Q3 2023 Cohen & Steers Inc Earnings Call
Speaker 1: Ladies and gentlemen, thank you for standing by. Welcome to the Cohen and Spears third quarter 2023 earnings conference call. During the presentation, all participants will be in a listen only mode. Afterwards, we will conduct a question and answer session.
Ladies and gentlemen, thank you for standing by.
I'll come to the Cohen <unk> steers third quarter 2023 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 star followed by the one on your telephone.
Speaker 1: If at any time during the conference you need to reach an operator, please press star.
If at any time during the conference you need to reach an operator, Please press star zero.
Speaker 1: As a reminder, this conference is being recorded Thursday, October 19, 2020.
As a reminder, this conference is being recorded Thursday October 19 2023.
Speaker 1: I would now like to turn the conference over to Brian Heller, Senior Vice President and Corporate Counsel of Coenens Field.
I would now like to turn the conference over to Brian Heller Senior Vice President corporate counsel of corn and stairs. Please go ahead.
Speaker 2: Thank you and welcome to the Cohen and Steers third quarter 2023 earnings conference call.
Thank you and welcome to the Cohen <unk> Steers third quarter 2023 earnings conference call.
Speaker 2: Joining me are our Chief Executive Officer, Joe Harvey.
Joining me are our Chief Executive Officer, Joe Harvey.
Speaker 2: our Chief Financial Officer, Matt Stadler, and our Chief Investment Officer, John Che.
Our Chief Financial Officer, Matt Stadler, and our Chief investment Officer, John Shay.
Speaker 2: I want to remind you that some of our comments and answers to your questions may include
I want to remind you that some of our comments and answers to your questions.
They include forward looking statements.
Speaker 2: We believe these statements are reasonable based on information currently available to us, but actual outcomes could differ materially due to the fact that the results are reasonable.
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.
Speaker 2: including those described in our accompanying third quarter earnings release and presentation.
Putting those described in our accompanying third quarter earnings release and presentation.
Speaker 2: our most recent annual report on Form 10-K , and our other SEC filings. We assume no duty to update.
Our most recent annual report on Form 10-K, and our other SEC filings.
We assume no duty to update any forward looking statement.
Speaker 2: Further, none of our statements constitute an offer to sell or the solicitation of an offer to buy the securities of any fund or other investment vehicle.
Further none of our statements constitute an offer to sell or the solicitation of an offer to buy the securities of any fund or other investment vehicle.
Speaker 2: Our presentation also contains non-GAAP financial measures referred to as adjusted financial measures that we believe are meaningful in evaluating our performance.
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.
Speaker 2: 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 the extent reasonably available.
Speaker 2: A reconciliation of these non-GAAP financial measures is included in the earnings release and presentation to the extent reasonably available.
Speaker 2: the earnings release and presentation, as well as links to our SEC filing.
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.
Speaker 2: are available in the investor relations section of our website at www.cohenandsteers.com. With that, I'll turn the call over to Matt.
With that I'll turn the call over to Matt.
Thank you Brian Good morning, everyone. Thanks for joining us today.
Speaker 2: As on previous calls, my remarks this morning will focus on our as-adjusted results.
As on previous calls my remarks. This morning will focus on our as adjusted results.
Speaker 3: A reconciliation of GAAP to as-adjusted results can be found on pages 18 and 19 of the earnings release and on slides 16 through 20 of the earnings presentation.
A reconciliation of GAAP to as adjusted results can be found on pages 18, and 19 of the earnings release and on slides 16 through 20 of the earnings presentation.
Speaker 3: Yesterday, we reported earnings of 70 cents per share compared with 92 cents in the prior year's quarter and 70 cents sequentially.
Yesterday, we reported earnings of <unk> 70 per share compared with 92 cents in the prior year's quarter and 70 sequentially.
Speaker 3: The third quarter of 2023 included an adjustment to compensation and benefits that increased the compensation to revenue ratio.
The third quarter of 2023 included an adjustment to compensation and benefits that increased the compensation to revenue ratio.
Speaker 3: Revenue is 123.6 million for the quarter, compared with 140.2 million in the prior year's quarter, and 120.3 million sequentially.
Revenue was $123 6 million for the quarter compared with $140 2 million in the prior year's quarter and $123 million sequentially.
Speaker 3: The increase from the second quarter was primarily due to the recognition of performance fees from certain institutional accounts, as well as one additional day in the quarter.
The increase from the second quarter was primarily due to the recognition of performance fees from certain institutional accounts as well as one additional day in the quarter.
Speaker 3: Our effective fee rate was 57.6 basis points in the third quarter, compared with 57 basis points in the second quarter.
Our effective fee rate was 57.6 basis points in the third quarter compared with 57 basis points in the second quarter.
Speaker 3: The recognition of performance fees in the third quarter accounted for the majority of the increase in our effective fee rate.
The recognition of performance fees in the third quarter accounted for the majority of the increase in our effective fee rate.
Speaker 3: Operating income was $43.9 million in the quarter compared with
Operating income was $43 9 million in the quarter compared with.
Speaker 3: $60.1 million in the prior year's quarter and $43.8 million sequentially.
$60 1 million in the prior year's quarter, and $43 8 million sequentially.
Speaker 3: and our operating margin decreased to 35.5% from 36.4% last quarter.
And our operating margin decreased to 35, 5% from 36, 4% last quarter.
Speaker 3: Expenses increased 4.2% from the second quarter, primarily due to higher compensation and benefits partially offset by lower GNA.
Expenses increased four 2% from the second quarter, primarily due to higher compensation and benefits, partially offset by lower G&A.
Speaker 3: The compensation to revenue ratio for the third quarter, which included the adjustment referred to earlier, increased to 42.5% and is now 40.5% for the nine months ended, 100 basis points higher than our previous guidance.
The compensation to revenue ratio for the third quarter, which included the adjustment referred to earlier increased to 42.5% and is now 45% for the nine months ended <unk> <unk>.
100 basis points higher than our previous guidance.
Speaker 3: Market depreciation in our asset classes late in the third quarter resulted in quarter-end assets under management being approximately 6% lower than our average assets under management.
Market depreciation in our asset classes late in the third quarter resulted in quarter end assets under management being approximately 6% lower than our average assets under management.
Speaker 3: We expect this to result in lower full year revenue than we had forecasted when providing our compensation guidance last...
We expect this to result in lower full year revenue than we had forecasted when providing our compensation guidance last quarter, which led us to increase the compensation to revenue ratio in the third quarter in order to balance employee retention with results to shareholders.
Speaker 3: which led us to increase the compensation to revenue ratio in the third quarter in order to balance employee retention with results to shareholders.
Speaker 3: The decrease in G&A was primarily due to lower than projected costs associated with the now completed implementation of our new trading and order management system, as well as lower recruitment costs, partially offset by increases in business related travel and entertainment and hosted comp.
The decrease in G&A was primarily due to lower than projected costs associated with the now completed implementation of our new trading and order management system as well as lower recruitment costs, partially offset by increases in business related travel and entertainment and hosted conferences.
Speaker 3: Our effective tax rate remained at 25.25%, consistent with the guidance provided on our last call.
Our effective tax rate remained at $25 two 5% consistent with the guidance provided on our last call.
Speaker 3: Page 15 of the earnings presentation sets forth our cash and cash equivalents, corporate investments in U.S. Treasury securities, and liquid seed investments for the current and trailing four quarters.
Page 15 of the earnings presentation sets forth, our cash and cash equivalents.
But investments in U S Treasury securities and liquid seed investments for the current and trailing four quarters.
Speaker 3: Our firm liquidity totaled 279.9 million at quarter end, compared with 257.9 million last quarter. And we have not drawn on our 100 million three-year revolving credit facility.
Our firm liquidity totaled $279 9 million at quarter end, compared with Jordan and $57 9 million last quarter.
And we have not drawn on our 100 million three year revolving credit facility.
Speaker 3: Assets under management were $75.2 billion at September 30th, a decrease of $5.3 billion or 6.5% from June 30th.
Assets under management were $75 2 billion at September 30th a decrease of $5 3 billion or six 5% from June 30th.
Speaker 3: The decrease was due to market depreciation of $4.6 billion, net outflows of $47 million, and distributions of $604 million.
The decrease was due to market depreciation of $4 6 billion.
Net outflows of $47 million.
And distributions of $604 million.
Speaker 3: Joe Harvey will provide an update on our flows and institutional pipeline of awarded unfunded mandates.
Joe Harvey who will provide an update on our flows and institutional pipeline of awarded unfunded mandates.
Speaker 3: Let me briefly discuss a few items to consider for the fourth quarter.
Let me briefly discuss a few items to consider for the fourth quarter with.
Speaker 3: With respect to compensation and benefits, all things remaining equal, we expect that our compensation to revenue ratio will remain at 40.5%, consistent with the year-to-date ratio I just provided earlier.
With respect to compensation and benefits all things remaining equal we expect that our compensation to revenue ratio will remain at 45%.
Assistant with year to date ratio I just provided earlier.
Speaker 3: We expect GNA to increase 5 to 7% from the 52.6 million we recorded in 2022, which is lower than the 9 to 11% increase noted on last quarter's call.
We expect G&A to increase 5% to 7% from the $52 6 million we recorded in 2022.
Which is lower than the 9% to 11% increase noted on last quarter's call.
Speaker 3: excluding cost projections associated with our new corporate headquarters and the establishment of a new data center, we would expect GNA to be flat when compared with last year.
Excluding cost projections associated with our new corporate headquarters and the establishment of a new data center, we would expect G&A to be flat when compared with last year.
Speaker 3: And finally, we expect our effective tax rate will remain at 25.25%.
And finally, we expect our effective tax rate will remain at $25 two 5%.
Speaker 3: Now I'd like to turn it over to our Chief Investment Officer, John Chay, who will discuss our investment performance.
Now I'd like to turn it over to our Chief investment Officer, John Shay, who will.
We'll discuss our investment performance.
Thank you, Matt and good morning.
Speaker 3: Today I'd like to cover our performance scorecard and the market environment during this quarter.
I'd like to cover our performance scorecard and the market environment during this quarter.
Speaker 4: And then I'd like to provide our investment viewpoint on what we call the global energy addition as opposed to transition.
And then I'd like to provide our investment viewpoint on what we call. The global Energy addition, as opposed to transition.
Speaker 4: We believe the consensus on this topic is in the early stages of shifting, and this will help generate strong returns and new investor allocations for our real assets, natural resources, and energy-oriented strategy.
We believe the consensus on this topic is in the early stages of shifting and this will help generate strong returns and new investor allocations for our real assets natural resources and energy oriented strategies.
Speaker 4: Turning to our performance scorecard, for the quarter, 39% of our AUM outperformed, a drop from last quarter's 98%.
Turning to our performance scorecard for the quarter, 39% of our AUM outperformed a drop from last quarter's 98%.
Speaker 4: While a slight disappointment, we would caution reading too much into the short term.
A slight disappointment, we would caution reading too much into the short term.
Speaker 4: First, philosophically, we believe our three and one year performances in that order are most important to our clients and prospective investors. Second, the quarterly alpha pullbacks we experienced occurred in strategies where we are still outperforming over the one in three years.
First philosophically, we believe our three in one year performance is in that order are most important to our clients and prospective investors.
