Q4 2020 Cohen & Steers Inc Earnings Call
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Yeah.
Ladies and gentlemen, thank you for standing by and welcome to the Cohen <unk> Steers fourth quarter and full year 2020 earnings conference call. During the presentation. All participants will be in a listen only mode. Afterwards, we will conduct a question and answer session.
At that time, if you have a question. Please press the one followed by the for on your telephone if at any time during the conference you need to reach and operator. Please press Star Zero as a reminder of this conference is being recorded on Thursday January 28 2021.
I would now like to turn the conference over to Brian Heller Senior Vice President and corporate Counsel of Cohen <unk> Steers. Please go ahead Sir.
Thank you and welcome to the Cohen, <unk> steers fourth quarter, and full year, 'twenty and 'twenty earnings Conference call.
Joining me are Chief Executive Officer, Bob Steers, our President, Joe Harvey and our Chief Financial Officer, Matt Stadler.
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, but actual outcomes could differ materially due to a number of factors, including those described in our annual.
Earnings really.
Patients are most recent annual report on form 10-K, our quarterly reports on form 10-Q for the quarters ended March 31, 'twenty and 'twenty June 30 of 2020 and September 30th 'twenty, and 'twenty and our other SEC filings, we assume no duty to update any forward looking state.
And then.
Further none of our statements constitute an offer to sell or the solicitation of an offer to buy the securities of any fund.
Our presentation also contains non-GAAP financial measures that we believe are meaningful and evaluating our performance.
These non-GAAP financial measures should be read in conjunction with our GAAP results.
A reconciliation of these non-GAAP financial measures is included and the earnings release and presentation to the extent reasonably available.
The earnings release and presentation as well as links to our SEC filings are available and the Investor Relations section of our website at Www Dot Cohen and steers dotcom.
With that I'll turn the call over to Matt.
Thanks, Brian and good morning, everyone.
My remarks. This morning, as usual will focus on the rides adjusted results, which exclude costs of $60 2 million Soc.
Associated with the initial public offering of the Cohen <unk> steers tax advantaged preferred securities and income fund.
A reconciliation of GAAP to as adjusted results can be found on pages 19, and 20 of the earnings release.
And we're on slide 16 through 18 of the earnings presentation.
Yesterday, we reported record earnings of 76 cents per share compared with 74 cents and the prior year's quarter and 67 cents sequentially.
The fourth quarter of 'twenty, and 'twenty included cumulative adjustments to compensation and benefits and income taxes debt lowered or compensation to revenue ratio and effective tax rate respectively.
Revenue was a record $116 6 million for the quarter compared with $109 8 million and the prior year's quarter.
And 111 4 million sequentially.
The increase in revenue from the third quarter and was primarily attributable to higher average assets under management.
Partially offset by lower performance fees, when compared with the third quarter.
Our implied effective fee rate was 57 basis points and the fourth quarter compared with 59 basis points and the third quarter.
Excluding performance fees for fourth quarter implied effective fee rate would have been 56.3 basis points.
And our third quarter implied effective fee rate would have been five point 66 basis points.
Operating income was a record 49 4 million and in the quarter.
Compared with $47.4 million and the prior year's quarter and $44 2 million sequentially.
Our operating margin increased to 42, 4% from 39, 6% last quarter.
Expenses were essentially flat compared with the third quarter as lower G&A was offset by higher expenses related to distribution and service fees as well as compensation and benefits.
The decrease in G&A was primarily due to lower professional fees and a reduction and virtually hosted conferences.
The increase in distribution and service fee expense, which as noted earlier excludes the cost of the barn, New closed end fund.
Primarily due to higher average assets under management and U S open end funds.
And the compensation to revenue ratio for the fourth quarter.
And was 35% lower than the guidance, we provided on our last call.
The decrease was primarily due to an adjustment to reflect actual incentive compensation to be paid.
For the year the compensation to revenue ratio was $36 one per cent.
Our effective tax rate was 25, 8% for the fourth quarter, which included an adjustment to bring the full year rate to $26 six 5%.
