Q3 2020 Cohen & Steers Inc Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to the Cohen <unk> Steers third quarter 2020, <unk> earnings conference call. During the presentation. All participants will be in listen only mode. I first we'll conduct a question and answer session at that time. If you have a question. Please press the one.
By the four on your telephone.
But at any time during the conference you need to reach an operator. Please press Star Zero. This conference is being recorded Thursday October 22nd 2020, and now we would like to turn the conference over to Brian <unk> Senior Vice President and corporate counsel of Cohen stairs. Please go ahead.
Thank you and welcome to the Cowen Steers third quarter 2020, <unk> earnings conference call joining.
Joining me are Chief Executive Officer, Bob Steers, our President, Joe Harvey and our Chief Financial Officer, Matt Stadler I want.
I want to remind you that some of our comments and answers to your questions may include forward looking statements.
We believe these statements are reasonable based on information currently available to us actual outcomes could differ materially due to a number of factors.
Reading those described in our accompanying third quarter earnings release and presentation. Our most recent annual report on form 10-K, our quarterly.
Our quarterly reports on form 10-Q for the quarters ended March 31st 2020 at June Thirtyth 2020.
And our other SEC filings, we assume no duty to update any forward looking statement.
Furthermore, none of our statements constitute an offer to sell or the solicitation of an offer to buy the securities with any fund.
Our presentation also contains non-GAAP financial measures that we believe are meaningful in evaluating our performance.
Non-GAAP financial measures should be read in conjunction with our GAAP results record.
A reconciliation of these non-GAAP financial measures is included in the earnings release and presentation to the extent reasonably available.
The earnings release and presentation as well as links to our FCC filings are available in the Investor Relations section of our website at Www Dot com when it steers dotcom with that.
With that I'll turn the call over to Matt.
Thank you Brian Good morning, everyone. Thanks for joining us today.
My remarks. This morning will focus on our as adjusted results a reconciliation of GAAP to adjusted results can be found on pages 18, and 19 the earnings release and on Slide 16, and 17 of the earnings presentation.
Yesterday, we reported earnings of 67 cents per share compared with 65 cents in the prior year's quarter and 54 cents sequentially.
Revenue was 111.4 million for the quarter compared with 104.9 million in the prior years quarter and 94 million sequentially, yes.
The increase in revenue from the second quarter was primarily attributable to higher average assets under management ended.
Additional day in the quarter and the recognition of 5.2 million of performance fees from certain institutional accounts.
Our implied effective fee rate was 59 basis points in the third quarter compared with 56 basis points in the second quarter.
Excluding performance fees or third quarter implied effective fee rate would have been 55.8 basis points.
Operating income was 44.2 million in the third quarter compared with 40.7 million in the prior year's quarter and 35.5 million sequentially.
Our operating margin increased to 39.6%.
37.7% last quarter.
Expenses increased 14.8% on a sequential basis, primarily due to higher compensation and benefits and distribution and service fees.
The compensation to revenue ratio was 36.5% to the third quarter consistent with the guidance provided on our last call.
And the increase in distribution and service fees was primarily due to higher average assets under management in U.S. open end funds.
Our effective tax rate for the quarter was 27% consistent with the guidance provided on our last call.
Page 15 of the earnings presentation displays our cash corporate investments in us Treasury Securities and seed investments for the current trailing four quarters.
Our firm liquidity totaled 201.9 million at quarter end, compared with 191.9 million last quarter, and we remain debt free.
Total assets under management was 70.5 billion at September 30, an increase of 4.2 billion or 6% from June Thirtyth.
The increase was due to net inflows of 2.3 billion.
Market appreciation of 2.6 billion, partially upset by distributions of 724 million.
For the second consecutive quarter, we have recorded net inflows into each of our vehicles open end funds advisory, Japan sub advisory and sub advisory ex Japan.
Advisory accounts, which ended the quarter with a record 16.1 billion of assets under management had net inflows of 106 million during the quarter 323 million of which were included in last quarters pipeline.
