Q1 2021 Cohen & Steers Inc Earnings Call
Okay.
Ladies and gentlemen, thank you for standing by and welcome to the Cohen <unk> Steers first quarter 2021 earnings conference call. During the presentation. All participants will be in 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 four.
On your telephone if at any time during the conference you need to reach an operator. Please press star Zero as a reminder, this conference is being recorded Thursday April 22021.
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.
Thank you and welcome to the Cohen <unk> Steers first quarter 'twenty 'twenty, One earnings conference call.
Joining me are our president and acting Chief Executive Officer, Joe Harvey, Our Chief Financial Officer, Matt Stadler, and our Chief investment Officer, John Shay.
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 accompanying first quarter earnings release and presentation from <unk>.
Most recent annual report on form 10-K, and our other SEC filings.
We assume no duty to update any forward looking statement.
Further none of our statements constitute an offer to sell or.
Or the solicitation of an offer to buy the securities of any fund.
Our presentation also contains non-GAAP financial measures referred to as as adjusted financial measures that we believe are meaningful in 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 in the earnings release and presentation to.
To the extent reasonably available.
The earnings release and presentation as well as links to our SEC filings are available in the Investor Relations section of our website at.
Www Dot Cohen <unk> steers dotcom with.
With that I'll turn the call over to Joe.
Thank you, Brian and good morning, everyone.
Before we go through our regular agenda I'd like to provide an update on Bob Steers, who as we announced in February is currently on medical leave.
Bob's recovery has been remarkable and he is doing well here.
He is available to provide input on business decisions and we expect him to resume active duties as CEO by the end of the second quarter.
We're obviously pleased with this progress and wish Bob and his family all the best as he continues to prepare for his transition back.
In the meantime, our executive Committee and broader leadership group continued to perform at a high level.
I'll return later to summarize the quarter after Matt and John provide the reports next up is Matt who will review our financial results for the quarter.
Thanks, very much Joe and good morning, everyone.
As usual my remarks. This morning will focus on our as adjusted results a reconciliation of GAAP to as adjusted results can be found on pages 13, and 14 of the earnings release.
Or on slides 16 through 19 of the earnings presentation.
Please note that slide 19 of the earnings presentation.
Which has been newly added reconciles the adjustments to operating income by caption.
Yesterday, we reported record earnings of <unk> 79 per share compared with 61 cents in the prior year's quarter and 76% sequentially.
Revenue was a record $125 8 million for the quarter.
Compared with $105 8 million in the prior year's quarter and $116 6 million sequentially.
The increase in revenue from the fourth quarter was primarily attributable to higher average assets under management across all three investment vehicles.
Partially offset by two fewer days in the quarter.
Our implied effective fee rate was 57 three basis points in the first quarter compared with 57 basis points in the fourth quarter.
Excluding performance fees or fourth quarter implied effective fee rate would have been 56 three basis points.
No performance fees were recorded in the first quarter.
Operating income was a record $53 2 million in the quarter compared with $40 4 million in the prior year's quarter and $49 4 million sequentially.
Our operating margin decreased slightly to 42, 3% from 42, 4% last quarter.
The fourth quarter included accumulative adjustment that reduced compensation and benefits to reflect actual incentive compensation that was paid.
<unk> increased our fourth quarter operating margin by 153 basis points.
Expenses increased 8% compared with the fourth quarter, primarily due to higher compensation and benefits distribution and service fees and G&A.
The compensation to revenue ratio for the first quarter was 35, 5%.
Consistent with the guidance provided on our last call.
The increase in distribution and service fee expense was primarily due to higher average assets under management in U S. Open end funds.
And the increase in G&A was primarily due to higher professional and recruiting fees.
Our effective tax rate was 20 725 per cent for the first quarter in line with the guidance provided on last quarter's call.
Page 15 of the earnings presentation sets forth, our cash corporate investment in U S Treasury Securities and seed investments for the current and trailing four quarters.
Our firm liquidity totaled $118 8 million at quarter end compared with $143 million last quarter.