The lower full year tax rate was primarily due to the relationship between a consistent amount of permanent differences relative to the higher than forecasted pretax income.
Page 15 of the earnings presentation sets forth, our cash corporate investments and U S Treasury Securities and seed investments for the current and trailing four quarters.
Our firm liquidity totaled 143 million at quarter end.
Paired with $201 9 million last quarter.
Firm liquidity as of December 31st reflected the payment of approximately $60 2 million for costs associated with our new closed end fund and the special cash dividend in December of approximately 47 million for one dollar per share.
Over the past 11 years, we have paid a total of $14 per share and special dividends.
And we remain debt free.
Assets under management totaled a record 79.9 billion at December 31, and.
And increase of $9 4 billion or 13% from September 30th.
The increase was due to net inflows of $3 9 billion and market appreciation of $6 4 billion, partially offset by distributions of $859 million.
Bob Steers will be providing an update on our flows and institutional pipeline of awarded unfunded mandates.
Now I'd like to briefly discuss a few items to consider as we begin the new year.
With respect the compensation and benefits, we expect to balance the anticipated revenue growth from year end assets under management that exceeded our 2020 full year average assets under management by about 15%.
And with our focus on controlled investment in order to maintain our industry, leading performance broaden our product offerings and expand our distribution efforts.
As a result, we expect that our compensation to revenue ratio will decline to 35, 5% from the 36, 1% recorded in 2020.
Continuing with the theme of investing and our business, we expect G&A to increase by about 6% from the $42 6 million we recorded in 2020.
And after finishing last year, 8% below 2019.
Which was largely driven by lower travel and entertainment.
And a reduction and hosted and sponsored conference costs as a result of Covid conditions.
We intend to make incremental investments this year and technology, including the implementation of new systems cloud migration and upgrades to our infrastructure and security.
As well as and global marketing focused on hosting virtual conferences and expanding our digital footprint.
We also expect the travel and entertainment costs will increase as conditions began to return to normal.
We expect the effective tax rate will be 27.25% in 'twenty and 'twenty one.
And finally, we will of earned a full quarter and full year of fees for more new closed end fund and so all things being equal we.
Expect our implied effective fee rate, excluding performance fees will increase by about one basis point.
And now I'd like to turn it over to Joe Harvey, who will discuss our investment performance.
Thank you, Matt and good morning, everyone. Today, I will review our investment performance and provide some perspective on how our largest asset classes are positioned for 'twenty and 'twenty one.
Markets were the buoyant and the fourth quarter as investors continued to look beyond the valley of the pandemic encouraged by progress with the vaccine and anticipating of potential economic recovery.
He leaves by clarity on our new administration, and government and supported by record monetary and fiscal stimulus.
The macro environment in 'twenty, and 'twenty was impressive and with.
With the fed's balance sheet, increasing by over 75% the.
And the budget deficit, reaching the highest level since World War two.
Money supply growing 25% and.
And negative yielding debt, reaching 18 trillion dollars globally.
Although we had some of the best relative performance ever in 2020.
Our asset classes, except for preferreds lagged their market counterparts meaningfully.
Summarizing our performance at a high level preferreds performed and competitively within fixed income.
U S and global rights and infrastructure of significantly trails of the technology led performance and stocks.
And certain of our strategies with energy allocations underperformed due to concerns about the secular decline and the demand for oil considering the glory growing focus on renewables.
Looking at our performance scorecard, and the fourth quarter five of non core strategies outperformed their benchmarks.
For the last 12 months six of non core strategies outperformed.
As measured by a O N, 84% of our portfolios are outperforming on a one year basis and improvement from 70% last quarter, mostly due to our preferred portfolios.
On a one and three year basis, 99% are outperforming which was consistent with last quarter.
90% of our open and fund AUM is rated four or five star by Morningstar, compared with 92% last quarter.
Preferreds returned for 6% and the fourth quarter we.
We outperformed and both our core and low duration preferred strategies.