The quarterly Alpha Pullbacks, we experienced occurred in strategies, where we are still outperforming over the one and three years.
Speaker 4: Positively, our performance this quarter was led by preferred securities, most notably low duration preferreds, which outperformed by 100 basis points and is now up 60 basis points for the year.
Positively our performance this quarter was led by preferred securities, most notably low duration, preferreds, which outperformed by 100 basis points and is now up 60 basis points for the year.
Speaker 4: Following a challenging Q1 for our preferred strategies, we have now seen two quarters in a row of both absolute and relative performance recovery after the banking crisis earlier this year.
Following a challenging Q1 for our preferred strategies, we have now seen two quarters in a row of both absolute and relative performance recovery. After the banking crisis earlier this year.
Speaker 4: For the last 12 months, 83% of our AUM outperformed, which is the same as Q2.
So the last 12 months, 83% of our AUM outperformed which is the same as Q2.
Speaker 4: For the last 3, 5, and 10 years, our performance track record remains nearly perfect at 95%, 97%, and 100% respectively.
For the last three five and 10 years, our performance track record remains nearly perfect at 95%, 97% and 100% respectively.
Speaker 4: From a competitive perspective, 88% of our open-end fund AUM is rated 4 or 5 star by Morningstar, which is consistent with last quarter.
From a competitive perspective, 88% of our open end fund a U N is rated four or five star by Morningstar, which is consistent with last quarter.
Speaker 4: Turning to the market environment, the quarter was challenging for most asset classes with global equities down 3.3% and global bonds declining 3.6%.
Turning to the market environment, the quarter was challenging for most asset classes with global equities down three 3% and global bond declining three 6%.
Speaker 4: For the first seven months of the year, cooling inflation and rising prospects for a soft landing drove positive listed market returns.
For the first seven months of the year cooling inflation and rising prospects for a soft landing drove positive listed market returns.
Speaker 4: But this quarter, market attention shifted back to concerns about stubborn inflation and high rates.
But this quarter market attention shifted back to concerns about stubborn inflation and high rates, along with new concerns over fiscal deficits and that sustainability.
Speaker 4: along with new concerns over fiscal deficits and debt sustainability.
Speaker 4: Our largest asset class US REITs declined by 8.6% for the quarter, underperforming US private real estate as measured by Nate Krief, which declined 2.2%.
Our largest asset class U S rates declined by eight 6% for the quarter.
Underperforming U S private real estate as measured by <unk>, which declined two 2%.
Speaker 4: Real estate, in our view, had already priced in a 4% treasury yield environment, but clearly struggled with the 10-year pushing closer to 5% by the end of the quarter.
Real estate in our view had already priced in a 4% treasury yield environment, but clearly struggled with a 10 year pushing closer to 5% by the end of the quarter.
We view the underperformance of listed versus private to be a matter of timing and not a new fundamental trend.
Speaker 4: we view the underperformance of listed versus private to be a matter of timing and not a new fundamental trend.
Speaker 4: This quarterly decline in listed markets implies that we should expect continued write downs within private markets.
This quarterly decline enlisted markets implies that we should expect continued write downs within private markets.
Speaker 4: Amidst this latest rate-induced pullback in listed REITs, we still see low comparative supply of space, pricing power, and strong balance.
Amidst this latest rate induced pullback enlisted rights, we still see low comparative supply of space pricing power and strong balance sheets.
Speaker 4: Considering valuations in the fundamental picture, we believe investors have an attractive entry point over a multi-year horizon.
<unk> evaluations and the fundamental picture, we believe investors have an attractive entry point over a multiyear horizon indeed.
Speaker 4: Indeed, we maintain our convection that listed markets today are priced for strong forward returns and particularly so versus private markets.
Indeed, we maintain our conviction that listed markets today are priced for strong forward returns and particularly so versus private.
Speaker 4: Real assets modestly declined during the quarter, but outperformed a 60-40 portfolio. Commodities were the big story, up 4.7%, as energy in the petroleum complex surged on deeper OPEC-plus production cuts, as well as falling Russian crude oil exports and stronger global demand.
Real assets modestly declined during the quarter, but outperformed a 60 40 portfolio commodities were the big story of up four 7% as energy in the petroleum complex surged on deeper OPEC plus production cuts as well as falling Russian crude oil.
Exports and stronger global demand.
Speaker 4: which pushed Brent crude oil prices to 10 month highs in the mid 90s.
Which pushed Brent crude oil prices to 10 month highs in the mid nineties.
Speaker 4: In addition, after five straight quarters of surpluses, the quarters expected deficit of one and a half million barrels per day was the largest since the fourth quarter of 2021 and drove OECD supply inventors further below their five-year average.
In addition, after five straight quarters of surpluses that quarter's expected deficit of one and a half million barrels per day was the largest since the fourth quarter of 'twenty one.
And drove OECD supply inventories further below their five year average.
Speaker 4: As expected, these same developments drove a 4.4% quarterly return for natural resource equities.
As expected the same developments drove a four 4% quarterly return for natural resource equities.
Speaker 4: We are closely monitoring developments in the Middle East following the terrorist attacks on Israel and the war which has ensued.
We are closely monitoring developments in the middle East following the terrorist attacks in Israel, and the war, which has ensued.
Speaker 4: While oil fundamentals have remained unaffected, at least for the moment, pale risks for the global economy and certainly commodity prices have all increased.
Oil fundamentals have remained unaffected at least for the moment.
Tail risks for the global economy, and certainly commodity prices have all increased.
Speaker 4: Moving to listed infrastructure, the asset class felt nearly 8% during the quarter.
Moving to listed infrastructure, the asset class out nearly 8% during the quarters.
Speaker 4: Utilities, particularly in North America, tend to be the most rate-sensitive part of our universe and led the decline. All major utility subsectors, electric, gas, and water, were down between 7% and 11% during the quarter.
Utilities, particularly in North America tend to be the most rate sensitive part of our universe and led the decline.
All major utility Subsectors electric gas and water were down between seven and 11% during the quarter.
Speaker 4: Also impacting the electric space has been the likely negative impact of both higher cost of capital and lingering supply chain issues impacting returns for new renewable energy projects.
Also impacting the electric space has been the likely negative impact of both higher cost of capital and lingering supply chain issues impacting returns for new renewable energy projects sell.
Speaker 4: Cell tower companies have also been impacted by both higher interest rates as well as lower customer leasing activity.
Cell tower companies have also been impacted by both higher interest rates as well as lower customer leasing activity.
Speaker 4: Offsetting these dynamics, midstream energy continues to perform well with the industry up two and a half percent on the quarter and now up seven percent on the year as investors appreciate the scarcity value of US energy infrastructure and the...
Offsetting these dynamics midstream energy continues to perform well with the industry up two 5% in the quarter and now up 7% on the year as investors appreciate the scarcity value of U S energy infrastructure.
And the attractive free cash flow generation.
Speaker 4: Lastly, our core preferred security strategy was up 1% for the quarter, beating its benchmark by 90 basis points and outperforming the Bloomberg global aggregate, which was down 3.6%.
Lastly, our core preferred security strategy was up 1% for the quarter, beating its benchmark by 90 basis points outperforming the Bloomberg global aggregate, which was down three 6% back.
Speaker 4: Factors that aided our outperformance included our focus on more defensive securities, with features such as shorter durations, fixed to reset coupons, and higher yield cushions. From a sector standpoint
Factors that aided our outperformance included a focus on more defensive securities with features such as shorter durations fixed to reset coupons and higher yield cushions from a sector standpoint.
Speaker 4: Security selection and banking, insurance, and utilities contributed to alpha, highlighting our sector diversification.
Security selection banking insurance and utilities contributed to alpha highlighting our sector diversification in.
Speaker 4: In the near term, we believe preferreds will continue to perform well due to attractive yields.
In the near term, we believe preferreds will continue to perform well Youtube attractive yields.
Speaker 4: potential for strong total returns as we approach the peak of monetary policy tightening and solid fundamentals as highlighted by healthy bank earnings this quarter.
Potential for strong total returns as we approach the peak of monetary policy tightening and solid fundamentals as highlighted by healthy Bank earnings this quarter.
Shifting gears on our last earnings call I spent time discussing the strategic case for real assets and both individual and institutional portfolios and how we are in the early stages of a significant and far reaching macroeconomic regime change defined by higher.
Speaker 4: Fifting gears, on our last earnings call, I spent time discussing the strategic case for real assets in both individual and institutional portfolios and how we are in the early stages of a significant and far-reaching macroeconomic regime change defined by higher inflation, lower growth, and greater market volatility.
<unk> lower growth and greater market volatility.
Speaker 4: Today, I want to speak on the so-called energy transition.
Hey, I want to speak on the so called energy transition.
Speaker 4: We believe that the consensus view will shift over time from energy transition to energy addition.
We believe that the consensus view will shift over time from energy transition to Energy addition.
Speaker 4: Last month, our Natural Resources and Infrastructure Portfolio Manager, Tyler Rosenlich, published an important piece of research entitled, Changing the Imperative from Energy Transition to Energy Addition.
Last month, our natural resources and infrastructure portfolio manager Pilar Rosulate published an important piece of research entitled changing the imperative from energy transition to Energy addition.
Speaker 4: You, as investors and analysts, should expect to see more thought pieces from us that will delve into this theme over time and how it will be a tailwind for real assets, natural resources, and energy.
You as investors and analysts should expect to see more thought pieces from us that will delve into this theme over time.
How it will be a tailwind for real assets natural resources and energy.
Speaker 4: In short, we believe that while the global economy will certainly become much more energy efficient.
In short, we believe that while the global economy will certainly become much more energy efficient glue.
Speaker 4: global energy consumption will still increase in the aggregate to support a growing population, economic growth, and most importantly, rising standards of living in the developing world.
Global energy consumption will still increase in the aggregate to support a growing population economic growth and most importantly, rising standards of living in the developing world.
Speaker 4: In fact, we forecast a 20% increase in aggregate energy demand by 2040.
In fact, we forecast a 20% increase in aggregate energy demand by 2040.
Speaker 4: The world will need both alternative and traditional energy to meet this increased demand. And we believe this future will create attractive investment opportunities on both sides of the equation.
The world will need both alternative and traditional energy to meet this increased demand and.
And we believe this future will create attractive investment opportunities on both sides of the equation.
Speaker 4: The energy industry is changing dramatically, with new efficiencies coming to market, old technologies facing obsolescence, and companies reacting to this significant disruption. Some incumbent companies will navigate the change well, others
The energy industry is changing dramatically with new efficiencies coming to market <unk>.
Old technologies facing obsolescence.
Companies reacting to the significant disruption some incumbent companies will navigate that change well.
While others will not.
Speaker 4: In either case, the old definition of energy is now obsolete.
In either case, the old definition of energy is now obsolete.
The expectation that renewables, such as wind and solar are ready to fully meet the world's rising demands on their own is at least premature if not optimistic.
Speaker 4: The expectation that renewables, such as wind and solar, are ready to fully meet the world's rising energy demands on their own is at least premature, if not optimistic.
Speaker 4: At the same time, the demise of traditional carbon-intensive energies such as crude oil and natural gas has been greatly exaggerated.
At the same time.
Rise of traditional carbon intensive energy such as crude oil and natural gas has been greatly exaggerated.