We recorded $381 million of inflows from six new mandates and a record 689 million of inflows from existing accounts.
Partially offsetting these inflows were $950 million of outflows from five terminated accounts.
One of the terminations, which totaled 506 million that was mentioned on last quarters call. There's from a global listed infrastructure mandate that was performance related it is.
It is noteworthy that the account that terminated is not representative of the performance of our global listed infrastructure assets under management.
The combination of the benchmark and portfolio guidelines were different and unique.
Net outflows from advisory accounts were primarily into global and U.S. real estate portfolios.
Bob Steers will provide an update on our institutional pipeline of awarded unfunded mandates.
Japan Subadvisory had net inflows of 294 million during the quarter compared with net inflows of $318 million during the second quarter.
This marked the fifth consecutive quarter of net inflows from Japan sub advisory after eight previous quarters of net outflows.
Distributions from these portfolios totaled 359 million compared with 334 million last quarter.
Sub advisory excluding Japan had net inflows from existing relationships of 199 million, primarily it's a global real estate portfolios.
Open end funds, which ended the quarter with a record 31.4 billion of assets under management had net inflows of 1.6 billion during the quarter, primarily to U.S. real estate and preferred funds.
Distributions totaled 239 million 186 million of which was reinvested.
Let me briefly discuss a few items to consider for the fourth quarter.
As has been the case throughout most of this year, we continue to perform at a very high level with respect to those matters within our control such as investment performance and organic growth.
In fact through September Thirtyth, we have already broken our previous records for the full year gross inflows open end fund assets under management and advisory assets under management, and we recorded a 13% annualized organic growth rate.
That said our financial results continued to be affected by factors, we cannot control such.
Such as overall market volatility.
And the economic uncertainty, resulting from the cobot maintaining them.
On a year to date basis, our assets under management have declined by 6.1 billion, resulting from market appreciation during the first quarter Jordan down there.
Therefore, we expect our compensation to revenue ratio for the fourth quarter to remain at 36.5%.
On our last earnings call I mentioned that as a result of a large open end fund inflow into a legacy share class with a higher revenue share component we.
We expect that our third quarter distribution expenses to increase by one and a half to two basis points.
Although we did see the expected increase associated with the large second quarter slow because of the sequential shift in the third quarter into lower cost share classes distribution expenses increased by a little less than half a basis point.
All things being equal we expect that our fourth quarter distribution costs will remain consistent with the third quarter rate.
As a result of the continued impact of the COVID-19 pandemic, when traveling entertainment and hosted and sponsored conferences.
We now congested Archie and they will decline by about 4% to 5% from the 46 million we recorded in 2019.
The fourth quarter approximating the amount we recorded this quarter.
And finally, we expect that our effective tax rate will remain at approximately 27%.
Now I'd like to turn the call over to Joe Harvey, who will discuss our investment performance.
Thank you, Matt and good morning, everyone today.
Today I will review our investment performance then provide some perspective on how our largest asset classes are performing as the pandemic and recession progress.
Notwithstanding expectations for this falls resurgence in the virus and sustained economic challenges markets were strong in the third quarter due to ongoing monetary stimulus.
Hope for additional fiscal stimulus, both pre and post presidential election.
And the progress made with potential protocols to protect against and prevent the virus.
The high level summary of our asset class performance is that preferred performed well versus fixed income.
You asked and global reach and infrastructure, notably trailed throughout the technology led rally in stocks.
And certain of our strategies with energy allocations underperformed our concerns about the secular decline in the demand for oil considering the growing focus on renewables.
Turning to our performance scorecard in the third quarter seven of our nine core strategies outperformed their benchmarks, while midstream energy and resource equities underperformed.
For the last 12 months five of nine core strategies outperformed benchmarks and won performed in line.
As measured by a U M, 20% of our portfolios are outperforming on a one year basis.
83% are outperforming over three years and.
And 99% are outperforming over five years.
