Cohen & Steers(CNS) - 2024 Q3 - Earnings Call Transcript

Financial Data and Key Metrics - Earnings per share increased to $0.77 from$ 0.68 sequentially, with revenue rising to $133 million from$ 122 million, driven by higher average AUM [4] - Operating income improved to $47.6 million from$ 42.5 million, with the operating margin increasing to 35.7% [4] - Total expenses rose due to higher compensation and benefits, with the compensation ratio remaining at 40.5% [5] - Effective tax rate for the quarter was 25.1%, and liquidity at the end of Q3 totaled $348 million, up from Q2 [5] - AUM increased by over$ 11 billion to $91.8 billion, primarily due to market appreciation and net inflows [5] Business Line Performance - 39% of AUM outperformed benchmarks in Q3, with 96% of AUM outperforming benchmarks over a one-year period [7][8] - Global listed infrastructure performance was up 520 basis points versus its benchmark over the last 12 months [8] - 95% of open-end fund AUM is rated 4 or 5-star by Morningstar, up from 94% last quarter [9] - US REITs rose by nearly 17% in the quarter, while global listed infrastructure rose by more than 13% [9] - Preferred securities outperformed high-yield bonds but trailed investment-grade bonds and 10-year treasuries [12] Market Performance - Sentiment shifted in favor of listed real assets, with real estate and global infrastructure outperforming the broader equity market [9] - Private real estate, as measured by the NCREIF ODCE Index, had a total return of 0.25%, marking the first positive quarter in two years [10] - Listed infrastructure outperformed equities, supported by the start of a new rate-cutting cycle [11] - Preferred securities had a solid gain amid declining bond yields, remaining the top-performing fixed-income category year-to-date [12] Company Strategy and Industry Competition - The company is optimistic about infrastructure as an asset class, with significant investment opportunities in listed and private infrastructure [13][14] - Listed infrastructure is expected to deliver more compelling returns versus private infrastructure, with greater access to core digital infrastructure and utilities [15] - The company is focusing on growing its global listed infrastructure strategy, which has$ 9.5 billion in AUM [26] - The company is adapting to industry trends, such as the migration of investment advisers to independent RIA firms and the adoption of private strategies in the wealth channel [24][25] Management Commentary on Operating Environment and Future Outlook - The company believes it is in the late stages of restoring fixed-income allocations and expects more listed allocations to benefit its business [19] - The company is excited about the investment environment for its strategies and growth initiatives, with tailwinds brewing after 2.5 years of headwinds [18][29] - The company expects its effective tax rate for Q4 to be in line with the year-to-date rate of 25.3% [6] Other Important Information - The company reported firm-wide net inflows of $1.3 billion in Q3, the first quarter of net inflows since Q1 2022 [20] - US REIT strategies led the way with$ 1.3 billion in net inflows, while open-end funds accounted for $1.2 billion of those inflows [20] - The company has a pipeline of$ 651 million, with 53% in US real estate, 22% in global listed infrastructure, and 19% in private real estate [22] Q&A Session Summary Question: How does the company expect fee rates and incremental margins to be for new business? - Inflows are going into higher-fee open-end funds, and the company is pleased with the flow [29] - The company has a long track record of stable fees and expects this to persist [30] Question: How is the company approaching the development of active ETFs and private real estate? - The company is leading with core strategies in real estate and preferreds for active ETFs and is excited about its non-traded REIT [31][32] Question: Can the company provide more color on the nature of last quarter's inflows and the level of engagement quarter-to-date? - The company had one large allocator driving inflows, and business activity has ticked up across the board [35][36] Question: What are the primary drivers of margin expansion next year, and how flexible is the expense base? - Appreciation in asset classes and raising AUM in private real estate will help margins [40] Question: Will the company's capital return framework or priorities shift as the macro backdrop becomes more conducive to flows and earnings growth? - The company maintains a strong balance sheet and is focused on predictable and growing dividends, with potential for special dividends [44][45]