, which houses about one-third of the Fund’s assets, ensures that investors benefit from monthly redemption windows. In periods of asset scarcity, RAM can increase this allocation to 40–45%, boosting liquidity without sacrificing yield. This structure has enabled the Fund to remain capital-stable since inception while maintaining flexibility, control and liquidity.

Opportunities from volatility – without the compromise

Volatility in global markets has created both risk and reward. RAM benefits from floating-rate exposure, meaning the Fund’s income moves with RBA Cash Rate cuts, while peers chase yield through higher-risk assets.

Chapman explains the opportunity clearly:

“Some real quality floating-rate assets are popping up as managers with fixed return objectives are forced to sell and they're the type of assets that we're looking at seriously”.

Appetite from funds under tighter yield mandates or running leveraged strategies has forced some to offload quality loans, presenting acquisition chances for RAM. Technologies and resources focused on underwriting depth ensure these acquisitions meet their rigorous standards.

Facing competition from well-funded peers, some leveraging bank facilities, Chapman stresses the importance of selectivity:

“We don’t take leverage into our funds…we take advantage of our ownership of Brighten to mitigate origination pressures and we're very selective in external originations.”

Rather than sacrifice covenants or expand risk parameters, RAM remains focused on disciplined underwriting, with a key external asset secured by a pool of first mortgages with an average LVR of 52%, and 20% credit enhancement supporting the asset.

Outlook: cautiously strategic

Looking ahead, Chapman anticipates a more competitive landscape in the next 6–12 months, particularly in securitised markets and direct lending.

“We just need to remain highly selective…and not succumb to pressures to ease covenants or parameters or take on a lesser credit quality.”

RAM is preparing to adjust its liquidity mix, potentially increasing direct lending exposure, to weather this climate without compromising its underwriting standards.

“Is it more prudent just to hold off if need be, expand liquidity in the funds and wait for the right opportunity?” asks Chapman rhetorically.

The final word

The RAM Real Income Fund offers a combination of capital preservation, monthly income and liquidity, guided by a robust governance framework and advanced data analytics. With zero NAV drawdown, a strong arrears record, and disciplined allocations between securitised and direct lending, the Fund reflects a high-conviction approach to private credit.

Chapman’s and RAM’s philosophy is firmly rooted in patience, prudence and precision. In a market generating increasing heat, sometimes leveraged, RAM’s strategy – anchored by strong oversight and underwriting discipline – offers investors a time (and stress) tested path to regular income.