The one year figure declined from 75% last quarter, while the three and five year figures were consistent.
Last year, our one year outperformance was 96%.
And the declining to 70% was primarily due to preferred strategies for.
For the one year period, 21% of preferred strategies were outperforming.
If all preferred strategies outperformed our firm wide U.M. outperformance would be 92%.
Separately, 92% of our open end fund you when is rated four or five star by Morningstar compared with 98% last quarter.
Preferred returned 4.4% in the quarter, we outperformed in both our core and low duration preferred strategies.
While we've outperformed for two consecutive quarters, we haven't yet turned the latest 12 month figures to the positive however.
However, our performance versus peers continues to be strong.
Treasury yields and returns were basically flat in the quarter, while credit performed well.
As the recession has continued the early concerns about fundamentals for banks and insurance companies, which account for 78% of the preferred market.
Have receded.
Meantime, preferred credit spreads have compressed due to the scarcity of yield and investor demand.
As we've highlighted over the past several quarters banks entered this recession with very high capital ratios and strong liquidity. So despite higher provisions for loan losses, and a flat yield curve. We believe preferred dividends from banks are solid and preferred yields offer good value.
Suffered yield spreads versus corporates are 248 basis points compared with their historical average of 192 basis points.
The performance of real estate and infrastructure in the quarter deserves discussion.
These asset classes lagged the U.S. and global stock markets, which returned 8.9% for the S&P five 508.2% for the global market.
You asked reads returned 1.2% global Reis returned 2%.
And infrastructure returned to 2%.
Yes technology continues to lead markets and is the biggest beneficiary of pandemic conditions, yet consumer discretionary materials and industrials beat the performance of tech in the third quarter.
In the quarter, just two of the 16 sub sectors of real estate outperformed the S&P.
And in infrastructure, just one of 10 sectors outperformed for.
Furthermore, reads and infrastructure underperformed to value.
With two consecutive quarters of underperformance the market, maybe signaling that it could take longer for certain segments of real estate and infrastructure to recover.
Over the past two quarters, we have shared our thinking about which segments of these asset classes are directly affected by the pandemic and recession and what percentage is less affected or benefits.
Looking at the five worst performing read sectors in the third quarter provide some context for the range of recovery profiles and market is discounting.
Shopping centers and regional malls face secular decline due to E commerce.
Cyclical challenges from businesses that are partially or fully closed.
Office buildings face significant sick cyclical pressure and secular erosion due to a shift to the work from home environment.
Apartments have cyclical pressure in urban locations, but much less so in suburban locations and.
And cell towers are clear winners.
Gave back some outperformance in the quarter.
To update our thinking on the pandemic impact and recovery profile for each asset class in real estate, we estimate that 45% of the universe benefits from the pandemic and structural changes that should come of it.
14% faces cyclical or temporary challenges, but could recover within two to three years and.
And 27, and 27% the recovery will depend on a vaccine and finally, 13% could suffer more permanent impairment, namely <unk> retail and office.
Looking at infrastructure, we believe 11% of the universe is a long term beneficiary of the pandemic.
71% is cyclical we impacted one.
1% is dependent on a vaccine and 17% has longer term structural challenges, specifically airports and pipelines.
This landscape appears to be counted into valuations with real estate trading at 16.6 times earnings or.
Or a 13 point PE multiple discount to stocks.
Versus a historical discount of two multiple points.
Less dramatic the similar infrastructure is trading at a half point discount to the market, whereas historically as it has traded at a premium price to earnings ratio.
The upshot of this is that active management is more important than the as ever.
There will be windows of opportunity and all of these fundamental and recovery profiles and the.
And the price declines that have occurred this year have created an attractive entry point for both real estate and infrastructure investors for.
Furthermore, the opportunity to help clients navigate the cycles between private and public markets is significant keeping.
Keep in mind that most private real estate allocations are highly weighted often 50% or more in retail and office, which you're seeing but secular or cyclical and secular challenges.