After a brief stretch of underperformance, we've now outperformed for three consecutive quarters.
Our 12 month figures are beginning to turn positive across our accounts, which led to the improvement and our 12 month outperforming AUM.
While our relative performance was mixed in 2000 and 'twenty, we outperformed our peers.
Taking stock of the critical factors for preferreds and.
Precedented monetary stimulus has helped the compressed credit spreads to near record low levels.
Credit quality should benefit as the recovery progresses.
And with 2020 elections over the expectation for more fiscal stimulus and potentially with the bottoming of inflation.
Treasury yields maybe transitioning from declining to rising.
As a result companies are taking their two for markets and issuing significant amounts of preferreds at a very low cost of capital.
Taken together these factors lead us to expect lower returns from preferreds and we are currently suggesting that investors consider our low duration strategy.
And 2020 real estate and infrastructure performance materially lagged the broader stock market indexes as certain subsectors of our asset classes have been uniquely hit by the pandemic and while they have representation and technology railroad related subsectors It is less and.
And then the amount of Tac and the market overall.
With that as a starting point, we believe that conditions later in 2021 and 2022 may create good entry points for these asset classes as the vaccine continues to be distributed.
Businesses reopen and the recovery brings back the more cyclical real estate and infrastructure sub sectors that have been disproportionately hit.
And the fourth quarter infrastructure returned eight 4%, which lagged the global stock index return of 14, 8%.
While we underperformed our benchmark and the fourth quarter, we exceeded our excess return target for the full year.
Assessing the infrastructure universe and sensitivity to the economic.
The situation and pandemic, we believe that 9% benefits from secular trends for.
50% is relatively unaffected by the economy and pandemic, 20% is directly sensitive to the economic recovery and 21% will be reliant on successful penetration of the vaccine.
Key investment themes for infrastructure include digital transformation of economies, including five G deployment of.
<unk> carbonization and development of renewable power and.
And the potential for recovery and travel.
We continue to see adoption of infrastructure allocations with asset consultants and institutions.
With the new administration and potential for additional fiscal stimulus via infrastructure. We also believe that wealth advisors may have more interest as well.
In fact, our closed end fund.
And you T. App is now trading at a premium to its NAV.
Indicating investor demand and anticipation of recovery.
And the fourth quarter U S. Real estate returned eight 1% compared with the S&P 500, which was up 12, 1%.
And global real estate returned 13, 2% for.
For the year, we outperformed our benchmarks and all strategies by region and style and then and by amounts that exceed our excess return targets across the board.
In terms of where real estate is headed all eyes are on the vaccine and the timing of the reopening of the economy.
Currently some sectors such as apartments are seeing stabilization with rents flattening out which is a key step and the recovery progression.
And the secular winters, such as cell towers data centers and industrial continue to have great fundamentals.
Probably the biggest unknown relates to return to office dynamics and the proportion of occupancy that maybe permanently impaired.
Broadly speaking lenders have been kicking the can down the road of banks are now beginning to feel pressure to address problem loans.
While pricing transparency for many sectors is opaque, we expect transactional activity to pick up as the economic recovery takes hold.
Overall on most metrics Reits are very cheap as cheap as they were and the depths of the global financial crisis and 2009.
As the recovery of unfolds, considering how much risk of lag, we would expect the catch up and performance.
I also want to mention that our real assets multi strategy portfolio had very good relative performance in 2020 outperforming by 200 basis of 240 basis points for the year, which puts us in good position with investors who are looking for inflation protection.
Looking backward over a period of low inflation and investors have not felt the need for this portfolio, which includes real estate infrastructure resource equities commodities and short duration credit.
However, it has the highest inflation sensitivity of all of our strategies and we are seeing increased interest and inflation protection, perhaps no surprise, considering the deficit and monetary statistics cited earlier.
As Matt mentioned allocating resources to our investment Department is always a priority.
This past year has been particularly gratifying as we continue to see the growing return on investments we've made over the past five years and our people.
T process and strategies and data and quantitative resources.