From liquidity as of March 31st reflected the payment of bonuses as well as the firm's customary funding of payroll tax obligations arising from the best thing and delivery of restricted stock units on behalf of participating employees.
We remain debt free.
Yes.
Total assets under management was a record 87 billion at March 31, an increase of $7 1 billion or 9% from December 31.
The increase was due to net flows of $3 8 billion and market appreciation of 4 billion, partially offset by distributions of $690 million.
Advisory accounts, which ended the quarter with a record $20 3 billion of assets under management had record net inflows of $1 7 billion during the quarter $1 1 billion of which were included in last quarter's pipeline.
We recorded $968 million of inflows from five new mandates and $799 million of inflows into existing accounts.
These inflows were evenly apportioned between U S real estate global real estate preferred and global listed infrastructure portfolios.
Joe Harvey, who will provide an update when our institutional pipeline of awarded unfunded mandates.
Japan sub advisory had net outflows of $204 million during the quarter.
Paired with net inflows of $83 million during the fourth quarter.
We believe the outflows were largely attributable to a distribution rate cut made by the Japanese adviser to one of the funds we sub advised in January 2021.
The last time, the Japanese advisor made a distribution rate cut to one of the funds. We sub advise was in the second quarter of 2019, which coincided with the last time Japanese sub advisory had net outflows.
Encouragingly the annualized organic decay rate for the two months since January 2021 distribution rate cut was considerably less than what we experienced in 2019.
Sub advisory excluding Japan had net inflows of $97 million, primarily from the new Taiwanese mandate into a blended next gen REIT digital infrastructure portfolio.
Open end funds, which ended the quarter with a record $38 6 billion of assets under management had record net inflows of $2 2 billion during the quarter, primarily into U S real estate and preferred funds.
Distributions totaled $238 million $193 million of which was reinvested.
Let me briefly discuss a few items to consider for the second quarter and remainder of the year.
With respect to compensation and benefits, which includes the cost of our newly formed private real estate group that we announced earlier this week.
We expect that our compensation to revenue ratio will remain at 35, 5%.
We expect G&A to increase by about 9% from the $42 6 million we recorded in 2020.
It's higher than what we guided to on our last call.
In addition to incremental investments in technology and global marketing.
We expect an increase in recruitment costs associated with the hiring of certain key investment and distribution personnel. In addition to the new private real estate group.
We expect that our effective tax rate will remain at 27 and a quarter per cent.
And finally.
You will recall that on our last call Bob Steers mentioned determination of an institutional global real estate account of approximately $900 million that was expected to be withdrawn in the next quarter or two.
This account, which has a lower than average fee is still being managed and why we expect it to terminate this year, we have no visibility as to timing.
Now I'd like to turn it over to our Chief investment Officer, John Shay, who will discuss our investment performance John.
Thank you, Matt and good morning, everyone.
Today I plan to review the investing environments, our performance and then provide some deeper perspective on our larger asset classes and their outlook.
So markets continued their strength from the first quarter as evidenced by U S and global equities being up six 2% and four 7% respectively.
But beyond the noise there were three noteworthy economic and market trends that stood out.
First strong upward global growth revisions driven primarily by the U S.
Second underneath the surface the market has increasingly taken on a reflationary tone as reflected by repricing, our medium term inflation prospects.
And the strong performance in our more inflation sensitive investment areas, such as commodities, which were up six 9% for the quarter and are now up 35% over the last 12 months.
Last with a higher growth and higher inflation as the context, we saw repricing of fed policy expectations, which partially drove the meaningful rise in the U S 10 year Treasury yield.
During the quarter at around one 7%.
So given those three dominant trends of higher growth inflation and rates.
The high level summary of our asset class absolute performance is that listed real assets generally outperformed U S and global equities.
This was led by Mlps natural resource equities and U S rights.
This performance was consistent with our expectations given deeply depressed relative valuations and that fundamentals for these asset classes or held disproportionately back in 2020 by the recession, but also some unique aspects from social distancing.