This will help push more real estate allocations to the public market, which contains more new economy property types and greater liquidity to capitalize on dislocations and mis pricing.
Looking at our relative performance, we had an outstanding quarter in real estate, we outperformed in U.S. reads Global rights and in every regional strategy and in every style of strategy by income or risk profile.
Over the past 12 months, our real estate performance is as strong as I can remember.
And infrastructure, we outperformed in the quarter and over the past 12 months exceeding our excess return bogeys.
Turning to investment Department priorities, we continue to develop our next generation of portfolio managers.
Integrate E S G into our decision making and to.
And to incorporate quantitative research into our fundamental investment processes.
New strategy development as a priority and is showing good initial results. We have nine track record accounts for strategies that have been developed over the past three years.
All are outperforming benchmarks and seven of nine are outperforming our excess return targets.
We expect to add this stable of offerings as we find great ideas and continue to innovate.
We continue to engage with clients at a high level.
In addition to providing and so on when and how to establish or enhance allocations and how to optimize public and private real assets right.
Recently, we have been responding to inquiries about potential portfolio strategies to provide inflation protection.
We will continue to add capabilities to help clients solve those types of asset allocation questions.
As a testament to both our performance and distribution our market share and our largest strategies continues to increase.
2016, our market share of the U.M. and domestic fund vehicles has increased every year for both us and global real estate as well as for preferred and infrastructure.
Market share is measured against both active and the industry's passive a U M.
This validates our belief in the specialist model, which has provided the foundation for us to achieve our excess return targets and compete effectively versus both active and passive strategies.
With that I will turn the call over to Bob Steers.
Thanks, Joe and good morning, everyone as me.
As Matt indicated this was another strong quarter with 2.3 billion of net inflows we've now.
We've now achieved strong positive organic growth in five consecutive quarters and 20 of the last 24 quarters.
As has been the case all year, our inflows were broad based and diverse.
All four distribution channels were a net inflows again and most geographic regions were as well.
Indicator of incremental drivers of demand beyond strong relative investment performance and improving distribution capabilities. Our year to date gross inflows have already exceeded our prior full year sales record by over 20%.
As has recently been the case the wealth channel led the way in the quarter with 1.6 billion of net inflows, representing a 22% organic growth rate.
Year to date gross inflows of 13.6 billion at already beaten too.
2019 full year record of 12.5 billion.
US open end net inflows of 1.3 billion were primarily derived from our preferred securities and us real estate strategies.
Fund flows within well were strong and every intermediary channel.
Net flows from our aides were 752 million, representing a 34% organic growth rate.
The Bank Trust and insurance segment delivered net inflows of 306 million.
32% organic growth rate and the Wirehouse channel generated 299 million, an 18% organic growth rate.
As we've said in the past, we believe the new and vastly improved vintage of closed end funds represents a large and dynamic new growth opportunity for CNS.
The new fee structures, along with some limits on duration have the potential to substantially expand the universe of potential buyers to include larger and more sophisticated investors, which in turn will open up the range of investment strategies that can be successfully floated beyond traditional fixed income.
Full year sales.
We are currently in the market with a closed end preferred securities offering.
As I've said, we believe this market will be an important new source of future growth and we are developing new and innovative strategies for this space.
I'm also pleased to report that David Conway has joined cone it steers to direct our EMEA wholesale distribution efforts although.
Although we've been generating modestly positive net inflows in our non U.S. open end funds, we anticipate a significant improvement over time under David's leadership.
David was previously director of wholesale distribution for Asia, Jupiter asset management.
The institutional advisory channel had net inflows of $106 million, which marked the sixth consecutive quarter of positive net flows similar.
Similar to the wealth channel year to date gross inflows of 3.7 billion have already substantially exceeded the prior full year record set in 2018 of 2.1 billion.
As Matt mentioned, we also did experience one global listed infrastructure termination of 506 million, which we previously disclosed.