One example is our transition of U S. REIT team leadership that we announced and the fourth quarter.
Our current head Tombo, Julian will be retiring and the middle of this year and our succession plan has been put in place with Jason the Avalon, assuming leadership and partnership with Matt Kirschner.
It's hard to imagine, replacing as strong a leader and investor as Tom.
But and the spirit of continuous improvement, we expect Jason to give Tom a run for his money.
We'll continue to build the team for depth and succession, we will never be complacent on performance and innovation and we will continue to drive our alpha mining initiatives.
Last quarter I noted that we have a stable of track record of accounts for strategies that have been and developed over the past three years ranging from existing strategy extensions to new ideas generated by our investment teams all.
All of it one outperformed benchmarks last year.
We will be adding more track record of accounts in 'twenty, and 'twenty, one, including one and renewables and clean energy.
Our challenge will be to convert these investment ideas and to investor allocations.
Our recent hire of Greg Butcher from Nuveen, who heads global product strategy and development will help us bring some of these strategies to market as well as map out real asset strategy extensions for the next phase of growth.
Overall, I'd say the state of our investment Department is strong.
And we are optimistic about our ability to capitalize on the investment opportunities that are expected to come along with of post pandemic economic recovery.
Thanks for listening.
Ill turn the call over to Bob Steers.
Great. Thank you Joe.
Thank you everyone for dialing in this morning.
Let me start by stating the obvious 'twenty and 'twenty was a year that all of us would like to forget.
The one two punch of Covid, and political and social upheaval and has had a devastating impact on our culture and the economy and we're not out of the woods quite yet.
I'll leave it to others more qualified than me to opine on where we go from here, but thankfully, we do see light at the end of this tunnel.
In contrast to the unprecedented challenges that we faced last year U S equity market as opposed to the remarkably positive returns and led by the Covid beneficiary plays as demonstrated by the strength and the Fang and related stocks as Joe already touched on.
While most active managers continued to battle the dual challenges of declining fees and net outflows the equity markets offered them a reprieve with the S&P 500, and NASDAQ up 16, 3% and 43, 6% respectively last year.
While alternative income strategies, such as preferred Securities also performed well delivering returns and high single digits most.
Most real asset strategies, notably real estate and infrastructure did not as.
And as Joe noted global and U S real estate Securities indices actually declined by 9% and five 1%, respectively. While global listed infrastructure and indices also fell by $4 one per cent.
It's a point of pride for us that unlike our peers and the industry that benefited from market appreciation.
We faced significant market headwinds last year, and yet still generated industry, leading organic growth.
Importantly, our growth was broad based and with almost every region strategy and channel contributing to record breaking results.
We ended the quarter with record assets as Matt said of $79 9 billion.
Assets under management and each of the open and fund closed end fund and Advisory Channel also ended the year at record levels.
In the quarter gross inflows were a record $7 3 billion and net inflows contributed $3 9 billion.
Virtually all of the organic growth and the quarter was derived from the wealth channel.
Our confidence and the new generation of closed end funds paid off and the quarter and we added $2 1 billion of net new assets through the IPO of our tax advantage preferred securities and income fund.
Although not a record are open and fund channel registered $1 7 billion of net inflows driven mainly by preferred securities and U S real estate strategies.
Notably each of the RIAA the D D C I O and Bank Trust verticals generated positive net inflows and the quarter.
Our non U S. Open end funds showed modest improvement, albeit from low levels with net inflows of 41 million and the quarter.
We are continuing to build out our EMEA wholesale distribution team and fully expect that these nascent positive trends will improve.
Consistent with more recent trends, Japan sub advisory saw net inflows of $83 million before distributions and 293 million of net outflows after distributions and it was a quiet quarter for sub advisory ex Japan with $10 million of net inflows.
While the headline results for the advisory channel of 101 million of net outflows was disappointing and the underlying trends continue to be strong.
Five new mandates totaling $297 million combined with $282 million of inflows from existing clients contributed $579 million of gross inflows.