On the other side of the Ledger preferred securities were very modestly negative in the quarter.
Compression of preferred credit spreads could only partially offset the headwinds of the steep rise in yields.
That said this flattish performance still far outpaced traditional fixed income in both income rate and total return.
With the Barclays Global AG down 45%.
So turning to our performance scorecard.
In the first quarter six of non core strategies outperformed their benchmark for the last 12 months seven of nine core strategies outperformed.
As measured by AUM, 93% of our portfolios are outperforming on a one year basis, an improvement from 84% last quarter.
Mostly due to our preferred portfolios.
On a three and five year basis, 99% and 100% respectively are outperforming.
Which is marginally better than last quarter and.
And from a competitive perspective, 88% of our open end fund AUM is rated four or five stars by Morningstar compared with 90% last quarter.
By most medium and long term measures our investment performance continues to be strong and have high breath.
That said the regime has shifted particularly since that November vaccine announcements.
We expect the market, which has been quite factor dominated to exhibit more idiosyncratic behavior over time.
Typically are more bottom up environment has allowed our specialist teams to achieve even higher performance batting averages.
So digging deeper into some of our major asset classes.
U S and global real estate returned eight 3% and five 8% respectively in the first quarter, both outpacing their respective equity indices.
Leadership has been in the retail gaming lodging and residential areas in anticipation of significant pent up demand supported by high global savings rates.
Giving multi year recoveries in those areas.
The early phase the early cycle phase excuse me of an economy tends to be the strongest phase for listed real estate.
This is one economic recoveries are their strongest and were tightening is still several years away.
We continue to educate our clients by producing thought leadership, demonstrating the historically higher growth and inflation expectations trumps higher interest rates when it comes to REIT performance.
Q1, absolute Q1 absolute performance is a perfect reflection of that.
While we outperformed in our U S and European strategies, our performance was weaker in Asia.
In general while we have adopted a more value in reflationary positioning in the U S given stronger growth and vaccination success.
We had been positioned more securely in Asia, given different growth dynamics.
Despite these different growth dynamics Asia like the U S has seen the value versus growth momentum reversal.
Turning to preferreds preferred securities returns.
Minus 0.6% in the first quarter and we outperformed in both our core and low duration preferred strategies.
After one quarter of underperformance last year, our highly experienced and accomplished team has now outperformed the last four quarters and 10 of the last 13 quarters.
We have now we've also been communicating to our clients for the last three to six months that interest rates were more likely to move up over time.
The 10 year has trickled down down since quarter end.
Our expectation is that the 10 year will move more towards 2% by the end of 2021 and two in a quarter by the end of 2022.
Importantly in contrast to the start of the year.
Most market participants have already socialized the idea that rates will likely be higher over time.
Which in our view reduces the odds of a tantrum or a disorderly underlined.
Given our rate view, we continued to suggest that investors consider our low duration preferred strategy when building portfolios.
Credit fundamentals are preferred issuers continues to improve with the economic recovery take for instance, U S banks, where the largest issuers of preferreds banks have just come off in earning season in the U S, where they announced their releasing nearly $10 billion in loan loss reserves.
As the pandemic related losses, they had accounted for have not been realized.
In addition, their capital levels remained far in excess of the regulatory capital requirements.
Turning to infrastructure, the first quarter returns, three 5%, which slightly lagged global equities.
Returns in the quarter were led by economically sensitive businesses, such as marine ports and freight railways.
Sustained higher energy prices provided a tailwind from midstream energy companies.
An important catalyst for the asset class in the future will be infrastructure focused fiscal stimulus packages around the world.
President Biden recently proposed over two trillion dollars spending and tax credits, which we see as a clear positive for listed infrastructure.
Line into key themes, we've highlighted over the past year.
Specifically, we see direct benefits for renewable energy developers and electric utilities, primarily through tax incentives.
We see the potential for new revenue opportunities for cell tower and data center companies due to a larger addressable market for wireless carriers in line.
Yes.
