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The Beautiful and ‘Incredibly Inefficient’ Market of One Ingenious Fund Manager

Beartooth Group buys “distressed” ranches in the American West, closes their mines, restores their wetlands, and sells them. “We bring a different type of capital to the table looking to make a profit, not a donation.”

After a stint as an investment banker and attending business school, Robert Keith wanted to pursue the challenges and opportunities of inefficient markets. He went to work in venture capital but felt underwhelmed by both his own performance and the difference he hoped to be making in the world.

Not totally satisfied with his professional life, Keith found himself thinking more about Montana. He had fond memories of visiting a family ranch there when he was younger. The ranch market, he learned, was also an interesting one.

Like all or part of 11 others, Montana is a nondisclosure state, where the sales price of homes is not required to be publicly disclosed. In most cases, the lack of transparency can be worked around. Real estate companies can use comparable sales data to help buyers and sellers. But no two ranches are the same. They are different sizes, have their own geographies, and come with unique pleasures and problems. 

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In 2004, in the ranches of the American West, Keith found the “incredibly inefficient” market he was searching for and co-founded Beartooth Capital Partners, an investment business. “This became my nights and weekends job, frankly, while I was still doing venture in Silicon Valley,” he told RIA Intel

Keith assumed full leadership and ownership of the company, expanded its services and renamed it Beartooth Group in 2014. It makes one to four acquisitions per year and has done about 50 transactions over the lifetime of the company. It closed its third fund in October and Keith expects to open a fourth fund next year. So far, the funds have delivered good returns uncorrelated with other markets, Keith said. 

Most investors are high-net-worth families, but some institutions invest in the funds, too. All of them share enthusiasm for the investment company’s performance and its impact, according to Keith. Today, the company’s mission is to “use lessons we learned from both Wall Street and rural ranches, to create innovative solutions for our partners that positively impact the land and its wild inhabitants.”

Beartooth is hardly just another private real estate company. It often invests in what Keith calls “distressed” ranches with serious issues that further obscure their value and deter buyers. The investment firm has knowingly purchased properties that needed to properly close mines, redirect rivers back to their natural course, or required other projects most ranch buyers have no interest in or experience resolving. 

To do that, Beartooth leverages a network of local real estate brokers, bankers and other professionals, and works closely with environmental agencies and groups. The latter are eager to partner with Beartooth on returning trout to a stream, constructing small dams from sticks and mud meant to mimic beaver dams to restore wetlands, and forming property so elk roam there again. Without the investment firm, organizations lack the resources to restore and protect all the land that needs it on their own, Keith said. 

“We offer a whole new tool for them to work with. We bring a different type of capital to the table looking to make a profit, not a donation,” he said.

Ranches might be hundreds of square miles and cost millions of dollars, and the investments to restore parts of them are also expensive. The recent beaver mimicry project to recreate wetlands at a Beartooth property will cost about $1 million, Keith said. Beartooth has already restored 53 miles of creeks and streams on its properties; investments with immediate visible impact.

In one case, Beartooth sold a property to The Conservation Fund, a nonprofit environmental organization, which then transferred it to the U.S. Forest Service for public uses including hunting, fishing, and camping. But in most cases, private buyers are seeking Beartooth’s properties. Most buyers want a ranch 30 to 40 minutes outside Bozeman and amenities like their own stream to fish in, or ducks to hunt, Keith said. Bring those features back to a property and buyers will pay a premium.

“Ultimately, we are solving environmental problems and that is how we create value, financial value. By creating environmental value, we are creating financial value,” Keith said.

In March of last year, as the Covid-19 virus began quickly spreading in the U.S. and markets plummeted, Keith said he prepared to share a bad forecast with his investors. In the years following the financial crisis, the slow-moving ranch market got even more illiquid. 

But history shows that real estate has held up during pandemics — and even the plague during the Middle Ages — suggesting  another freeze on ranch buying wouldn’t happen.

A flight out of cities would, if anything, propel the market. That turned out to be true again in 2020, and the ever-shrinking supply of desirable ranches was met with buyers. Most were already considering a ranch and suddenly moved to make a purchase because of the pandemic, according to Keith.

The founder, who lives in Bozeman, is still making money but he’s finally satisfied with the work he’s doing. 

“I really wanted to do something that made the world a better place,” Keith said. “We actually found a model that works.” 

Correction: A previous version of this article said that Beartooth Group has sold property to the Wyoming Game and Fish Department. It has sold property to The Conservation Fund.

Michael Thrasher (@Mike_Thrasher) is a reporter at RIA Intel based in New York City.

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