In the quarter, we were awarded six new mandates totaling 381 million, which were primarily targeted to us reach strategies. In addition existing clients contributed another 689 million also mainly directed to U.S. and global real estate portfolios.
The pipeline of awarded but unfunded mandates remains at 1.25 billion.
New mandates totaled 560 million well 323 million was funded in the quarter.
Partially offsetting this were $240 million of unfunded mandates that have been terminated.
[noise] institutional investors continue to be attracted to the substantial valuation gap between public and private real estate markets.
What's more we are seeing a growing interest in real asset strategies that have the potential to hedge against unexpected inflation as Joe already mentioned.
[noise] sub advisory ex Japan had a second consecutive consecutive strong quarter 499 million of net inflows.
Prior to these two positive quarters, we had experienced net outflows in 10 out of the last 13 quarters. We're encouraged that our focus on intermediaries with the potential to develop multi strategy relationships is beginning to pay off.
Japan Subadvisory produced another solid quarter with 294 million of net inflows before distributions and 65 million of net outflows after $359 million of distribution.
The next Gen portfolio that we sub advise for and you can SMB team achieved positive net flows of $33 million, which is down from prior quarters due to covidien related limitations on marketing efforts in Japan.
That said year to date net inflows into this portfolio or 269 million.
Our record sales activity. This year begs the question why are real asset and alternative income flows so strong.
As I said, we have a nine month smashed all of our full year sales records despite weak absolute returns in the space.
You asked and global read indexes are actually down 12.3, and 19.7% respectively through September.
And our global listed infrastructure benchmark index is likewise down 11.5%.
Many of our clients, who are asset allocators had been looking beyond the market's current trends to address three major long term challenges.
First although 60 40 portfolios have been largely unbeatable for over a decade. It appears.
It appears unlikely that the 40% dedicated to traditional fixed income will perform as well going forward.
As a result, the search for new sources of alternative income, which is not necessarily new.
Gaining increasing momentum.
Second with traditional valuations for 60, 40 portfolios at or near record highs.
A search for undervalued non traditional asset classes is approaching a frenzy.
Real estate, both listed and private fits that bill.
Lastly clients are increasingly concerned not only about a reversal for 60 40 portfolios, but also future unexpected inflation, which could be the byproduct of our unprecedented monetary and fiscal stimulus.
These are all logical and well grounded issues, which present exciting investment and product development opportunities for CNS.
We are always intensely focused on developing innovative sources of alternative income.
But we have also identified several new opportunities to address the challenges that our clients face.
Including inflation sensitive real asset portfolios and expanding further into investment in non traded real asset companies.
We anticipate that these initiatives will begin to take shape in the coming months.
With that I'm going to stop there and I'm going to ask the operator to open the floor for questions.
Thank you, ladies and gentlemen, if you'd like to register a question. Please press. The one followed by the four on your telephone you will hear a three told prop to acknowledge a request. If your question has been answered and youd like to withdraw your Registrational. Please press. The one followed by the three and if you are using a speaker phone. Please lift your handset before entering to request once again, that's one for Trisha.
Her question with a question from John Dunn with Evercore ISI. Please go ahead. Your line is open.
Hi, Good morning, maybe we could start with kind of a broader question I'm just thinking looking back a few years ago.
You guys had really invest heal and real assets institutes spread growth and the wealth management channel Thats already today.
We are seeing the pay off of that.
You know the frame it maybe is what's real asset institutes that today like I mean by that something where you're investing now that a few years from now we're going to look back and see organic growth is it U.S. intentional that comes to mind.
Or the others.
John is the question related to distribution or product development.
Both.
[laughter] because it really had to ask if you could get with getting the product into distribution sales.
Yeah, well you know we continue to.
Ah emphasize and put a lot of resources behind you know our educate.
Our education initiatives, our thought leadership pieces are white papers and as you can probably guess from Joe's comments and my comments about.
A significant uptick in institutional interest and hedging.
Hedging strategy.
Strategies that hedge inflation.