We see broader support for the most economically sensitive segments of listed infrastructure, such as freight railways and marine ports.
Related we continue to see increased adoption of infrastructure allocations with asset consultants and institutions, we see growing interest from wealth advisors as evidenced by record flows into our infrastructure open end mutual funds.
And the premium at which our infrastructure close end fund <unk> continues to trade.
Disappointingly, we underperformed our benchmark during Q1.
And while our three year excess return is still attractive.
We have underperformed over the last 12 months, so improving our performance here is a key focus area.
I also want to mention that our real <expletive>ets multi strategy portfolio was up six 6% in the quarter outpacing U S and global equities.
We had very good relative performance of plus 100 basis points with strong alpha contribution from asset allocation and natural resource equities.
We now have good relative performance over the last one three and five years.
Over a full cycle. This portfolio is designed to provide equity like returns with inflation protection and with diversification versus stocks and bonds.
As a reminder.
We launched this multi strategy offering now more than nine years ago.
And then the last deflationary secular stagnation regime.
It's fair to say there wasn't much interest and diversified real <expletive>ets.
Fast forward to today it's.
It is clear that inflation is top of mind.
While economic forecasts always have wide confidence intervals, we expect that there is a very reasonable probability that inflation isn't just a short term story, but it is more likely to be elevated for the long term.
As a result, we expect that as very good nine year track record, maybe a hidden asset.
As we look out over the next three to five years and it's something we will speak about more on future calls.
Last but not least myself and the entire investment department are excited to welcome back Jim Coral and his team.
We know that there is a fantastic opportunity to leverage the performance DNA, Inc.
Intellectual capital of our listed real estate team.
One with Jim's team, we're gonna be able to create high performing standalone private strategies.
As well as integrated listed in private strategies that dynamically allocate over time to optimize for the best investment opportunities.
With that thank you for your time and I'll turn the call over to Joe Harvey.
Thank you John.
The start to 2021 couldnt have been more different than the start to 2020.
As we begin to see the pathway out of the pandemic and toward economic recovery.
Rather than face the uncertainty that the pandemic unleashed one year ago.
We're off to a good start in 2021, thanks to continued strong investment performance and organic growth.
Plus appreciation in most of our asset classes.
Record fiscal and monetary stimulus combined with the continued rollout of vaccine distribution in the U S.
Set the stage for reopening of our society and economy.
We expect this will be a gradual process and should result in a vigorous extended economic recovery.
Last year, we achieved industry, leading organic growth, despite depreciation and share prices for Reits and infrastructure.
This year to day, we've had some catch up appreciation, which has provided momentum to our results on top of our continued organic growth.
To set the stage for a discussion of our fundamental trends I'd like to share some thoughts on the big picture for our business and strategy.
Allocations to most of our asset classes are rising because of what I call the asset allocation dilemma.
That is fixed income yields cannot meet investors return targets, which places a significant ask on the equity portion of portfolios.
This creates a need for alternatives, including real <expletive>ets, which can provide equity like returns as well as diversification benefits.
This allocation dynamic combined with our strong investment performance has helped fuel our organic growth.
The current macro environment further supports the demand for our strategies recently, Michael Hart net the Chief investment strategist at Bank of America released a report, citing five reasons to own real <expletive>ets.
Number one they are cheap and at the lowest valuations versus financial <expletive>ets since 1925.
Number two there a hedge for inflation.
Infrastructure spending in the war against any quality.
Number three day diversified portfolios number four there under owned and number five their scarce and more valuable in the coming digital currency era.
I believe that Heartland case for real <expletive>ets only adds to the demand for our <expletive>et cl<expletive>es.
Turning to our fundamental results as John reviewed we had an okay quarter invest in investment performance with six of non core strategies outperforming as some portfolio managers didn't rotate strongly enough to value and cyclicality as the reopening rally unfolded.
We are confident in our investment teams ongoing portfolio adjustments.
Importantly, with 93% and 99% of our AUM outperforming over one and three years, respectively. We are in a terrific position to retain <expletive>ets and compete for new allocations, which continue at a good pace.