Offsetting these inflows wasn't unexpected 301 million global real estate outflow stemming from the termination of a relatively new institutional accounts.
Along with the global listed infrastructure termination totaling $299 million.
We do expect the balance of the terminated of the terminated global real estate accounts of approximately $960 million to be withdrawn and the next quarter or two.
Lastly in the quarter ended with a record setting pipeline of won but unfunded mandates of one 7 billion the <unk>.
Quarter began with a $1 $2 billion pipeline 400 million was funded in the quarter and another 280 million and has been deferred due to funding uncertainties New awards totaled $1 1 billion.
And these new awards were diverse both by strategy and region, we added mandates and five different strategies with global real estate and global listed infrastructure being the largest and with representation from each of North America, EMEA and Asia.
Demand for our strategies, especially real assets remains strong driven by relative performance and attractive valuations and rising concerns regarding future inflation expectations.
Okay.
As you know in recent years, our overarching goal has been to achieve positive flows and each of our core strategies and in every channel and region simultaneously.
To accomplish these results we have invested continuously and our investment teams.
The existing and new channels of distribution and innovative new investment strategies, and most importantly, and our people and culture.
So while 2020 was a terrible year and so many ways. It was also a year to be proud of the Cohen <unk> steers and.
All of our teams came together under crisis conditions to deliver a cascade of record results.
For the full year firm wide gross sales were $27 4 billion, which exceeded the prior record achieved in 2011 of 17 billion and by 61%.
Open end fund gross sales of $17 6 billion were 41% above the prior record and closed end fund sales of $2 7 billion.
Similarly blew by the prior record by more than double.
Even in the transition year for us and the U S institutional market. Our advisory channel recorded sales of $4 3 billion, which was more than 100% better than the prior of the record set in 2018.
Net inflows last year also set a record at 10 8 billion.
While this was the only modestly above the prior of records set in 2011 and it highlights the important progress that we've made and diversifying our sources of organic growth.
And 2011 net inflows were $10 7 billion. However.
Sub advisory inflows from day, one asset management contributed 81% of that amount and one single strategy.
And contrast last year six strategies across open end funds closed end funds and advisory contributed 542.6, and $1 6 billion of net inflows, respectively, and each setting individual channel records and accounting for almost 90% of firm wide total.
Achieving these results despite significant market declines for most of our strategies is extraordinary and bodes well for the future.
Strong investment performance and our core strategies has helped us to gain significant market share from our active peers and even past of alternatives.
Seeding and launching innovative new strategies, such as low duration and tax advantaged preferred securities next generation real estate and digital infrastructure, that's been well received and our product pipeline is robust.
In addition, expanding and improving the delivery of our strategies through the launch of UCITS funds and C. I tease Sma's and closed end funds as materially broadened our distribution reach and opportunities.
Lastly, our focus on improving underperforming distribution channels, such as U S advisory and starting to pay dividends.
Maintaining the current level of organic growth will not only require a continuation of industry, leading investment performance, but also the development of the next generation of innovative real asset and the alternative income strategies to complement our existing lineup.
We believe that and the current market cycle, a significant shift and asset allocations into real assets and seeking to capitalize on depressed valuations and the potential to hedge against unexpected inflation is taking place.
Current and prospective clients are looking to us.
And to implement their strategies through both listed and private markets and.
In response to our clients' needs and to maintain our leadership position and real assets and alternative income strategies, we plan to expand our opportunity set and related capabilities to include non traded equity and fixed income investments.
In addition, and important point of differentiation for us will be the ability to deliver all of our capabilities through strategically allocated and bespoke solutions as.
As always we're committed to invest as necessary to drive our long term growth.
Yeah.
With that I'd like to ask the operator to open up the Florida questions.
Thank you.
If you would like to register a question. Please press the one followed by the for on your telephone you will hear of three Tom prompt technology of request. If your question has been answered and you would like to withdraw your registration. Please press the one followed by the three.
One moment please for the first question.
Yeah.
Our first question comes from John Dunn with Evercore ISI. Please proceed.