Speaker 4: To be clear, alternative energy is the future, and we expect its production to grow by 155% over the next several decades, which will help satisfy growing energy demand.
To be clear alternative energy is the future and.
And we expect its production to grow by 155% over the next several decades, which will help satisfy growing energy demand.
Speaker 4: However, we estimate this still will only cover roughly 35 percent of future energy needs, which showcases why the world will continue to rely on and invest in traditional energy.
However, we estimate this still will only cover roughly 35% of future energy needs, which showcases lies the world will continue to rely on and invest in traditional energy.
Speaker 4: The marketplace cannot and will not be dependent on one energy source to the exclusion of others.
The marketplace cannot and will not be dependent on one energy source to the exclusion of others.
Speaker 4: With the exception of coal, we are likely in a quote unquote more of everything world for the next few decades.
With the exception of coal.
We are likely in a quote unquote more of everything world for the next few decades.
Speaker 4: Indeed, we believe investing in both traditional and alternative energy is the way forward.
Deed, we believe investing in both traditional and alternative energy is the way forward.
Speaker 4: as it replicates what the world will need to lift an ever-growing population to a higher standard of living and economic equality.
Is it replicates, what the world will need to lift an ever growing population to a higher standard of living and economic equality.
Speaker 4: When looking at the prolonged energy transition picture, we believe that blending traditional energy with alternative investments can also create a compelling risk return profile for investors.
When looking at the prolonged energy transition picture, we believe that blending traditional energy with alternative investments can also create a compelling risk return profile for investors.
Speaker 4: This emerging energy addition consensus will be a key driver of returns and increased allocations into our energy, natural resource equities, and broader real asset strategies. With that, let me turn the call over to Joe.
This emerging energy addition, consensus will be a key driver of returns and increased allocations into our energy natural resource equities and broader real asset strategies with that let me turn the call over to Joe.
Speaker 5: Thank you, John . Good morning, everyone. I'd like to first briefly touch on the macro environment, then discuss our third quarter business fundamentals and outlook.
Thank you John good morning, everyone.
I'd like to first briefly touch on the macro environment, then discuss our third quarter business fundamentals and outlook.
Speaker 5: During the third quarter, the emergence of bond vigilantes focusing on the US federal deficit and potential for sticky inflation caused bond yields to rise.
During the third quarter, the emergence of bond vigilantes, focusing on the U S federal deficit and potential for sticky inflation caused bond yields to rise further.
Speaker 5: Furthering the higher for longer view and pressuring valuations on risk assets.
Furthering the higher for longer view and pressuring valuations on risk assets.
Speaker 5: While our average AUM for the quarter was $80 billion, we ended the quarter at $75 billion.
Our average AUM for the quarter was $80 billion, we ended the quarter at 75 billion.
Speaker 5: Our largest asset classes had greater depreciation than the S&P 500's decline of 3.3%. For example, US REITs declined 8.6%.
Our largest asset classes had greater depreciation than the S&P five hundred's decline of three 3% for example, U S res declined eight 6%.
Unknown Executive: Ladies and gentlemen, thank you for standing by.
Unknown Executive: Welcome to the Cohen & Steers 3rd quarter 2023 earnings conference call. During the presentation, all participants will be in a listen-only mode.
Speaker 5: Energy was the winner in the quarter with oil prices up 29% and energy equities up 12%.
Energy was the winner in the quarter with oil prices up 29% in energy equities up 12%.
Unknown Executive: Afterwards, we will conduct a question and answer session. At that time, if you have a question, please press the star followed by the one on your telephone. If at any time during the conference, you need to reach an operator, please press star zero.
Speaker 5: Our interest rate sensitive assets represent a much larger percentage of our total AUM than does the energy sensitive component.
Our interest rate sensitive assets represent a much larger percentage of our total AUM.
Does the energy sensitive components.
Speaker 5: Our flow results were better than what may have been expected considering the market environment.
Unknown Executive: As a reminder this conference is being recorded Thursday, October 19, 2023.
Our flow results were better than what may have been expected considering the market environment.
Brian Heller: I would now like to turn the conference over to Brian Heller, Senior Vice President and Corporate Council of Cohen & Steers. Please go ahead. Thank you and welcome to the Cohen & Steers 3rd quarter 2023 earnings conference call. Joining me are our Chief Executive Officer, Joe Harvey, our Chief Financial Officer, Matt Stadler and our Chief Investment Officer, John Cheigh. I want to remind you that some of our comments and answers to your questions may include forward-looking statements.
Speaker 5: Firm wide net outflows were 47 million in the third quarter, an improvement from the second quarter when we had 512 million of outflows.
Firm wide net outflows were $47 million in the third quarter, an improvement from the second quarter, when we had $512 million of outflows.
Speaker 5: Year-to-date net outflows have totaled 1.06 billion, an annualized decay rate of 2 percent.
Year to date net outflows have totaled one 6 billion in.
And annualized decay rate of 2%.
Speaker 5: In the quarter, open-end funds had outflows of $360 million led by U.S. open-end funds, including our two preferred stock funds, which accounted for $222 million of outflows.
In the quarter open end funds had outflows of $360 million led by U S. Open end funds, including our two preferred stock funds, which accounted for $222 million of outflows.
Brian Heller: 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 3rd quarter earnings release and presentation. Our most recent annual report on Form 10K 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 the solicitation of an offer to buy the securities of any fund or other investment vehicle.
Speaker 5: The institutional channel was positive in the quarter with 190 million of net inflows in advisory and 123 million of net inflows through subadvisor.
The institutional channel was positive in the quarter with $190 million of net inflows in advisory.
And $123 million of net inflows through sub advisory.
The wealth channel had net outflows across all vehicle types, including open end funds.
Speaker 5: The Wealth Channel had net outflows across all vehicle types including open-end funds, SMA, UMA accounts, and offshore USITS vehicles. In the US open-end funds, seven of 11 funds had outflows reflecting the current risk-off market sentiment.
<unk> U M <unk> accounts.
And offshore UCITS vehicles.
In the U S.
Open end funds seven of 11 funds had outflows, reflecting the current risk off market sentiment.
Brian Heller: Our presentation also contains non-GAAP financial measures referred to as as adjusted 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 in the earnings release and presentation to the extent reasonably available.
Speaker 5: We did see inflows into three of our REIT funds totaling $67 million.
We did see inflows into three of our REIT funds totaling $67 million.
Speaker 5: The greatest outflows came from our low duration preferred stock fund symbol LPX, which had 138 million out as short term Treasury yields of five and a half percent now exceed the 5.2% yield on LPX.
The greatest outflows came from our low duration preferred stock fund symbol L. P X.
Which had $138 million out.
As short term treasury yields of five 5% now exceed the five 2% yield on LPX.
Brian Heller: 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.comoninthears.com.
Speaker 5: Net outflows from our core preferred fund CPX were $84 million, which reflects steady improvement following the turmoil in the US regional banking sector earlier in the year.
Net outflows from our core preferred fund CP acts were 84 million, which reflects steady improvement following the turmoil in the U S regional banking sector earlier in the year.
Matthew Stadler: With that, I'll turn the call over to Matt. Thank you, Brian. Good morning, everyone. Thanks for joining us today. As on previous calls, my remarks this morning will focus on our as adjusted results. A reconciliation of GAAP to as adjusted results can be found on pages 18 and 19 of the earnings release and on slide 16 through 20 of the earnings presentation. Yesterday, we reported earnings of 70 cents per share compared with 92 cents in the prior years quarter and 70 cents sequentially.
Speaker 5: We also saw outflows from our infrastructure fund CSU at $65 million and from our multi-strategy real assets fund RAP at $70 million, which is the highest they've been.
We also saw outflows from our infrastructure fund CSU at $65 million and from our multi strategy real assets fund wrap at $70 million, which is the highest they've been.
Speaker 5: Institutional advisory had net inflows of $190 million, the first positive quarter since the second quarter of 2021.
Institutional advisory had net inflows of $190 million, the first positive quarter since the second quarter of 2021.
Speaker 5: We had 274 million of inflows into two existing accounts and outflows of 141 million associated with three account terminations, the lion's share being a preferred allocation in our limited partnership vehicle.
We had $274 million of inflows into two existing accounts and outflows of $141 million associated with three account terminations, the lion's share being a preferred allocation in our limited partnership vehicle.
Matthew Stadler: The third quarter of 2023 included an adjustment to compensation and benefits that increased the compensation to revenue ratio. Revenue was 123.6 million for the quarter compared with 140.2 million in the prior years quarter and 120.3 million sequentially. The increase from the second quarter was primarily due to the recognition of performance fees from certain institutional accounts as well as one additional day in the quarter. Our effective fee rate was 57.6 basis points in the third quarter compared with 57 basis points in the second quarter.
Speaker 5: This redemption should be completed in the fourth quarter with another $184 million out.
This redemption should be completed in the fourth quarter with another $184 million out.
Speaker 5: The sub advisory ex Japan net inflows were driven by three new mandates totaling $234 million partially offset by trims and three existing strategies totaling $107 million.
The sub advisory ex Japan, net inflows were driven by three new mandates totaling $234 million.
Really offset by trims, and three existing strategies totaling $107 million.
Speaker 5: The three new mandates included a REIT completion strategy and two multi-strategy real assets portfolio.
The three new mandates included a REIT completion strategy and two multi strategy real asset portfolios.
Speaker 5: Japan's sub advisory was virtually flat with outflows equal to $2 million.
Matthew Stadler: The recognition of performance fees in the third quarter accounted for the majority of the increase in our effective fee rate operating income was 43.9 million in the quarter compared with 60.1 million in the prior years quarter and 43.8 million sequentially and our operating margin decreased to 35.5% from 36.4% last quarter. Primarily due to higher compensation and benefits, partially offset by lower GNA. The compensation to revenue ratio for the third quarter, which included the adjustment referred to earlier, increased to 42.5% and is now 40.5% for the nine months ended.
Japan sub advisory was virtually flat with outflows equal to $2 million.
Speaker 5: Japan has been a source of relative strength led by one of Iowa Asset Management's U.S. REIT mutual funds.
Japan has been a source of relative strength led by one of Daiwa asset management U S REIT mutual funds.
Speaker 5: Japanese interest rate increases have not kept pace with the rise in global rates, and the US dollar has been strong versus the yen. Both dynamics helping rate flows in Japan.
Japanese interest rate increases have not kept pace with the rise in global rates in the U S. Dollar has been strong versus the yen both dynamics, helping REIT flows in Japan.
Speaker 5: In addition, our partner, Diowa, has stepped up marketing efforts for those funds.
In addition, our partner dialog has stepped up marketing efforts for those funds.
Speaker 5: Our one unfunded pipeline was $784 million compared with $1.1 billion last quarter and the three-year average of $1.3 billion.
Our one unfunded pipeline was $784 million compared with $1 1 billion last quarter and the three year average of $1 3 billion.
Speaker 5: Tracking the change from last quarter, 532 million funded into six accounts.
Tracking the change from last quarter.
$532 million funded into six accounts.
Speaker 5: $415 million was added to the pipeline from five new mandates, including $161 million for our private real estate vehicles.
$415 million was added to the pipeline from five new mandates, including 161 million for our private real estate vehicles.