We're focusing quite a bit on that so the real asset Institute is really just broadly based our commitment to white papers thought leadership and so yes. We are expanding we have been expanding and going higher and deeper with our institutional distribution number one number two we are.
Continuing to invest and thought leadership and focusing it on a you know the issues and challenges that are on our clients' minds and three.
And three you know we have established along with.
The Institute.
A significant institutional client advisory panel.
To both keep them informed but also worked with us to develop.
Innovative new stride.
New strategies.
Got it and then maybe could you.
Maybe could you talk a little bit about the non Japan Subadvisory business, just you've made some changes over the past year or so and it's doing better. These days and also how that could play between building out that business and trying to have more direct business, particularly in Europe.
Sure well.
As you know step one was.
Deemphasizing or eliminating some.
Some relationships that weren't going to be strategic or long term two was to.
Developed a strategic partners program, where those relationships preexisting relationships and potentially new relationships.
I would get a package of benefits from a preferential fees to add.
Access to research and I think significant Bennett.
Benefits such as that.
We also as part of that as you know the Oh CIO.
Industry.
It's growing quite rapidly.
And but its not homogeneous there are some OCI autos for whom we manage.
We managed separate accounts there are others that.
Utilize our services as sub advisors and that would that would matter.
That would manifest itself in this segment.
So I think our existing relationships.
Are poised to grow and I think we're hopeful that we're going to be adding some some meaningful.
Sub advisory relationships with this growing Oh CIO segment.
Thanks very much.
Thank you John.
Once again, if you'd like to register for a question. Please press one four on your telephone we have a question from Robert Lee with KBW. Please go ahead.
Great. Thanks, Good morning, everyone. Thanks for taking my questions I'm, just maybe want to focus a little bit on the closing on market you mentioned in market now will begin or on the.
I guess two questions there you know that.
Any color on what you're thinking in terms of size spectrum clothes, and sensors and other costs related to that I'm, assuming that was not part of our.
Part of the guidance.
Yeah, No there was no.
No inclusion of any expected raise from the current fund in our guidance.
Since we're in the market and registration on that farm, we can't really comment on the market reception I will say and I can't emphasize this more strongly we see it.
Capital markets closed end funds and.
Other vehicles.
As a very substantial incremental.
Product and distribution opportunity for Us star.
Starting now with this with the spot in the market, we think that you're going to see.
In the closed end fund market, you're going to see raises that or.
A significantly larger industry wide than in the past.
You're going to see.
Investment strategies that combine public and private and give.
Give the public access to securities that they otherwise and investments that they otherwise could not access so.
I would encourage you all to totally rethink and re evaluate any any impression to have on the closed end fund industry because it it's going to change substantially we also see.
More and more opportunities to work with our KLH.
Work with our clients to benefit from the arbitrage between public and private real assets and we see that.
As an exciting new investment opportunity for us and prospectively in asset gathering opportunity.
Great maybe just to follow up question.
On the topic, you mentioned no change in duration you've seen.
No more terms structured type clothes, and comms market I'm not sure if thats, what you were referring to and no also wanted to change the perceived in the marketplace.
The inwards no tenant really narrow that's on the offering you know.
Cost and then the buys and sells or.
Honing the more upfront capital so.
The latter rocks reason 2 billion offering I think that.
$83 million of costs.
This is related to that so.
It was at least in the short term, while it's about the good things right.
No that could that impact how we should be thinking.
In the specialty division.
Dividend or anything that you have some outsized onetime offering costs.
Well that's a great question first of all as you pointed out.
The new structure is obviously, a great deal for our investors, there's virtually no frictional costs for our investors.
Sponsors such as ourselves shoulder all the all the deal costs, which are not insignificant as you pointed out the I'll make two comments on that one is that that upfront capital cost.
Subs create substantial barriers to entry for the closed end fund market. So whereas in the past you had closed end fund offerings from all kinds of firms you know big small and everything in between.
I don't believe you're going to see that anymore, and we as the seventh or eighth largest issuer historically in the industry and as you know we have a fantastic.