Our AUM set a record 87 billion at quarter end with all three of our investment vehicles setting firm records.
Starting from a record $7 5 billion of gross inflows in the first quarter firm wide net inflows were $3 8 billion.
Annualized growth rate of 19%.
Open end funds led the way on net inflows with a record $2 2 billion driven primarily by U S rights and secondarily by preferreds.
We were awarded $460 million <expletive>et allocation model placement and U S rights from a wealth advisory firm.
We also had multiple allocations from small to mid sized institutions into our institutional U S. REIT fund in part driven by several new consultant recommendations.
Notwithstanding rising rising treasury yields we had inflows into both our core and low duration preferred strategies, albeit with an anticipated shift and flow momentum to the low duration strategy.
Another notable open end fund trend was a pickup in flows into our infrastructure funds.
We believe this increased interest has been driven in part by President <unk> infrastructure proposal as John mentioned.
And our major <expletive>et cl<expletive>es of global real estate U S real estate preferreds and infrastructure.
We gained market share measured against both active and p<expletive>ive funds vehicles combined.
Attribute to both our consistent performance and the strength of our distribution.
Institutional advisory had record net inflows of $1 7 billion.
We believe that the record results are partially attributable to attractive relative valuations and allocation entry points for real estate and infrastructure.
As well as strong execution by our distribution team in the Middle East, where we've seen growing demand for real estate and infrastructure strategies.
Sub advisory ex Japan had net inflows of $97 million relatively quiet, but importantly included a mandate combining two of our recently developed strategies.
Japan sub advisory was our only channel with net outflows, primarily due to one funds distribution reduction that Matt explained.
For perspective.
Japan sub advisory peaked in the third quarter of 2011 at 33% of our AUM.
But is now just 11% of our AUM as <expletive>ets have declined by 34% and Japan, while the firms.
And other channels has grown by 69%.
Our current one unfunded pipeline stands at $1 $4 billion.
Working from last quarter's $1 8 billion pipeline, we had $1 1 billion of fundings in the quarter and one $940 million and seven new mandates.
And account top ups across global real estate infrastructure, and a multi strategy blend of U S Reits and preferreds.
Three of the seven news mandates were in our focused strategies, which have higher active share and where performance has been very strong.
We continue to see growing interest for these differentiated high performing strategies.
Turning to corporate strategy, we are confident in continuing to continue continuing to invest in the business.
We believe the next several years will be good allocation entry points for both real estate and it infrastructure.
Providing additional support for resource allocation.
Priorities always start with Alpha generation. So we will continue to invest in people process data and strategy development.
On that front, we continue to allocate resources to next generation strategies focused portfolios multi strategy allocation capabilities ESG integration and as we announced earlier this week expanding our real estate capabilities.
This past Monday, we issued a press release announcing the formation of a private real estate group.
Our strategic rationale is to create another growth driver through private investment in the 15 trillion dollar universe of real estate in the U S that is not owned by listed Reits.
Leading the group as Jim Coral, who previously worked with US from 1997 to 2008 and.
And his last four years as Chief investment officer of our listed real estate team.
Jim spent the last 11 years at singular Guffin company, where he helped build and lead an opportunistic real estate investment business.
We're excited about the team that Jim is built to execute our private business business, which is a testament to Jim and to our platform.
Without distractions from legacy <expletive>ets. This team will be able to focus on the best investment opportunities available today.
Our goal is to excel in private real estate as a standalone as we haven't listed but more importantly to innovate and combining listed in private to create more alpha levers.
Investors have become more interested and agile and allocating between the two markets.
Moreover, many institutions have real estate allocations that are heavily weighted and legacy property types, such as office and retail.
As a result, they need new solutions and we believe we are well positioned to provide advice on how to rebalance using the listed markets or segments of the private market.
These dynamics will position us to gain a greater share of real estate allocations, where private typically has the greatest share.
We have a product plan that includes strategies and vehicles for both the institutional and wealth channels.