Matthew Stadler: 100 basis points higher than our previous guidance. Market depreciation in our asset classes late in the third quarter resulted in quarter and assets under management being approximately 6% lower than our average assets under management. We expect this to result in lower full year revenue than we had forecasted when providing our compensation guidance last quarter, which led us to increase the compensation to revenue ratio in the third quarter in order to balance employee retention with results to shareholders.
Speaker 5: and $233 million was terminated, mostly from one OCIO client where the underlying client's strategic allocation was de-risked.
And $233 million was terminated.
Mostly from one Oc I O client, where the underlying clients strategic allocation was derisked.
Speaker 5: While client decision making has been slow, activity picked up in the third quarter and continues.
While client decision, making has been slow activity picked up in the third quarter and continues.
Speaker 5: Turning to our outlook, we believe we are well positioned by way of our corporate strategy, how we're organized, and the clarity of our priorities.
Turning to our outlook. We believe we are well positioned by way of our corporate strategy, how were organized and the clarity of our priorities.
Matthew Stadler: The decrease in GNA was primarily due to lower than projected costs associated with the now completed implementation of our new trading and order management system, as well as lower recruitment costs, partially offset by increases in business related travel and entertainment and hosted conferences. Our effective tax rate remained at 25.25% consistent with the guidance provided on our last call. Page 15 of the earnings presentation sets forth our cash and cash equivalents, corporate investments in U.S. Treasury securities and liquid seed investments for the current and trailing four quarters, or firm liquidity total 279.9 million a quarter and compared with 257.9 million last quarter. And we have not drawn on our 100 million three year revolving credit facility. Assets under management were 75.2 billion at September 30th, a decrease of 5.3 billion or 6.5% from June 30th.
Speaker 5: In terms of the things within our control, our relative performance continues to be strong, and we have invested prudently in new strategies, such as private real estate, and have seeded new strategies, such as infrastructure opportunities and the future of energy.
In terms of the things within our control our relative performance continues to be strong and we have invested prudently in new strategies, such as private real estate and have ceded new strategies, such as infrastructure opportunities in the future of energy.
Speaker 5: We have also expanded our distribution capabilities to include private real estate and have allocated more resources in Asia and have invested in our corporate infrastructure to accommodate more and increasingly sophisticated clients.
We have also expanded our distribution capabilities to include private real estate and have allocated more resources in Asia.
And have invested in our corporate infrastructure to accommodate more and increasingly sophisticated clients.
Speaker 5: We are better organized to strategically partner with investors and help them build better performing and diversified portfolios. What's challenging is the...
We're better organized to strategically partner with investors and help them build better performing and diversified portfolios.
Was challenging as the regime change in the macro economy.
Speaker 5: This shift is taking a very long time, which with reflection is understandable considering that the cumulative effects of 12 years of monetary stimulus cannot be unwound in a quarter or two.
This shift is taking a very long time, which with reflection is understandable considering that the cumulative effects of 12 years of monetary stimulus cannot be unwound in a quarter or two.
Speaker 5: factor in geopolitical tensions and in some cases outright conflict, including two wars.
Factor and geopolitical tensions and in some cases outright conflict, including two wars.
Matthew Stadler: The decrease was due to market depreciation of 4.6 billion net outflows of 47 million and distributions of 604 million.
Speaker 5: and the entirety of that macro landscape is less predictable and potentially fragile.
And the entirety of that macro landscape is less predictable and potentially fragile.
Speaker 5: Normalization of interest rates at the end of the day is good for the economy and capital allocation. But the increase in the cost of capital and multiple compression presents challenges for businesses and assets.
John Cheigh: Joe Harvey will provide an update on our flows and institutional pipeline of awarded unfunded mandates.
Normalization of interest rates at the end of the day is good for the economy and capital allocation, but the increase in the cost of capital and multiple compression presents challenges for businesses and asset owners.
Matthew Stadler: Let me briefly discuss a few items to consider for the fourth quarter. With respect to compensation and benefits, all things remaining equal, we expect that our compensation to revenue ratio will remain at 40.5% consistent with the year-to-date ratio I just provided earlier. We expect GNA to increase 5 to 7% from the 52.6 million we recorded in 2022, which is lower than the 9 to 11% increase noted on last quarter's call. Excluding cost projections associated with our new corporate headquarters and the establishment of a new data center, we would expect GNA to be flat when compared with last year. And finally, we expect our effective tax rate will remain at 25.25%.
Speaker 5: To date, that process has mostly manifested in the listed market, but is now developing in the private markets as well.
To date that process has mostly manifested in the listed market, but is now developing in the private markets as well.
Speaker 5: de-globalization and the shifting geopolitical world order provide added catalysts for our view that inflation will be more prevalent, interest rates will be higher for longer, and central banks will continue to be reacting.
The globalization and the shifting geopolitical world order provide added catalyst for our view that inflation will be more prevalent interest rates will be higher for longer and central banks will continue to be reactive.
Speaker 5: As a result, the global economy should experience more volatility.
As a result, the global economy should experience more volatility.
Speaker 5: The regime change continues to affect asset allocators decision making. The fact that investors can sideline their capital and earn over 5% in a riskless treasury bill while they wait to see how valuations and the economy evolve makes sense for now.
The regime change continues to affect asset allocators did the decision, making the fact that investors can sideline their capital and earn over 5% and our risk list Treasury Bill while they wait to see how valuations and the economy evolve makes sense for now.
John Cheigh: Now I'd like it to turn it over to our Chief Investment Officer, John Cheigh, who will discuss our investment performance. Thank you, Matt, and good morning. Today, I'd like to cover our performance scorecard and the market environment during this quarter. And then I'd like to provide our investment viewpoint on what we call the global energy addition. As opposed to transition. We believe the consensus on this topic is in the early stages of shifting.
Speaker 5: The other question is where private valuation marks will settle out, which is slowing portfolio allocation decisions across the board. We continue to believe that listed real assets are underrepresented in investor portfolios based on their fundamentals considering return risk and diversification.
The other question is where private valuation marks will settle out which is slowing portfolio allocation decisions across the board. We continue to believe that listed real assets are underrepresented in investor portfolios based on their fundamentals considering return risk and diversification.
Speaker 5: That said, in the short term, the cyclical dynamics of investors sitting on treasuries and waiting for opportunities to become more visible continues to impact the pace of strategic asset allocation decision making.
It said in the short term the cyclical dynamics of investors sitting on treasuries and waiting for opportunities to become more visible continues to impact the pace of strategic asset allocation decision, making.
John Cheigh: And this will help generate strong returns and new investor allocations for our real assets, natural resources, and energy oriented strategies. Turning to our performance scorecard for the quarter, 39% of our AUM outperformed, a drop from last quarters 98%. While a slight disappointment, we would caution reading too much into the short term.
Speaker 5: Demand for our strategies is well grounded. We're seeing takeaway opportunities from underperforming managers, shifts from passive.
Demand for our strategies as well grounded.
Seeing takeaway opportunities from underperforming managers.
<unk> from passive to active.
Speaker 5: desire for customized completion strategies and real estate.
Desire for customized completion strategies and real estate.
Speaker 5: opportunity for optimization of listed and private real estate, an emerging demand for real asset.
Opportunity for optimization of listed in private real estate.
And emerging demand for real assets in Asia.
John Cheigh: First, philosophically, we believe our three and one year performances in that order are most important to our clients and prospective investors. Second, the quarterly alpha pullbacks we experienced occurred in strategies where we are still outperforming over the one in three years. Possibly, our performance scorecard was led by preferred securities, most notably, low-duration preferred, which outperformed by 100 basis points and is now up to 60 basis points for the year. Following a challenging Q1 for our preferred strategies, we have now seen two quarters in a row of both absolute and relative performance recovery after the banking crisis earlier this year.
Speaker 5: We believe that the regime change is creating attractive entry points.
We believe that the regime change is creating attractive entry points.
Speaker 5: We're advising clients that now is the time to begin averaging into listed REITs with their prices down nearly 30% and with the Fed nearing the end of its tightening cycle and with recession concerns afoot.
We're advising clients that now is the time to begin averaging into listed Reits with their prices down nearly 30% and with the fed nearing the end of its tightening cycle and with recession concerns a foot.
Speaker 5: Then, as private real estate furthers its price correction, we expect buying opportunities to open up in 2024.
Then as private real estate further as price correction, we expect buying opportunities to open up in 2024 for.
Speaker 5: For preferreds, with a mini banking crisis in the rearview mirror and with yields in the 7-8% range, we expect prefers to participate in the next fixed income return cycle.
For preferreds with a mini banking crisis in the rearview mirror and with yields in the 7% to 8% range. We expect prefers to participate in the next fixed income return cycle.
Speaker 5: As mentioned, with inflation likely to be a greater macroeconomic factor, and the fact that investors are generally short inflation beta, we expect investors will increasingly want allocations to the strategies that constitute our multi-strategy real assets portfolio, including natural resource equities and commodities.
As mentioned with inflation likely to be a greater macroeconomic factor and the fact that investors are generally short inflation beta we expect investors will increasingly want allocations to the strategies that constitute our multi strategy real assets portfolio, including natural resource equities and commodities.
John Cheigh: For the last 12 months, 83% of our AUM outperformed, which is the same as Q2. For the last three, five, and ten years, our performance track record remains nearly perfect at 95%, 97%, and 100% respectively. From a competitive perspective, 88% of our open and fun AUM is rated 4 or 5 star by Morningstar, which is consistent with last quarter.
Speaker 5: Our resource equity strategy is particularly well suited for the macroeconomic environment we envision.
Our resource equity strategy is particularly well suited for the macroeconomic environment, we envision.
Speaker 5: Finally, just as in real estate, investors in infrastructure will look to complement private allocations with listed allocations.
Finally, just as in real estate investors and infrastructure will look to complement private allocations with listed allocations.
John Cheigh: Turning to the market environment, the quarter was challenging for most asset classes with global equities down 3.3% in global bonds declining 3.6%. For the first seven months of the year, pulling inflation and rising prospects for a soft landing drove positive, lifted market returns. But this quarter, market attention shifted back to concerns about stubborn inflation and high rates, along with new concerns over fiscal deficits and debt sustainability. Our largest asset class, U.S, reads declined by 8.6% for the quarter, underperforming U.S, private real estate, as measured by Nate Creef, which declined 2.2%.
Speaker 5: We continue to make progress with our new private real estate vehicles. Our non-traded REIT, Cone and Steers Income Opportunities REIT, has completed its registration and review process with the SEC and all 50 states.
We continue to make progress with our new private real estate vehicles or non traded REIT Cohen <unk> steers income opportunities REIT has completed its registration and review process with the SEC and all 50 states.
Speaker 5: The next steps to become operational include drawing from our corporate seed capital commitments and from a multi-family office and commencing our investment strategy.
The next steps to become operational include drawing from our corporate seed capital.
John Cheigh: Real estate, in our view, had already priced in a 4% treasure yield environment, but clearly struggled with the tenure pushing closer to 5% by the end of the quarter. We view the underperformance of listed versus private to be a matter of timing and not a new fundamental trend. This quarterly decline in listed markets implies that we should expect continued write-downs within private markets. Amidst this latest rate-induced pullback enlisted reads, we still see low comparative supply space, pricing power, and strong balance sheets.
<unk> and from a multifamily office and commence commencing our investment strategy.
We're ready to go.
Speaker 5: but we've been patiently waiting for prices to decline further in light of the increase in interest rates and slowing growth.