Balance sheet.
No.
There are no bear financial barriers for us to this market.
Hour.
In modeling out this opportunity even with those costs. The IR ours that we're looking at for that exceed 30%, but with very low risk. So it. It is again an exciting opportunity. It yes. It is a new.
A new use for our capital, which as you know we generally.
Paid out at significant special each year.
I can't comment on the special this year, but we will go through the same process. We go through every year, which is evaluating our cash reserves and alternative uses for that cash.
Great. Thanks for taking my questions.
Thank you.
And we have a question from Mike carrier with Bank of America. Please go ahead.
Hi, good morning, Thanks for taking the questions. Joe you mentioned, the nine new strategy, but I think you mentioned something on the non traded at the end of your comments.
Can you provide some color on Monday.
The strategy, maybe the process ramping up.
Animals, where you expect most.
Yeah. So in terms of new strategy development, which has been a a project for the past three years.
We've got a lot.
A lot that are extensions of our of our core competencies. So for example.
Sample in the infrastructure area one of the ones that were most high on his digital infrastructure, which plays.
Plays to the whole E commerce.
Echo system and as you can imagine has performed extremely well throughout this environment.
Ranges from that to a small cap infrastructure, which is a thematic play to.
Ground and an investment thesis that are all of the.
Some of the capital that's being raised in the private market is going to find its way into the public markets by by way of buying companies are buying parts of of companies. We also.
We also have other things.
Things like a lower risk approach to diversified real assets, which are de weight some of the more vod.
A more volatile parts of the real asset.
Portfolio and certs tips and other short term credit so.
These records.
Records.
Very consistent with the things that we do but they are grounded in <unk>.
Either great investment ideas or.
Trends that we see being sustained.
I think Bob mentioned, you know the potential to develop some strategies to.
Optum.
Optimize how to invest in both the public and private market for real assets, we're not ready to talk about some of the things we're working on there, but we're we're up we think there's a a terrific opportunity to.
Uh huh.
Take what some of our of our peers are doing and.
And the private space for a deliberate and non traded for a for example, or.
Through the closed end fund market, which along with the the features that Bob talked about.
It was because.
A need or desire to have.
Access to investments that are tougher to get and and met many times. It has a private element to it. So for example, you may have if you've been following US you may have seen a press release, where we and our clients made an investment in a private or real.
Real estate company called lineage of a cold so.
A cold storage operator, so that's the type of investment that we think matches nicely with the the closed end fund market. So.
Well have more to talk about but the the.
We're excited about continuing to innovate and and provide a better ways for both institutions and wealth investors to invest in real estate.
All right Great and then maybe a second one just a question on capital and M&A and it sort of cheap or you guys have been doing a special dividend as cash build up.
Also look yes on M&A in the past it looks like there's more activity in industry and so as your priority on cash changed at all and then give them more industry M&A and the need for scale in certain areas. It also many pitfalls you how do you think about the longer term outlook Gary.
Meaning continuing a strong performing focused asset manager or you need to be part of a larger class.
Well look you know as we.
You know as we've talked about our focus continues to be.
Adding exciting investment opportunities that seek to.
Break new ground and develop and deliver.
Yeah, great returns for our clients and to address our clients' issues with.
With respect to M&A as you know.
As you know.
We've really not done anything on in terms of us looking at that.
Potential targets, we're we're always.
Looking to fill gaps.
And add capabilities that.
That is.
Historically, we've typically done that organically.
And so both of those options are open to us.
You know candidly.
The honest and there's there's a great Greenwich Associates study recently that that put.
I think the industry and perspective, which.
<unk> basically said there there are two ways to be successful going forward. One is scale and you know everybody knows.
Everybody knows the big names out there and so on that gives.
That gives you product breadth and distribution and so on.
But it doesn't give you investment performance and the other bucket.
Is specialists.
Focused managers.
Who have something special who dominate and asset class and as you can see from our margins and from our results.