Bob Steers and my collective vision is to have both private unlisted capabilities in real estate and infrastructure, enabling us to provide standalone strategies and book the spokes solutions that include both markets.
We will look worked closely with Greg Bosher, who heads product strategy as well as our executive Committee to build this foundation for our next phase of growth.
In conclusion, while the past year has been unprecedented we are energized and optimistic about our future.
Considering we have been working from home for more than a year I'd like to thank our employees, who have remained focused diligent and dedicated and serving our clients.
We look forward to returning to the office and seeing our colleagues and all of you in person.
I'll now turn the call over to the operator to conduct the Q&A session.
<unk>. Thank you very much ladies and gentlemen, if you would like to register a question. Please press. The one followed by the four on your telephone keypad, you will hear <unk> III, Tom prompt to acknowledge that request. If your question has been answered and you would like to withdraw your registration. Please press one three and if you are using a speaker phone. Please lift your handset before entering your request.
Once again for questions. Please press the one followed by the four one moment for the first question.
Yes.
Our first question comes from the line of John Dunn with Evercore ISI. Please go ahead.
Hi, guys, it's great news about Bob.
To start maybe you could give us a little more color on the path.
Adding private real estate why now and maybe how quickly you think I think things can ramp and then I know sizing is hard, but maybe give us an idea of your aspiration to that how much AUM, we could eventually get to.
Sure let me start.
In terms of.
Why now.
Look at.
How well we've done in <unk>.
Building out our real estate the real <expletive>ets strategies, we think it's time to continue that exercise.
Develop our product strategy for the next five years and as I mentioned, we think there's an opportunity to inner.
Innovate and.
Combined both listed and private strategies.
Different vehicles.
For both the institutional and wealth channel so.
More.
Specifically as it relates to how we went about it.
Before the pandemic start as we start to think about the strategy.
We were looking at.
How we might want to do it.
Because we were so low.
Long and the real estate cycle, we didn't feel like doing something like an acquisition made sense. So we started talking about.
Building it organically, which is how we like to do things and at the same time, we started to have conversations with Jim Coral and.
To lay out a strategy to <unk>.
Build this effort then the pandemic hit and it.
From a cyclical perspective made us even more eager to create the team because we felt that the real estate cycle was being reset and that.
We would have a great <unk>.
Investment entry point.
Around which to build build the strategy so.
Some some context.
As it relates to.
How big it could be can become you've heard us in the past.
Talk about how.
We can't predict.
<unk>.
There are so many factors that go into it.
What we will be focused on is generating alpha and innovating on strategy.
But if we get that right because of the size of the private real estate market. We think it can be a meaningful.
Contribution to our investment strategy lineup and our <expletive>et base.
Yes.
Got you and then maybe just.
Maybe on the possible timing of the ramp and then also just do you guys have other aspirations in private markets infrastructure. It seems like a logical step maybe even private credit.
Well.
We're going to focus on real estate number one and then secondarily.
Infrastructure.
It could be something like infrastructure debt so.
Focus version of credit.
But I think it will be harder to develop an infrastructure because it's a less well.
Developed.
An investment area, but it's going to be rapidly changing.
In terms of the.
Ramp up.
We're going to focus first on an opportunistic strategy for the institutional market and there will be lead time involved.
Typically.
As you would find in the private equity market for that type of strategy.
But we also have other plans to.
Potentially look at the closed end fund market, where we could combine both listed and private real estate investments.
So there will be some lead time because these types of.
Our products tend to have longer lead times.
But we feel like were gaining momentum now that the team is formed and we have some.
Very well.
As planned out.
<unk> strategies.
That's great. Thank you very much.
Our next question comes from the line of Mike Carrier Bank of America. Mr. Carrier. Your line is open you May proceed with your question.
Great. Good morning, Thanks standard questions John.
John Joe you both provided some color on the outlook, given rising rates and inflation expectations.
But can you provide some context on what levels or backdrop tends to be good for your strategies in demand versus what type of a backdrop could become more challenging.