But we've been patiently waiting for prices to decline further in light of the increase in interest rates and slowing growth.
Speaker 5: Our expectation has been that prices need to decline 25 to 30 percent. And, to generalize, we believe we're about halfway there.
Our expectation has been that prices need to decline 25% to 30%.
And to generalize, we believe we're about halfway there.
Speaker 5: Needless to say, our objective is to start the non-traded REIT with a good track record while taking advantage of an attractive investment period.
Needless to say our objective is to start the non traded REIT with a good track record, while taking advantage of an attractive investment period.
Speaker 5: In terms of our closed-end private equity opportunity fund, we continue to raise capital while waiting for private real estate prices to correct.
In terms of our closed end private equity opportunity fund, we continue to raise capital while waiting for private real estate prices to correct.
Speaker 5: Due to the duration of the regime change and the complexity of these vehicles, it has taken longer to get to market with them.
Due to the duration of the regime change and the complexity of these vehicles it has taken longer to get to market with them.
Speaker 5: However, this initiative is strategic and we're seeing the power of having both capabilities from an investing and client perspective.
However, this initiative is strategic and we're seeing the power of having both capabilities from an investing and client perspective.
John Cheigh: Considering valuations in the fundamental picture, we believe investors have an attractive entry point over a multi-year horizon. Indeed, we maintain our convection that listed markets today are priced for strong forward returns, and particularly so versus private markets. Real assets modestly declined during the quarter, but outperformed a 60-40 portfolio. Commodities were the big story, up 4.7 percent, as energy in the petroleum complex surged on deeper OPEC-plus production cuts, as well as following Russian crude oil exports and stronger global demand.
Speaker 5: The cost structure supporting the initiative is in place, and we believe private real estate is a strategic investment that will provide meaningful operating leverage.
The cost structure supporting the initiative is in place and we believe private real estate as a strategic investment that will provide meaningful operating leverage.
Speaker 5: We're optimistic about business opportunities in Asia, as investors adopt allocations to listed real assets.
We're optimistic about business opportunities in Asia as investors adopt allocations to listed real assets.
Speaker 5: As a reminder, we opened a Singapore office to complement our Hong Kong office in Asia. We've hired heads of sales in Singapore for both the institutional and wholesale market.
As a reminder, we opened a Singapore office to complement our Hong Kong Office in Asia, We've hired heads of sales in Singapore for both the institutional and wholesale markets.
Speaker 5: We've identified initially $3.5 billion in potential allocations to our asset classes on the institutional side. For the wholesale channel, Singapore has become a destination for private wealth and will complement the distribution for our offshore open-end sea calves in Europe .
We've identified initially $3 $5 billion in potential allocations to our asset allocation or asset classes on the institutional side for.
John Cheigh: Which pushed Brent crude oil prices to 10-month highs in the mid-90s. In addition, after 5 straight quarters of surpluses, the quarters expected deficit of 1.5 million barrels per day, with the largest since the fourth quarter of 2021. In drove OECD supply inventors further below their 5-year average. As expected, these same developments drove a 4.4 percent quarterly return for natural resource equities.
For the wholesale channel, Singapore has become a destination for private wealth and will complement the distribution for our offshore open and <unk> in Europe .
Speaker 5: Taking all of this into account, we are very busy, focused, and excited about the investment opportunities for active managers amidst regime change.
Taking all of this into account we are very busy focused and excited about the investment opportunities for active managers.
H regime change.
Speaker 5: Our priorities for 2024 are centered around delivering great investment performance and working with clients to take advantage of entry points to initiate or add to allocations to our asset classes.
Our priorities for 2024 are centered around delivering great investment performance and working with clients to take advantage of entry points to initiate or add to allocations to our asset classes.
John Cheigh: We are closely monitoring developments in the Middle East following the terrorist attacks in Israel and the war which has ensued. While oil fundamentals have remained unaffected, at least for the moment, perilous for the global economy and certainly commodity prices have all increased. Moving to listed infrastructure, the asset class fell nearly 8 percent during the quarters. Utilities, particularly in North America, tend to be the most rate-sensitive part of our universe and led the decline.
Speaker 5: I'd like to close by pointing your attention to an 8K we filed yesterday, announcing that Matt Stadler will be retiring next year.
I'd like to close by pointing your attention to an 8-K, we filed yesterday announcing that Matt Stadler.
Be retiring next year.
Speaker 5: He is a consummate professional and is passionate about our business.
He is a consummate professional and as passionate about about our business.
Speaker 5: about leading our finance department as CFO and helping to lead the firm on our Executive Committee.
About leading our finance department, and CFO and helping to lead the firm on our Executive Committee.
Speaker 5: We thank Matt for what will be 20 years of service to Cohen and Steers and note that his contributions and philosophies will be felt for many years to come.
We think that for what will be 20 years of service to Cohen <unk> steers and note that his contributions and philosophies will be felt for many years to come.
John Cheigh: All major utility subsectors, electric, gas and water were down between 7 and 11 percent during the quarter. Also impacting the electric space has been the likely negative impact of both higher cost of capital and lingering supply chain issues impacting returns for new renewable energy projects. Cell tower companies have also been impacted by both higher interest rates as well as lower customer-releasing activity. Offsetting these dynamics, midstream energy continues to perform well with the industry up to 1.5 percent on the quarter and now up 7 percent on the year as investors appreciate the scarcity value of US energy infrastructure.
Speaker 5: He has talked to you on 75 of these earnings calls, and we will look forward to another three or four based on the timing of finding his successor and executing a smooth transition. Congratulations, Matt.
He has talked to you on 75 of these earnings calls and we will look forward to another three or four based on the timing of finding his successor and executing a smooth transition congratulations Matt.
Speaker 5: Thank you for listening to our earnings call. Julianne, could you please open the lines for questions?
Thank you for listening to our earnings call.
Leann could you please open the lines for questions.
Certainly if you would like to ask a question. Please press star followed by the number one on your telephone keypad.
Speaker 1: followed by the number one on your telephone keypad. To withdraw your questions, please press star one again. We'll pause for just a moment to compile the...
Your question. Please press star one again.
For just a moment to compile the Q&A roster.
Speaker 1: And our first question comes from John Dunn from Evercore ISI. Please go ahead, your line is...
And our first question comes from John Dunn from Evercore ISI. Please go ahead. Your line is open.
Speaker 3: Hi guys, maybe could you just talk a little more about how you see maybe the flow demand story play out as we potentially get to peak rates for real estate and preferreds? Do people need to get to that peak or do people start looking at it before and maybe afterwards how you're thinking about how it plays out?
Hi, guys.
Maybe you could you just talk a little more about how you see maybe the net.
John Cheigh: And the attractive free cash flow generation. Lastly, our core preferred security strategy was up 1 percent for the quarter, beating at the benchmark by 90 basis points in outperforming the Bloomberg Global Aggregate, which was down 3.6 percent. Factors that aided our outperformance included our focus on more defensive securities with features such as shorter durations, fixed to reset coupons and higher yield cushions from a sector standpoint. Security Selections and Banking, Insurance and Utilities contributed to alpha highlighting our sector diversification.
Flow demand story play out as we potentially get to get to peak rates for real estate and preferreds.
John Cheigh: In the near term, we believe preferred will continue to perform well YouTube attractive yields, the potential for strong total returns as we approach the peak of monetary policy tightening and sound fundamentals as highlighted by healthy bank earnings this quarter.
Do people need to get to that peak or do people start looking at before and just and maybe afterwards.
How does that play into how youre thinking about how it plays out.
Speaker 5: Let me ask John Shay to talk a little bit more about how we see the return cycle evolving for real estate and preferreds, then I'll follow up with some thoughts on, to the extent that, you know, you can predict flows, which is not, is almost impossible, but we can maybe talk about how we've seen things in the past.
Let me ask John Shea to talk a little bit more about how we see the return cycle evolving for real estate and Preferreds, then I'll follow up with some thoughts on.
To the extent that.
You can predict flows which is.
Not as almost impossible, but we can maybe talk about how we've seen things in the past.
Speaker 4: OK, look in terms of quote unquote peak rates. Of course there's short rates and then there's long end. I think both preferred and returns and their attractiveness of course have been impacted by more on the long end.
Okay look in terms of the quote unquote peak rates of course, there's short rates and then Theres long end.
I think.
Both preferred and read.
Turns and their attractiveness of course impacted by them.
John Cheigh: Fifteen years on our last earnings call, I spent time discussing the strategic case for real assets in both individual and institutional portfolios and how we are in the early stages of a significant and far reaching macroeconomic regime change defined by higher inflation, lower growth and greater market volatility. Today, I want to speak on the so-called energy transition. We believe that the consensus view will shift over time from energy transition to energy addition.
More on the long end.
Speaker 4: And when we are talking to our current investors and prospective investors about preferreds and REITs, you know, I would say we're educating them on what has historically happened when we've gotten to the end of this so-called rate hiking cycle. So preferreds, for example,
<unk>.
And.
When we are talking to our current investors and prospective investors about preferreds and rights.
I would say, we're educating them on what has historically happened when we've gotten to the end of this so called rate hiking cycle. So preferreds for example.
Yes.
Speaker 4: You know, some of the research we share is that once the Fed has had its last rate hike over the next 12 months, you tend to see 14 percent returns for preferreds. This compares more like 5 percent for Treasury. So I think and there's similar kinds of research that we've educated our investors on on REIT. So I think most people only understand that when we get to peak.
Some of the research we share is that once the fed has had its last rate hike over the next 12 months you tend to see 14% returns for preferreds.
John Cheigh: Last month, our natural resources in infrastructure portfolio manager Tyler Rosenlich published an important piece of research entitled, Changing the Imperative from Energy Transition to Energy Edition. You, as investors and analysts should expect to see more thought pieces from us that are delved into the theme over time and how it will be a tailwind for real assets, natural resources and energy. In short, we believe that while the global economy will certainly become much more energy efficient, global energy consumption will still increase in the aggregate to support a growing population, economic growth and most importantly, rising standards of living in the developing world.
This compares to more like 5% for Treasury, So I think and there's similar kinds of research that we've educated our investors on on REIT. So I think most people fully understand that when we get to peak, whether it's short or long rates historically that's.
Speaker 4: whether it's short or long rates, historically that's tended to be amongst the best opportunities within reach and preferred.
<unk> tended to be.
Most of the best opportunities within Reits and preferreds.
Speaker 4: We talk to people that and we counsel them that, of course, you never really know when you're there until after the fact, and so that you need to quote unquote dollar cost average in. And so I think we've seen both on the fund side and on the advisory side some amount of that rebalancing in, but certainly not investor behavior.
We talk to people that and we counsel them that of course, you never really know when you're there until after the fact.
And so that you need to quote unquote dollar cost averaging.
So I think we've seen both on the fund side and on the advisory side, some amount of that rebalancing in.
John Cheigh: In fact, we forecast a 20% increase in aggregate energy demand by 2040. The world will need both alternative and traditional energy to meet this increased demand and we believe this future will create attractive investment opportunities on both sides of the equation. The energy industry is changing dramatically with new efficiencies coming to market, old technologies facing obsolescence and companies reacting to the significant disruption. Some incumbent companies will navigate the change well while others will not.
But certainly not.
Investor behavior as we know.