We don't need scale and.
To deliver profitable growth and frankly scale is probably more of an obstacle to investment good investment performance Rob.
Rather than than helping it so.
I think your scale question I think pertains to traditional very large asset managers, who are in organic T.K., whereas I think product specialists like ourselves and others.
You know scale is not the issue is can we sustain outstanding performance.
Hey, guys. Thanks, a lot.
Once again, if you'd like to register for a question. Please press one four on your telephone we have a follow up question from John Dunn with Evercore ISI. Please go ahead. Your line is open.
Hi, Thanks for taking the follow up then I looked at the infrastructure teams performance remains good and you mentioned the kind of emerging new types of infrastructure stuff, but it just really changing rates that that's going to get this product really inflow.
Well it does on the channel instead.
Institutionally, there's lots of interest and it's growing.
Thank the wealth channel.
Has trouble understanding exactly why.
Exactly what it is and so my sense is and Joe you know you you probably closer to this than I, but my sense is that.
And the infrastructure portfolios that have had some success in the wealth channel are primarily yield driven as opposed to more fundamental.
Well I would I would say a couple things one is as Bob said institutionally, there's there's a lot of interest and and and because of the liquidity.
Offered in a you know listed infrastructure, we're seeing more interest from from smaller institutions. So I.
I don't know that maybe that's a precursor to a.
Well, you know begin having to adopt it but.
Yes, the the fee.
The funds that have had the most success and.
And the wealth channel have have had a high income component to them.
But I'd say that when you look at all of the.
Activity, that's surrounding infrastructure right and the pandemic is a great advertisement for it and I don't mean that speak of it in the terms but.
The it had we not in this country and I made it an investment and.
And you know five G. and and you know E commerce.
Think about where we'd be so there's a tremendous investment opportunity and ultimately capital will will follow that and another example will be renewables right.
It's it's likely that there is going to be you know a lot of focus and.
Investment required in renewables were seeing it.
Seeing it.
And Europe.
Depending on who it is.
It was elected as president and we could see more emphasis or less emphasis but on the whole.
On the whole topic of infrastructure there's.
Significant investment needs across a variety of fronts on infrastructure and I think ultimately that will help.
Drive capital and and into our vehicles.
Thanks again.
And we have a question a follow up question from Robert Lee with KBW. Please go ahead. Your line is open.
Great. Thank you for taking my follow up.
I apologize I think I just missed it in your earlier comments, but could you repeat what kind of you can you comment a pipeline is and then won but unfunded and then the.
Just kinda any known kind of New York from coal.
Color on you know clearly no institution like than being strong, but any kind of color on kind of RFP activity or Chad you need.
Leeson you know.
Yeah.
For the year.
As as we mentioned the pipeline of awarded but unfunded mandates is about a one in a quarter billion.
The and looking at that pipeline it.
It is.
As has been the case, mainly real estate related strategies U.S. and global.
With respect to RFP activity.
The the only.
Ah I think that.
The new momentum.
We're seeing just in the last six months or is.
Both.
An interest in.
Creating.
Portfolios that.
Can provide significant hedge against unexpected inflation.
We are seeing in the wealth channel as I said, but also elsewhere just strong interest in all of alternative income strategies.
And we're also seeing we keep talking about there was a significant arbitrage between public and private market.
Valuations, particularly in real estate.
And we have a number of existing clients and potentially new clients.
Want to relay.
Rely on us to craft and implement strategies that can help them now.
Navigate their allocations between public and private so.
I think there are two really or even three interesting new.
Avenues of growth for us inflation hedges this arbitrage between public and private and and obviously additional alternative income strategies.
Great I appreciate taking my follow ups.
Sure.
And there are no further questions at this time I'll turn the call back to upstairs.
Great well. Thank you all for dialing in this morning, and we look forward to sharing are some some of the exciting ideas that were working on now on our next call. Thank you.
That concludes the call for today, we thank you for your participation and ask you. Please disconnect your line.
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