Hi, guys.
And I'm kind of and overarching question.
Can you just talk about a lot of stuff and maybe you could.
Reframe it for it and you've done a ton over the past decade and distribution and.
And the investment side, the strengthen and diversify the company can you talk about how CNS is different now.
Compare it so and we had the taper tantrum or when rates started going up.
Well.
I'd say most simply are.
Our product.
And our product lineup is much more diverse and our channels of distribution and the delivery vehicles and much more diverse.
In addition, I would say that we and others and the industry have done.
A very good job of educating the marketplace about.
The benefits of combining listed along with private real assets and.
And portfolios and so we've seen of.
And a huge uptake.
Listed real assets by institutions sovereign funds and.
The full range of institutions so the the.
The universe of investors.
Gone and over the last 20 years from primarily retail too.
You know of very healthy balance and I think also.
And our strategies and the investors who are embracing them.
And our investing and our strategies for more than just the yield again I think many years ago, I think reed's and.
And related real assets were viewed mainly as income vehicles.
So it's broad based and it's getting broader.
As you know we have the next Gen real estate strategies.
And also as our infrastructure team.
Expand.
Into renewables.
We don't see any limit to how.
Our real asset.
Strategies can grow and you know as <unk>.
And our.
The global infrastructure, and real estate requirements change and grow as well.
Gotcha and then.
And the U S advisory piece and it maybe a little more and that what's the outlook.
For U S advisory after the revamp and whats changed and what are maybe some positive affirmation points that we can kind of track as we go along.
Well no.
We brought in new leadership.
And the last 18 months and we reorganized.
Two of regional and blended approach, where we have regional teams comprised of business development consultant relations relationship management people on the regional teams and.
And.
You know that.
The reorganization.
<unk> was completed.
Late last year and.
And so I would expect.
You know and a positive trajectory and our gross and net flows.
I doubt, we'll hit our maximum stride this year, but certainly should next year.
So I think what you should look for.
Just as you should look for and our EMEA holds.
Wholesale or retail channel the trajectory should be positive.
And I hesitate to.
Give you.
Absolute targets because theres.
And there's so much we don't control, but and.
And both of those channels, which are.
He is relatively new.
The new leadership, there as well.
And you should you should expect to see.
And the improving net inflows and boat.
Thanks, so much to add.
I would add John that.
The way, we're going to measure our success is through market share and.
And.
What has led to us, making these changes and leadership and organizational structure and processes that we felt like we haven't gotten our fair share of the market.
It's.
The limited data point, but just over the past.
Quarter, and a half our batting averages of.
The finals that we're winning have been very good.
In fact, almost perfect, but and it's a short timeframe of measurement, but I think that's a good early indicator.
But I think this is a project that you should evaluate over a two to three year timeframe.
And we're one year into it.
Great. Thanks, guys.
Our next question comes from Mike Carrier with Bank of America. Please proceed.
Okay.
Thanks for taking the questions maybe first one plenty of institutional and you guys mentioned.
The one point of seven 1 billion and the pipeline and then just in terms of some of those redemptions.
Seem kind of chunky and a little bit unusual just given you guys of performance. It was there anything you like.
I guess the unusual.
The rationale between those.
The decision.
And the quarter.
Yeah.
Hi, Mike Thanks for the question they were.
Totally unrelated one of the global listed infrastructure termination was expected. It was a unusual strategy for us that and and the clients' mind underperformed and so that that we knew was coming the.
And the larger global real estate mandate, which was over $1 billion.
We were a little surprised it was.
And extremely large global entity that.
To their credit.
Invested about $1 billion at the bottom of the market back in April or.
And that time period and.
And.
Certainly if we had known that it could be.
The relatively short term trade it would've been business that we would not have been interested in but we were a little surprised by it but.
They made substantial gains and had and I think other investment considerations and so I would call that.
And very unusual one off that is in and.
Indicative of anything.
I would also say of the global listed infrastructure termination is not indicative of anything because as Joe said, we had for all of our non.
