Investors should get ahead of the curve, says HMC founder David Di Pilla

The probability of falling interest rates mean it’s time to get back into real estate assets and listed shares, says HMC Capital founder David Di Pilla.

HMC Capital managing director David Di Pilla. Picture: Jane Dempster

Falling interest rates mean it is time to start investment in selected real estate assets as well as listed shares, says HMC Capital founder David Di Pilla.

In an interview with The Australian on Wednesday, after the release of HMC’s results, where he told shareholders there was lots of “blue sky” ahead for his company which listed on the ASX five years ago, Mr Di Pilla said now was the time for investors to look at getting back into the market.

“It’s a great time to think about investing,” he said.

“Investors need to be thinking about investing ahead of the curve rather than waiting for interest rate cuts to happen.”

Mr Di Pilla said the probability of the US Federal Reserve board cutting interest rates was now “close to 100 per cent”.

“As a result, yield curves are coming off materially,” he said.

“We think that’s all incredibly positive for asset valuations and the cost of funding.

“We expect to see asset activity really pick up over the next 12 months across the spectrum for real assets.”

Mr Di Pilla said HMC was not interested in investing in commercial property such as office blocks, but would be focusing on selected areas in line with its thematics including health care and digital infrastructure, such as data centres.

While the Reserve Bank has indicated it will not be cutting rates this year, because of its concern about persistent inflation in Australia, Mr Di Pilla, a former UBS executive with a long experience in the property sector, said he expected Australia would be following the US in cutting rates with a six-month lag.

He said falling interest rates would also be good for listed markets. “The listed markets and the IPO market will start to pick up as well,” he said.

Mr Di Pilla said this would give HMC access to other forms of capital for its non real estate business.

The company invests across four “megatrends” – the ageing population, decarbonisation, digitalisation and deglobalisation.

Mr Di Pilla was speaking after HMC Capital reported a 57 per cent increase in pre-tax operating earnings to $129m for the financial year to June 30.

The company reported it now has $2.5bn in “dry powder” across its funds management platforms, with total assets under management up by 30 per cent over the year to $12.7bn.

Its pre-tax operating earnings per share were up by 40 per cent, with HMC finishing the year with a net cash balance sheet with $1.4bn in available liquidity.

The company said its earnings were “supported by strong growth in recurring management fees, investment gains and performance fees”.

The company’s shares finished down by 2.25 per cent or 18c to $7.80, with analysts at Jarden saying the company’s underlying cash earnings were “lagging the significant share price outperformance in the last 12 months”.

Jarden analysts described the company’s results as “solid”, but noted that the headline earnings included significant unrealised gains and trading profits.

Mr Di Pillla, who has built up the company from its initial base of a portfolio of empty Masters hardware stores in 2017, has ambitious growth plans for his company which he has said is modelled on US investment giant Blackstone.

HMC’s latest results followed the establishment of three new “growth platforms” including its $1.6bn private credit platform with the acquisition of Payton Capital, and others specialising in energy transition and digital infrastructure.

Over the past five years of its ASX listing, HMC’s assets have grown from $1bn to more than $12.7bn with a goal of reaching assets of more than $20bn over the “medium term” with funds specialising in private credit, the energy transition, real estate, ­private equity and digital infrastructure.

Mr Di Pilla told analysts his company had a “huge blue sky opportunity” ahead of it, across its five investment verticals which he said could easily involve each overseeing a fund of about $10bn each over the next five years.

He rejected suggestions that HMC’s growth plans may be too ambitious.

“We have gone up in assets from $1bn to $12bn-$13bn,” he told The Australian.

“We have done it with no debt and a balance sheet which has $1bn in liquidity. We have done it in a way which has not involved taking on uncontrollable risk.

“Our investment track record, and our ability to create vehicles with great, mega trend growth fundamentals is what is driving capital to us and driving our underlying growth.”

HMC said its energy transition platform had secured its first seed investment and was “on track” to launch a new platform of more than $2bn in the current financial year.

The company this year recruited former prime minister Julia Gillard to chair its Energy Transition Fund, which will focus on energy investments including wind, solar, battery, biofuels and emerging technologies.

It has also established a digital infrastructure platform with the acquisition of North American business StratCap3, which the company described as “a highly strategic acquisition which provides HMC with specialist capability in a rapidly growing and globally scalable sector”.

Mr Di Pilla said the company had delivered a strong result for the year that was “consistent with the annualised growth in earnings achieved since the company listed almost five years ago”.

He said the establishment of the three major new platforms meant the company was now “a truly diversified alternative asset manager with scalable platforms in real estate, private equity, private credit, energy transition and digital infrastructure”.

The company said it was “well placed” to maintain its strong operating earnings per share growth trajectory for the FY25 financial year with guidance of 12c a share.