Speaker 4: they want to see it happen and know it happened. So we've seen some of that net flow demand come in, but certainly it's been more muted so far. Maybe I'll turn it back to Joe to talk about.
They wanted to see it happen and now happen so we've seen some.
Of that net flow demand come in but certainly it's been.
More muted so far maybe maybe I'll turn it back to Joe to talk about sure just.
Speaker 5: Sure, just maybe break it down in terms of wealth versus institutional advisory. So on the wealth side, historically.
Maybe break it down in terms of wealth versus institutional advisory so on the on the wealth side historically investors.
Speaker 5: investors of tip advisors investors have typically been more coincident with how the markets move.
And advisors investors have typically been more coincident with with how the markets move but.
Speaker 5: But you should understand too that we have professional allocators and platforms who are using these vehicles.
John Cheigh: In either case, the old definition of energy is now obsolete. The expectation that renewables such as wind and solar are ready to fully meet the world's rising energy demands on their own is at least premature, if not optimistic. At the same time, the demise of traditional carbon-intensive energies such as crude oil and natural gas has been greatly exaggerated. To be clear, alternative energy is the future and we expect its production to grow by 155% over the next several decades, which will help satisfy growing energy demand.
You should understand too, though that we have professional allocators of platforms, who are using these vehicles some of whom can be very move of large amount of money and there are several that are looking for the the Qs and indicators that John mentioned on the on the.
John Cheigh: However, we estimate this still will only cover roughly 35% of future energy needs, which showcases why the world will continue to rely on and invest in traditional energy. The marketplace cannot and will not be dependent on one energy source to the exclusion of others. With the exception of coal, we are likely in a quote-unquote more of everything world for the next few decades. Indeed, we believe investing in both traditional and alternative energy is the way forward.
Speaker 5: you know, some of whom can be, you know, very move a large amount of money. And there are several that are looking for
Speaker 5: the cues and indicators that John mentioned on the REIT side, for example.
<unk> side for example.
Speaker 5: you know, on the institutional side, we would expect those investors to.
On the institutional side, we would expect those investors to be more anticipatory and if you kind of follow the past couple of earnings calls.
Speaker 5: be more anticipatory and if you kind of follow the past couple earnings calls.
Speaker 5: You'll remember that in the second quarter, we felt like the activity just slowed very significantly just due to the significance of the regime change and investors taking stock of their portfolios.
You'll remember that in the second quarter, we felt like the activity. It just slowed very significantly just due to the significance of the regime change and investors taking stock of their portfolios.
Speaker 5: But, you know, we've seen activity pickup. That was evidenced in...
But we've we've seen activity pick up that was evidenced in.
Speaker 5: you know, our third quarter pipeline numbers where we had a lot of fundings. You know, some of those fundings were just sitting around waiting. We've seen some new accounts being won and our activity levels are good.
Our third quarter pipeline numbers, where we had a lot of fundings. Some of those fundings were just sitting around waiting we have seen some new accounts being won and our activity levels are are good. So the institutional market is getting through.
Speaker 5: So, you know, the institutional market is, you know, getting through, you know, the regime change process and, you know, I'd say activity is maybe not normal, but it's getting closer to normal. Overlying all of this.
The regime change processing.
I'd say the activity is maybe not normal, but it's getting closer to normal overlying all of this.
John Cheigh: As it replicates what the world will need to lift an evergreen population to a higher standard of living and economic equality. When looking at the prolonged energy transition picture, we believe that blending traditional energy with alternative investments can also create a compelling risk return profile for investors. This emerging energy addition consensus will be a key driver of returns and increased allocations into our energy, natural resource equities and broader real assets strategies.
Speaker 5: you know, is the comments that I made about the fact that
Is.
The comments that I made about the fact that fixed income now presents a real return opportunity and in particular with Treasury bills.
Speaker 5: Fixed income now presents a real return opportunity, and in particular with Treasury bills.
Speaker 5: of being over 5% in the wealth channel that's enabling investors to sit and wait and watch to see how things play out. So, you know, these changes are a process. This regime chain, as we've talked about, has been one of the longest and dramatic that we've seen. But what I'm excited about, as I said, is the alpha opportunities that are going to come out of it, and that's why...
Being over 5% in the wealth channel that's that's that's.
Enabling investors as debt and wait and watch to see how things play out so.
These changes are a process. This this regime change as we've talked about has been one of the longest in.
And.
Dramatic that we've seen.
John Cheigh: With that, let me turn the call over to Joe. Thank you, John.
But what I'm excited about it I said is that the alpha opportunities that are going to come out of it and that's why.
Joseph Harvey: Good morning, everyone. I'd like to first briefly touch on the macro environment, then discuss our third quarter business fundamentals and outlook. During the third quarter, the emergence of bond vigilantes focusing on the US federal deficit and potential for sticky inflation caused bond yields to rise, furthering the higher for longer view and pressuring valuations on risk assets. While our average AUM for the quarter was $80 billion, we ended the quarter at $75 billion.
Speaker 5: You know, our investment teams are highly focused and motivated to capitalize on these.
Our investment teams are highly focused and motivated to capitalize on.
On these opportunities.
Speaker 4: Got it. And then on private markets, you know, it sounds like we're getting closer, but you know, it's going to be newer products on the block. Can you give us maybe a flavor of how the conversations are going, the demand, you know, and eventually where might you envision it being as part of the AUM base, like how much of a contribution?
Got it and then on.
Private markets it sounds like we're getting closer, but it's gonna be newer products.
On the block.
Give us maybe a flavor of how.
The conversations are going the demand.
And eventually what like what.
Where might you envision it being as part of like the <unk>.
AUM base like how much of a contribution.
Joseph Harvey: Our largest asset classes had greater depreciation than the S&P 500s, the client of 3.3%. For example, US reached declined 8.6%. Energy was the winner in the quarter with oil prices up 29%, and energy equities up 12%. Our interest rate sensitive assets represent a much larger percentage of our total AUM than does the energy sensitive components. Our flow results were better than what may have been expected considering the market environment. Firmwide net outflows were 47 million in the third quarter, an improvement from the second quarter when we had 512 million of outflows.
Well, we don't really try.
Speaker 5: try to make projections on how much AUM it can represent. Now we focus on investment performance and providing strategies that are compelling and unique. That's where we spend our time. Clearly, the real estate.
Try to make projections on how much AUM. It can represent now we focus on investment performance.
And providing our strategies that are compelling and unique that's that's where we spend our time.
Clearly the real estate.
Our sector is one of the biggest asset classes in the world. So the potential if we deliver on our performance.
Speaker 5: sector is one of the biggest asset classes in the world. So, you know, the potential if we, you know, deliver on performance and deliver on distribution could be meaningful to the company. You know, we have
Deliver on distribution.
Could be.
Meaningful to the company.
We have two different investment strategies, one is our core strategy.
Speaker 5: two different investment strategies. One is a core strategy that would be executed through the non-traded REIT vehicle. And as I mentioned, we are mobilized, we're ready to go. And we're just waiting for prices to decline to the point that, you know, notwithstanding all the uncertainty in the world that we can say, look, these are gonna be great investments.
It would be executed through the non traded REIT vehicle and as I mentioned, we are mobilized we're ready to go.
Joseph Harvey: Year-to-date net outflows have totaled 1.06 billion, an annualized decay rate of 2%. In the quarter, open end funds had outflows of 360 million, led by US open end funds, including our two preferred stock funds, which accounted for 222 million of outflows. The institutional channel was positive in the quarter with 190 million of net inflows and advisory, and 123 million of net inflows through sub-advisory. The wealth channel had net outflows across all vehicle types, including open end funds, SMA, UMA accounts, and offshore usage vehicles.
And.
We're just waiting for prices to <expletive>.
Climbed to the point that.
Notwithstanding all of the uncertainty in the world that we can say look these are going to be great investments.
Speaker 5: over the next five to 10 years. So I think we're much closer to that and I would expect that.
Over the next five to 10 years, So I think we're much closer to that.
And I would expect that.
Speaker 5: As we get into early next year, it's going to be time to put money to work. The other strategy is an opportunistic...
As we get into early next year, it's going to be time to put money to work.
The other strategy is an opportunistic.
Speaker 5: you know, higher return strategy that.
Higher return strategy that.
Speaker 5: is focused on properties that might have an overleveraged situation or a vacancy situation.
Is focused on properties that might have a <unk>.
Overleverage situation or a vacancy.
Joseph Harvey: In the US open end funds, 7 of 11 funds had outflows, reflecting the current risk-off market sense. We did see inflows into three of our REIT funds, totaling $67 million. The greatest outflows came from our low-duration preferred stock fund, Symbol LPX, which had 138 million out as short-term treasure yields of 5.5% now exceed the 5.2% yield on LPX. Net outflows from our core preferred fund CPX were 84 million, which reflects steady improvement following the turmoil in the US regional banking sector earlier in the year.
Situation.
Speaker 5: And there too, we're waiting for.
And there too we're waiting for the dynamics of debt maturities in a changing cost of capital too.
Speaker 5: the dynamics of debt maturities and changing cost of capital to present the opportunities. And so, as I mentioned, we continue to raise capital, but it's probably going to take a little bit longer for some opportunities to emerge there just due to the nature of the dynamics of how properties are financed and the process that.
Resent the opportunities and so.
As I mentioned, we continue to raise capital, but it's.
It's probably going to take a little bit longer for some opportunities to.
Emerge there just due to the nature of the divergent dynamics of how properties are financed and the process that.
Speaker 5: owners and lenders need to go through to ultimately make sale decisions.
Owners and lenders need to go through.
To ultimately make sale decisions.
Speaker 4: Right, right. Maybe just a little commentary on how you're finding the reception, since you're kind of breaking into the channels.
Alright, alright.
Maybe just a little commentary on how you're finding the reception.
Sure.
Kind of breaking into the channels.
Joseph Harvey: We also saw outflows from our infrastructure fund CSU at 65 million, and from our multi-strategy real assets fund RAP at 70 million, which is the highest they've been. Institutional advisory had net inflows of 190 million, the first positive quarter since the second quarter of 2021. We had 274 million of inflows into two existing accounts, and outflows of 141 million associated with three account terminations. The Lions share being a preferred allocation in our limited partnership vehicle.
The.
Speaker 5: environment, you know, fundraising wise is more difficult just for all the factors that we mentioned. The reception of our approach to
Environment Fund raising wise is more difficult for all of the factors that that.
Then we mentioned.
The reception of <unk>.
Our approach to.
Investing in private real estate.
Speaker 5: And also including some investing in listed alongside of it is as being received very well. It's a unique approach by...
And and also including some investing enlisted alongside of it is is being received very well said.
Our unique approach by.
Speaker 5: bringing both of our teams together to have an information advantage and an idea advantage and in some cases,
Bringing in both of our teams together to have our information advantage and an idea advantage.
Joseph Harvey: This redemption should be completed in the fourth quarter with another 184 million out. The sub-advisory ex-Japan net inflows were driven by three new mandates totaling 234 million, partially offset by trims and three existing strategies totaling $107 million. The three new mandates included a REIT completion strategy and two multi-strategy real assets portfolios. Japan's sub-advisory was virtually flat with outflows equal to $2 million. Japan has been a source of relative strength led by one of Iowa asset management's US REIT mutual funds.
And in some cases.