I'm going to ask John to start with that but I think we're in a very very interesting period as it relates to this question.
No.
Maybe.
Say that simply.
I don't think that there are periods in the past that you can really look to to see how some of our <expletive>et cl<expletive>es are going to perform in an environment, where yields are being pinned down you have building inflation.
<unk>.
Expectations and you have a economic recovery that.
As perhaps unprecedented so.
We're seeing.
Interest in our strategies from from a lot of different investors, who are trying to.
You saw different portfolio needs.
But.
Let me turn it to John.
Provide some more direct investment perspective.
Okay sure. Thanks, Joe.
Look I think it's less about absolute levels and it's more about why our interest rates moving up.
Why is inflation moving up.
And historically if.
Interest rates and inflation had been moving up because we have strong real GDP and if inflation is moving up because we have strong demand as opposed to supply constraints.
Or no slack in the <unk>.
Employment markets, then that's tended to be a positive dynamic for our more equity like.
Or economically sensitive <expletive>et cl<expletive>es, so whether that's real estate or infrastructure or.
Commodities resource equities.
Strong demand is the dominant story rather than interest rates are moving up.
Inflation is moving up.
It becomes more of a problem when inflation goes from being.
Reflationary or.
Even a little bit hotter than central banks want to and of course central banks. So far have said they are okay with things running hotter that's why we think.
That message means that there is more like years of dovish is ahead of us rather than quarters of dovish is ahead of us.
But if the.
If if inflation were to spike sustainably above some level.
Where it's.
Out of control, then youre getting more towards that.
Rapid tightening cycle.
Not what we are talking about when we're talking about that we think that we're going from a lower inflation environment. The next three to five years to a higher inflationary environment.
Our memory of inflation of course is the last 10 years in the last 10 years.
Was in economic terms kind of disappointing secular stagnation. So I think what we're talking about is we're probably coming out of a period that was quite deflationary to not one that's highly inflationary, but simply one that's more reflationary.
And so that's why we think theres per.
Positive tailwind for their real <expletive>ets category, whether it's real estate infrastructure commodities natural resource equities because there.
There has been.
We're coming off of a decade of headwinds, where maybe people forgot the virtues of.
Real <expletive>ets inflation sensitivity I guess as it relates to preferreds and interest rates like Joe said.
Look there's a lot of debt in the world.
We think that there is a lot of incentives for central banks policymakers to keep interest rates low.
And that's why we may be in some situation where growth is higher than trend, but central bank policy remains very very supportive.
That's why we still think that alternative income.
Has a very valuable place in People's portfolios, even though.
We we baby.
Sealing that.
Base rates or risk free rates, they were artificially low six months ago, and they're just normalizing to where they should go.
Alright, Great and then just as a.
As a follow up just from the product side.
I think just given the private market initiatives. When you think about the size of that market.
This is where you guys are saying in the public markets I'm, just trying to think about.
How much that can contribute to Cohen <unk> steers over the next say decade.
And then also just any update on timing.
Well as unlike closed end funds. If you are continuing to see demand in the market. Thanks.
Well again on that.
The size question.
The private real estate market in the U S was 15 trillion.
You can look at.
The other.
Other <expletive>et managers, who have businesses in and get a feel for.
How big those businesses can be.
Frankly right now.
Not thinking about that because again.
There are good competitors and private real estate <expletive>et management business.
We just got started.
Believe we have <expletive>embled a great team and we have some pretty great ideas on how to innovate.
So we're as I said focused on.
Raising the first dollar and delivering great performance results and if we get that right I think that this can be a very meaningful.
Our <expletive>et base and as we build that too.
Innovate with strategies that combined with our listed strategies and.
At the end, if we get it right, we're going to get a bigger share of the real estate allocations.
And I think have better <expletive>et retention.
<unk>.
Where we can offer private solutions to some of our clients.
As it relates to the closed end fund market.
That is a strategic priority for us.
On the new issue front and.
Our peers are having.
Very good success as we did at the end of last year with our peak.