Traditional strategies and that space, we had a strong year last year. So we don't.
Foresee any performance related terminations and infrastructure or for real estate because of as you know for.
Pretty much the industry leader and both from a performance standpoint.
Okay, Great that makes sense and then just one on the and on the product side.
Obviously, you guys had big success with the closed end fund and the.
In the quarter.
And I'm curious.
And that and just the the conversations with the platforms do you see more opportunity there and.
And then.
You guys hit on this and your comments, but just if we are in an environment, where we're getting into more inflation over the next one and two years and I know, it's been a while since we've seen that but for now.
How do you think whether it's for the products are produced.
And what you expect from from client base.
Great. Let me let me address the closed end fund question and then I'll ask Joe to talk about inflation sensitivity and and the implications there.
As we've been speaking about for well over a year.
And we think that the.
The closed end funds version 2.0.
Our of seriously attractive and competitive structure.
And with significant barriers to entry that we.
And we really like we think it's great for the Investor.
And good for us.
We would like to do.
The steady flow of closed end funds annual layer of at least one of year if possible and.
And as part of that.
I think you know that market is evolving from strictly of yield market to one of the.
That.
He is looking to see unique strategies that offer investors access to securities that they cannot access on their own and so that to us is a mix of.
Of the listed but also potentially significantly unlisted securities and.
And we.
We see and exciting opportunity too.
And collaborate with our partners on.
And the distribution side.
To create these unique real estate and unique infrastructure and alternative income strategies that combine public and private and ways that.
Haven't been done before and that investors.
And I have had no ability to do on their own and so.
We continue to be very excited about that opportunity and and again, we think it's the secular thing.
And for closed end funds.
Great Lakes to the inflation question as I mentioned, but we've been seeing an increase and.
Questions around inflation concerns and the <unk>.
Strategies that could help combat that and so I mean this is coming from asset consultants is coming from.
Institutions and I.
I think ultimately it will.
So come from the wealth market. So we're seeing.
Investors ask about real estate has the potential inflation hedge.
But also we expect.
Them to look at our multi strategy real assets portfolio, which as I mentioned and my comments has.
The greatest inflation and sensitivity.
Of all of our strategies and part because of the allocations to commodities and resource equities.
Several years ago, we built out of range of these.
These types of strategies for different.
Risk and return appetite so we've got a core.
The real asset multi strategy portfolio, but then we have a balanced one which.
That is designed to reduce the volatility and it has a greater allocation to.
Tips and.
The short duration of effect of credit.
We also have our commodity and resource equity strategies.
Which are very sensitive to and can be very sensitive to inflation, but I think investor appetite right now in light of the longer term underperformance of those strategies because of.
Energy and other sectors.
And we would expect investors to get exposure to those asset classes through the the multi strategy.
Broaches. So this is something that we're being asked to do more work on and so we're working with asset consultants to.
With this menu and then and then design things that may be more customer specific for.
Given client and we will see there've been a lot of people that have called for inflation over the past five to eight years and it hasn't come to pass.
But it could be that now's the time that it actually.
It becomes more of a risk for investors.
And it makes sense thanks a lot.
Thanks, Mike.
Ladies and gentlemen, as a reminder to register a question. Please press the one for on your telephone.
Our next question comes from the line of Robert Lee with K B W. Please proceed.
Great and good morning, everyone excuse me thanks for taking my question.
And the on capital management policies, and I'm curious I mean, obviously with the changes and the closing and market as evidenced by this quarter and.
And maybe also your expansion into non traded and investments how should we be thinking of.
You're the.
Potential continued changes or the option of your dividend policy and when do you see seed capital needs going up to fund some of the.
The non traded investments and strategies.
I'm, assuming you're obviously you like the cash back Bob.
And hopefully the opportunity comes to do another close and fund just trying and get a sense.
And all of this means further changes and kind of your approach the.
Good day.
Yes, that's the.
Very good question.
I would say that yes that.
Currently and going forward and contrast to the many.
Many years and the past.
We do have a rising.