Speaker 5: Putting both types of investments in a vehicle is very compelling.
Putting both types of investments and a vehicle is very compelling.
Speaker 5: So as it relates to non-traded REIT, you know, our strategy is different than the ones that are out there.
So as it relates to non traded REIT our strategy is different than the ones that are out there and.
Speaker 5: that as we've been talking to gatekeepers over the past year and a half.
That as we've been talking to gatekeepers over the past year and a half.
Speaker 5: what they're going to see is that we've been right on that strategy. And so, as we can then demonstrate what we can do on the investment side, I think they'll...
What theyre going to see is that we've been right on that strategy and so as we.
And then demonstrate what we can do.
On the investment side, I think I think though though.
Speaker 5: they'll receive us very well. On the opportunistic vehicle side, it's a multi-property sector strategy which...
Joseph Harvey: Japanese interest rate increases have not kept pace with the rise in global rates, and the US dollar has been strong versus the end, both dynamics helping reef flows in Japan. In addition, our partner, Iowa has stepped up marketing efforts for those funds. Our one unfunded pipeline was $784 million, compared with $1.1 billion last quarter and the three-year average of $1.3 billion. Tracking the change from last quarter, $532 million funded into six accounts, $415 million was added to the pipeline from five new mandates, including $161 million for our private real estate vehicles, and $233 million was terminated, mostly from one OCIO client, where the underlying client's strategic allocation was de-risk. While a client decision-making has been slow, activity picked up in the third quarter and continues.
They'll receive us very well on the on the opportunistic vehicle side.
It's a multi property sectors strategy, which.
Speaker 5: three years ago maybe wasn't as popular. But now with the breadth of opportunities in the private market that are emerging, investors are warming up to that approach as well as
Three years ago, maybe wasn't as popular but now with the breadth of opportunities in the private market that are emerging.
Investors are warming up to that approach too.
To that approach as well as including some listed opportunities in that vehicle.
Speaker 5: including some listed opportunities in that vehicle.
Got you and then maybe a couple on expenses.
Speaker 4: gotcha and maybe a couple on expenses uh... you guys get the fourth quarter comp ratio any early dot on like the philosophy for uh... for next year you know that you meant retention vs uh... uh... you know keeping in check
You guys gave the fourth quarter comp ratio any early thoughts on like the philosophy for.
For next year.
You mentioned retention versus ER.
Keeping in check.
Speaker 3: Right. So, John , we typically give the 2024 guidance in the fourth quarter. So, I'm not prepared to signal where that is. But I think when, as I said in my remarks, you know, the market declines in the end of the third quarter.
So John we typically give.
124 guidance in the fourth quarter so.
Not prepared to signal where that is but I think when as I said in my remarks.
Joseph Harvey: Turning to our outlook, we believe we are well-positioned by way of our corporate strategy, how we're organized, and the clarity of our priorities. In terms of the things within our control, our relative performance continues to be strong, and we have invested prudently in new strategies such as private real estate and have seeded new strategies such as infrastructure opportunities and the future of energy. We have also expanded our distribution capabilities to include private real estate and have allocated more resources in Asia and have invested in our corporate infrastructure to accommodate more and increasingly sophisticated clients.
The market declines in the end of the third quarter.
Speaker 3: sets us up for a larger decline in full year revenue than what we had forecasted. So we needed to make an adjustment. And we did that keeping in mind like we always do.
Sets us up for a larger decline in full year revenue than what we had forecasted so we needed to make an adjustment.
And we did that.
Keeping in mind like we always do retaining.
Speaker 3: or employees and returning shareholder value. So.
Our employees and returning shareholder value so.
Speaker 3: We think where we have it set now is going to be where it needs to be, all things being equal, but all things are not always equal. So, but for 2024, we'll give you that guidance on the next call.
We think where we have it set now.
Going to be where it needs to be all things being equal but.
All things are not always equal so but for 2024.
We will give you that guidance on the next call.
Gotcha and G&A maybe.
Speaker 3: Gotcha. And G&A, maybe, you know, core G&A flat every year, maybe, you know, looking forward, what are some of the, you've done a ton of investing over the, you know, for many years now. What are the kind of the levers you can pull to dial that up or dial it back and your willingness to do that? Just also given that you have put a lot of things in place already.
Joseph Harvey: We are better organized to strategically partner with investors and help them build better performing and diversified portfolios. What's challenging is the regime change in the macro economy. This shift is taking a very long time, which with reflection is understandable considering that the cumulative effects of 12 years of monetary stimulus cannot be unwound in a quarter or two. Factor in geopolitical tensions and in some cases outright conflict, including two wars and the entirety of that macro landscape is less predictable and potentially fragile.
Core G&A flat year over year, maybe looking forward what are some of the you've done a ton of investing of it for many years now.
What are the kind of the levers you can pull to dial that up or dial it back and your willingness to do that just also given that you have put a lot of things in place already.
Right I mean look we our controllable G&A is about 30% to 35% of total G&A.
Speaker 3: Right. I mean, look, we've heard controllable GNA is about 30 to 35% of total GNA. We've always been very thoughtful about
We've always been very thoughtful about.
Deploying.
Speaker 3: employing capital towards items that incur expenses and trying to keep those under control. I would say that
Capital towards.
Items that incur expenses and trying to keep those under control I would say that.
Joseph Harvey: Normalization of interest rates at the end of the day is good for the economy and capital allocation, but the increase in the cost of capital and multiple compression presents challenges for businesses and asset owners. To date, that process has mostly manifested in the listed market, but is now developing in the private markets as well. De-globalization and the shifting geopolitical world order provide added catalysts for our view that inflation will be more prevalent, interest rates will be higher for longer and central banks will continue to be reactive.
Speaker 3: The only variable in there that might be a little higher would be, as John and Joe have pointed out, the client activity will start to increase. We might have more business-related travel and entertainment conferences.
The only variable in there.
<unk> be a little higher would be as John and Joe pointed out client activity will start to increase we might have more business related travel and entertainment.
Entertainment and conferences, which.
Speaker 3: you know, are important to do. But all the other things, interoffice travel and things that are not client facing are the things that we're really paying a lot of attention to. So somebody telling you the menu is too good and didn't finish, of doing something had you learned something,heartedly, and other things to do.
Our important to do.
But all the other things.
Interoffice travel and things that are not client facing or the things that we're really paying a lot of attention to so.
Speaker 3: I think, you know, achieving flat year over year.
I think achieving flat year over year.
Speaker 3: Excluding the build out, which as you point out, so are you going to be baked in the numbers 23 versus 24? I would say that the things that we can control will be pretty tight on that. But again, you know, next call will will provide some guidance on where we think G&A will be.
Joseph Harvey: As a result, the global economy should experience more volatility. The regime change continues to affect asset allocators decision making, the fact that investors can sideline their capital and earn over 5% in a riskless treasury bill while they wait to see how valuations and the economy evolve makes sense for now. The other question is where private valuation marks will settle out, which is slowing portfolio allocation decisions across the board. We continue to believe that listed real assets are underrepresented in investor portfolios based on their fundamentals considering return, risk, and diversification.
Excluding the build out which as you point out so are you going to be baked in our numbers 23 versus <unk> 24.
I would say that.
Things that we can control will be will be pretty tight on.
On that but again.
Our next call will will provide some guidance on where we think G&A will be.
Speaker 5: I'll just add that, you know, we've, we've, the corporate infrastructure investments that we've made are going to set us up for for many years of
I'll just add that.
<unk>.
The corporate infrastructure investments that we've made are going to set us up for for many years of.
Speaker 5: uh growth and and uh so those while they hit you know quite a bit this year you know the we're we're
Growth and so.
So those while they hit quite a bit this year.
Sure.
Speaker 5: We rounded the turn and those are going to be behind us going forward. On the personnel and headcount front, we...
We rounded the turn and those are going to be behind us going forward.
Joseph Harvey: That said, in the short term, the cyclical dynamics of investors sitting on treasuries and waiting for opportunities to become more visible continues to impact the pace of strategic asset allocation decision making. Demand for our strategies is well grounded. We are seeing takeaway opportunities from underperforming managers, shifts from passive to active, desire for customized completion strategies in real estate, opportunity for optimization of listed and private real estate, and emerging demand for real assets in Asia.
On the on the personnel and head count front we.
Speaker 5: We've got a lot of opportunities, but we're very mindful of where the markets are, where our AUM is, and we're going to be very disciplined about.
We've got a lot of opportunities, but we're very mindful of where the markets are where AUM is and we're going to be very disciplined about.
Speaker 5: on our hiring process, whether it's adding new people or replacing people until we get to this, you know, this regime change. So we're very conscious of this on all fronts.
On our hiring process, whether it's adding.
New people or replacing people.
Until we get through this.
This regime change so.
We're very very conscious of this on all fronts.
Speaker 5: However, based on our.
However.
Joseph Harvey: We believe that the regime change is creating attractive entry points, where advising clients that now is the time to begin averaging into listed reads with their prices down nearly 30% and with a Fed nearing the end of its tightening cycle and with recession concerns of foot. Then, as private real estate furthers its price correction, we expect buying opportunities to open up in 2024. For prefers, with a mini banking crisis in the rearview mirror and with yields in the 78% range, we expect prefers to participate in the next fixed income returns cycle.
Based on our.
Speaker 5: our view on where the markets are, we are going to position ourselves to capitalize on opportunities for our clients.
Our view on where the markets are we are.
Going to position ourselves to capitalize on opportunities for our clients.
Speaker 3: I did want to touch on advisory. I think it was a positive first time in eight quarters, I think. What type of clients, what regions drove that and did U.S. advisory participate?
Right.
I did want to touch on advisory I think positive first time in eight quarters I think.
What like what clients type of clients what regions.
Drove that and did U S advisory participate.
Speaker 5: Well, absolutely. And, you know, in US Advisory, you know, the people who are involved with on the sales side, you know, touch on, you know, what we do in other regions as well. So it's a unified team. But, you know, in the quarter, the fundings came primarily from real estate. The biggest one was from an existing client in global real estate.
Well absolutely.
U S advisory.
People, who are involved with with on the sales side touch.
Joseph Harvey: As mentioned, with inflation likely to be a greater macroeconomic factor, and the fact that investors are generally short inflation data, we expect investors will increasingly want allocations to the strategies that constitute our multi-strategy real assets portfolio, including natural resource equities and commodities. Our resource equity strategy is particularly well suited for the macroeconomic environment we envision. Finally, just as in real estate, investors in infrastructure will look to complement private allocations with listed allocations.
Touch on.
What we do in other regions as well so it's a unified.
Team, but.
In the quarter the fundings came primarily from.
Real estate the biggest one was from an existing client and global real estate.
Speaker 5: But we also had some smaller US real estate fundings. It also includes sub advisory, which might include
But we also had some smaller U S real estate.
Fundings.
It also includes a sub advisory.
You know might include.
Speaker 5: OCIO providers here in the US, but clients in other regions. So interestingly, we had a couple of fundings from our multi-strategy real assets portfolios, which is consistent with the comments John made and I made about that strategy. So, the.
OCI O providers here in the U S but.
Joseph Harvey: We continue to make progress with our new private real estate vehicles. Our non-traded REIT bonus tiers income opportunities REIT has completed its registration and review process with the SEC and all 50 states. The next steps to become operational include drawing from our corporate seed capital commitments and from a multi-family office and commencing our investment strategy. We're ready to go, but we've been patiently waiting for prices to decline further in light of the increase in interest rates and slowing growth.