PTA preferred.
Tax advantage preferred fund.
Two ideas that we think are very compelling and so we are talking to the underwriters to try to get a month.
And offerings slot over.
Over the next year.
Because the rate of production if you will for new closed end funds is less than what it has been in prior cycles. These monthly slots or Merck coveted there are.
Asset managers, who are competing for them.
So.
It may be something that where we can't do is.
Many as frequently as we used to.
But we think we have two great ideas and.
Sure.
Working to secure.
Our spot sometime over the next year.
Alright, Thanks, a lot.
Ladies and gentlemen, as a reminder, if you'd like to register a question. Please press the one followed by the four on your telephone keypad.
Our next question comes from the line of Robert Lee from <unk>. Mr. Lee. Your line is open. Please proceed with your question.
Alright, Thanks for taking my question. This is Jeff Drezner on for Rob.
A question in regards to capital management, and how maybe you see that.
Playing out considering the need for funding some of these new initiatives.
How we should think about.
Net policy going forward.
Sure, Let me start and then ask Matt Matt Stadler to add on.
First in terms of the new initiatives.
Sure.
Built a team.
Organically, so theres no upfront capital cost <expletive>ociated with that but as Matt said the.
The compensation.
Cost with respect to that are embedded into the.
Comp to revenue ratio guidance that Matt provided as it relates to the investment vehicles.
We could have capital requirements for co investment and instead.
Institutional vehicle if we.
<unk>.
Complete that and as it relates to the closed end fund market as we've talked about in the past the new structure for closed end funds is that the.
Asset managers sponsor pays all the upfront costs, which typically are around four 5%. So if we're successful in.
With those vehicles, we would have.
Capital commitments.
Associated with them that they would be capital commitments that that.
Would be.
Very rewarding financially as it relates to the economics of a closed end fund or <unk>.
Economics on an institutional opportunistic private equity vehicle.
I don't I don't have much to add to that Jeff.
Other than we typically <expletive>ess closer to the end of the year, we look to do what's in the best interest of our shareholders and Joe just cited the two potential uses of cash.
Based on the level of success in the <expletive>et raisins could be meaningful.
But again those would be.
Tied to great returns for our investors so think either way it is.
Gonna be a win but trying to measure.
We're going to do something that's early in the year I think is premature.
Okay. Thanks, and then I guess just following.
Historically, you've paid out between 50 and 60% of your earnings.
In terms of dividend can we expect that to be uninterrupted going forward.
Yes, we don't see that.
Quarterly distribution policy.
Being affected by.
The private initiative or or what we're doing with.
And the closed end fund market.
Yeah, Jeff I would just add that it's not.
Our approach to this is not necessarily to have a 10 or 15% increase year over year.
Maybe a 45% to 55% distribution of what we believe our earnings would be and then that percent bearing its year over year is just the math.
This year, we did a little higher increase than usual because at the end of the year, our AUM was 15% higher than our average AUM. So.
We were positioned to kind of have that baked in all things being equal. So we were able to increase our quarterly.
Accordingly.
But just to remind everybody our quarterly distribution.
Philosophy is to pay out 50% to 60% of R. R.
Earnings and then as we go through the progression of.
What our capital needs are.
Whether it's.
Doing a closed end fund or potentially.
Potentially making an acquisition.
Or seeding new strategies. After we go through that analysis then.
We've typically paid out a special dividend.
Towards the end of the year so.
We've got the predictable.
50% to 60% of earnings quarterly distribution policy and then.
Evaluate whether we.
I want to pay a special dividend towards the end of the year.
Great. Thanks for taking my questions.
And those are all the questions. We have I will now turn the call back over to Mr. Joe Harvey President and acting Chief Executive Officer for closing remarks.
Thank you <unk> well everyone. Thank you for listening to our call today, we look forward to our next update.
In July and so have a good day. Thank you.
And ladies and gentlemen that does conclude our call for today. We thank you all for your participation have a great rest of your day and you may disconnect Your line.
Okay.
Yes.
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