The <unk> of our capital for many of the purposes and you touched on.
Including potentially closed end funds seething more strategies.
And also supporting our non traded.
Product launches.
I think there will be.
And better use.
Of our of our excess liquidity.
I'd point out that.
Our regular dividend.
And is at least thus far.
The city has been to pay out between 50 and 60% of of.
Our earnings expectations and so.
If we're fortunate enough to continue to grow that debt.
Regular quarterly dividend should.
Should be on impacted by.
The increasing.
Needs.
For our.
For our cash.
Okay.
Helpful. Thanks, and.
And.
I'm, just curious thinking with the non trading when the initiatives and the kind of illiquid non traded space.
The dive into that of a little bit deeper and do you envision this.
Our and the process and maybe you have current hot.
Hard kind of.
The teams are you ever and vision.
And the small acquisitions and kind of jumpstart some of your capabilities.
And if you could find the the.
Right properties.
Yeah, I'll ask Joe to answer that question, specifically, but I want to just emphasize that our goal is to be able to deliver to our clients.
Particularly and real estate and infrastructure the full range of solutions.
Be it.
And you know 50, 50, and $75 $25 $25 75.
No we don't want to.
And limit our.
Our opportunities to create.
And deliver solutions.
And for our clients and we.
We've already begun and you know last year, we made a large investment and a private company.
And the cold storage space and and so this is not totally new to us but to your question. Yes, we are going to be adding resources and Joe why don't why don't you speak to that.
Sure. So I guess, the starting point is the.
And it.
It's going to be investment driven meeting.
We're not going to do something just to create a capability or just to.
And try to add assets.
It starts with the the alpha opportunity and we think there are ways to combine public and private.
To the to get to get to a better answer and.
And most of the <unk>.
Asset managers, who do these types of things tend to.
Focus on what they are incumbent legacy businesses and and.
And therefore neglect the broader range of opportunities to allocate to where the best.
Deal is so to speak and so in other words.
Last year.
It would've been to go right into the public market, because that's where the biggest discounts to <unk>.
Real estate value work compared with the private market, so to kind of with that as the.
Philosophy.
We are looking to expand our capabilities and would consider.
Both.
Adding teams and our.
And potentially making an acquisition.
Yes.
We wouldn't look to do something that's a transfer of transformational.
We're going to do it and AR and a risk managed way and a way that is.
Uh huh.
Where we can control and influence how we design these strategies and integrate it with our other capabilities. So.
And it's still early to talk about some of the specifics, but we would expect over over the over this year, we'll be able to.
Great and then maybe in the.
One more question on the.
And the topic.
And obviously the closed end fund structure is ideal for adding.
Assets.
Outside of the bad I mean, the are you currently and planning or how do you think about kind of bringing the restaurants and retail.
Kind of threw a interval fund type structure or maybe some type of non traded and I guess I'll call. It non traded REIT type structures kind of curious how you would.
Handle that in the retail world.
Yes.
Well both of those options are on the table and our minds as Joe said.
Our first objective as sort of everything we do is to identify.
Excellent investment opportunities.
And our expertise to support that and.
We've been doing that for a while now and both real estate and infrastructure.
Whether it's and focusing on renewables and the infrastructure side and doing some <unk>.
Private company investing on the real estate side.
And.
And we will deliver that performance and the structures that are important partners all of whom were involved and the raise the <unk>.
And fundraise.
And yes, absolutely we would consider interval funds non traded entities.
And again the vehicle.
The decision on delivery vehicles will be of collaboration between us and our <unk>.
<unk>.
Alright, Thank you for taking all my questions and I appreciate it.
Sure.
Mr. Steers there are no further questions at this time I will now turn the call back to you. Please continue with your presentation or closing remarks.
Great well. Thank you we appreciate everyone who dialed in this morning, and we look forward to speaking to you next quarter in the meantime, please everyone stay safe and healthy. Thank you.
That does conclude the conference call for today, we thank you for your participation and ask that you. Please disconnect. Your line have a great day everyone.
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