Clients.
In other regions so.
Interestingly, we had a couple of fundings from our multi strategy real asset portfolios, which is consistent with the comments John made and I made about that strategy. So.
No.
The.
Speaker 5: Activity is picked up and it's US advisory. But again, it's in many cases, it's a global team and it requires.
Activity has picked up.
And its use.
U S advisory.
But again, it's in many cases.
It's a global team and it requires.
Speaker 5: contributions from different parts of the world.
Contributions from different parts of the world.
Joseph Harvey: Our expectation has been that prices need to decline 25% to 30% and to generalize. We believe we're about halfway there. Needless to say, our objective is to start the non-traded REIT with a good track record while taking advantage of an attractive investment period. In terms of our closed-end private equity opportunity fund, we continue to raise capital while waiting for private real estate prices to correct. Due to the duration of the regime change and the complexity of these vehicles, it has taken longer to get to market with them.
Yeah.
Speaker 4: action and then you know uh... didn't nine you get a japan to the right reason sometimes uh... and it doesn't get much tension uh... united did better this quarter can you kind of remind us like who you know what frame that that business and i could you know who were all your clients there would really you're in you know a couple years after you can have uh... reframed it and then uh... which should be looking to which we'd be looking there to uh... to drive inflows in that channel
Got you and then.
Japan sub advisory sometimes.
And it doesn't get as much attention.
It did better this quarter can you kind of remind us like.
Framed that business and like you know who your clients there what regions that you're in a couple of years after you kind of.
Reframed It and then.
What should be looking at what should we be looking there.
To drive inflows in that channel.
Yes historically.
Speaker 5: Yeah, historically, you know, our flow results from subadvisory hasn't been great.
Our flow results from sub advisory Hasnt been great and it's it's just been more.
Joseph Harvey: However, this initiative is strategic and we're seeing the power of having both capabilities from an investing and client perspective. The cost structure supporting the initiative is in place and we believe private real estate is strategic investment that will provide meaningful operating leverage. We're optimistic about business opportunities in Asia as investors adopt allocations to listed real assets. As a reminder, we open the Singapore office to complement our Hong Kong office in Asia.
Speaker 5: It's just been a more challenging business, but...
More challenging business, but.
Speaker 5: You know, in the quarter we had a couple of, you know.
In the quarter, we had a couple of.
New mandates and fundings of existing mandates.
Speaker 5: new mandates and fundings from existing mandates.
Speaker 5: The two multi-strategy, you know, real assets portfolios I referenced were subadvisory situations from different financial services firms, one in Canada and one in Taiwan.
Yes.
The two multi strategy real asset portfolios I referenced we're sub advisory situations from different financial services firms one in Canada.
And one in Taiwan.
Speaker 5: And the other was an OCIO private provider that, you know, is, you know, managing money for a Korean entity. So, you know, it's—
And.
Joseph Harvey: We've hired heads of sales in Singapore for both the institutional and wholesale markets. We've identified initially $3.5 billion in potential allocations to our asset classes on the institutional side. For the wholesale channel, Singapore has become a destination for private wealth and will complement the distribution for our offshore open NC calves in Europe.
The other was an OCI OCI Oh private provider.
That.
Is managing money for a for a Korean entity so.
Speaker 5: I wouldn't say right now that there's necessarily a trend on that front, but it was certainly positive to see it improve recently.
No I wouldn't say right now that there is necessarily a trend on that front, but.
It was certainly positive to see it improve.
You've recently.
Speaker 4: I would only just add one thing. You know, you see in the Wall Street Journal today, there's an article on you know, is a 6040 dead concerns on that. I think in 2022, people got worried about inflation. And then in the first half of 2023, people thought, Oh, that was just a bad year. I think with what's happening now, there's a greater appreciation of
I would only just add one thing you see in the Wall Street Journal today. There is an article on a 60 40 dead concerns on that I think in 2022.
Joseph Harvey: Taking all of this into account, we are very busy, focused and excited about the investment opportunities for active managers amidst regime change. Our priorities for 2024 are standard around delivering great investment performance and working with clients to take advantage of entry points to initiate or add to allocations to our asset classes.
People are worried about inflation and then in the first half of 2000 2030 people without Oh that was just a bad year I think with what's happening now theres a greater appreciation of.
Speaker 4: maybe investors need to get their act together for the next five years, seven years, eight years. And so I think we're going to see more of these. In these cases, were slightly customized strategies in two different markets. But I think the amount of
Maybe investors need to get their act together for the next five years seven years eight years, and so I think we're going to see more of these and these phases were slightly customized strategies in two different markets, but.
Joseph Harvey: I'd like to close by pointing your attention to an 8K we filed yesterday announcing that Matt Stadler will be retiring next year. He is a consummate professional and is passionate about our business, about leading our finance department as CFO and helping to lead the firm on our Executive Committee. We thank that for what will be 20 years of service to Cohen & Steers and note that his contributions and philosophies will be felt for many years to come. He has talked to you on 75 of these earnings calls and we will look forward to another three or four based on the timing of finding his successor and executing a smooth transition.
I think the amount of.
Speaker 4: real asset solutions that we're going to be able to provide to different clients in different jurisdictions is only going to increase because there's a greater appreciation that this is a regime change, not a 2022 was a bad year.
Real asset solutions that we're going to be able to provide two different clients in different jurisdictions.
There is only going to increase because there is a greater appreciation that there isn't a regime change not a 2022 was a bad year.
Speaker 4: a bad year for 60-40 and the need for inflation protection or sensitivity.
A bad year for 60, 40, and the need for inflation protection or sensitivity.
Thank you.
Speaker 6: Right. And then, you know, on infrastructure, you talked about people potentially moving some of their private allocations into public. So maybe that's one. But what do you think the factors are going to be where that infrastructure can move to being a bigger contributor and more consistently for flows?
Right.
And then on infrastructure, you talked about people potentially moving some of their private allocations into public.
Unknown Executive: Congratulations, Matt.
So maybe that's one but what do you think that the factories are going to be where that is.
Unknown Executive: Thank you for listening to our earnings call, Julianne.
Unknown Executive: Could you please open the lines for questions? Certainly, if you would like to ask a question, please press star, follow by the number one on your telephone keypad. To withdraw your questions, please press star one again. We'll pause for just a moment to compile the Q&A roster.
Infrastructure can move to being a bigger contributor to and more consistently for flows.
Speaker 5: Well, let me start and then John can add on. Infrastructure is, is what you know.
Well, let me start and then John can add on.
Infrastructure is.
No.
Speaker 5: well understood as being an area that's been under invested in globally. And then you have other things like the evolution of energy. And so there are huge capital and investment needs.
Well understood as being.
John Dunn: And our first question comes from John Dunn, from Evercore ISI. Please go ahead, your line is open. Hi guys.
An area that's been Underinvested in.
Globally.
And.
And then you have other things like that.
John Cheigh: Maybe you could just talk a little more about how you see maybe the flow demand story play out as we potentially get to pick rates for real estate and preferred. Do people need to get to that peak or do people start looking at before and maybe afterwards how do you think about how it plays out?
The evolution of energy.
And so there are huge capital investment needs.
Speaker 5: Investors have recognized that and there's been a lot of investment in infrastructure, mostly on the private side. But, you know, we have this view, then you've heard it from us.
Investors have recognized that.
And there's been a lot of that.
<unk> and infrastructure, mostly on the private side, but we have this view then you've you've heard it from us that.
Speaker 5: that investing in an asset like real estate or infrastructure.
Investing in an asset class like real estate or infrastructure.
John Cheigh: Let me ask John Shade to talk a little bit more about how we see the return cycle evolving for real estate and preferred. Then I'll follow up with some thoughts on to the extent that you can predict flows, which is not as almost impossible, but we can maybe talk about how we've seen things in the past. Okay, look, in terms of quote-unquote peak rates, of course there's short rates, and then there's long end.
Speaker 5: can be enhanced if you use both the listed and the private market.
Can be enhanced if you use both the listed in the private markets. So we've talked.
Speaker 5: So, you know, we talked earlier about, you know, the listed market in real estate is foreshadowing what's happening in the private market. The prices have already gone down. So right now, the place to put your money is in listed real estate, not in private real estate. And that's to come.
Earlier about.
The listed market and real estate is foreshadowing what's happening in the private market. The prices have already gone down so right now the place to put your money is in listed real estate not in.
Private real estate.
And that's to come.
Speaker 5: But the same thing will evolve, we believe, in infrastructure. There's a very attractive universe of listed companies that can complement private allocations and the same dynamic of...
But the same thing will evolve we believe in infrastructure.
John Cheigh: I think both preferred and returned, and there are attractiveness, of course, have been impacted by more on the long end. And when we are talking to our current investors and prospective investors about preferred and rates, I would say we're educating them on what has historically happened when we've gotten to the end of this so-called rate of hiking cycle. So preferred, for example, some of the research we share is that once the Fed has had its last rate hike over the next 12 months, you tend to see 14 percent returns for preferred.
There is a very attractive universe of listed companies that can complement private allocations and the same dynamic of.
John Cheigh: This compares to more like 5 percent for Treasury. So I think, and there's similar kinds of research that we've educated our investors on on READS. So I think most people fully understand that when we get to peak whether it's short or long rates, historically that's tended to be amongst the best opportunities within READS and preferred. We talk to people of that, and we counsel them that, of course, you never really know when you're there until after the fact, and so that you need to quote-unquote dollar cost average in.
Speaker 5: lead lag in listed versus private will continue to develop there. You know, the same types of conversation for private infrastructure is taking place as in real estate where changes in interest rates are changing asset prices, and so allocations are
The lead lag and listed versus private.
We will continue to develop there.
The the same types of.
Conversation for private infrastructure.
Is taking place as in real estate, where changes in interest rates are.
Changing asset prices and so allocations are.
Speaker 5: or money being put to work in private infrastructure has slowed.
Money being put to work in private infrastructure has slowed so that creates an opportunity for investors to allocate to the listed market. So we just think it.
Speaker 5: So that creates an opportunity for investors to allocate to the listed market. So we just think it.
Speaker 5: the infrastructure asset class will evolve the same way real estate has in terms of investors using both listed in private to make the best portfolios.
The infrastructure asset class will evolve the same way real estate has in terms of.
Investors using both listed and private to make make the best portfolios.
Speaker 6: Gotcha. And last one for me, but I do want to give a big congratulations to Matt and say thank you from everybody on the side of the phone. But, Joe, my ears perked up when you said in your remarks, you saw some opportunity from passive to active. Anything you could share with us on that?
Got you.
Last one from me, but.
Just wanted to give a big congratulations to Matt.
Thank you for everybody on this side of the phone.
But.
Joe My ears Perked up when you said in your remarks, you saw some opportunity from passive to active.
Andy anything you could share with us on that.
Speaker 5: You know this, you know, I'd say maybe over the past year, we've had six situations where institutions have, you know, changed a passive mandate to an active mandate and hired us.
John Cheigh: And so I think we've seen both on the fun side and on the advisory side, some amount of that rebalancing in, but certainly not. Investor behavior, as we know, they want to see it happen and know it happen. So we've seen some of that net flow demand come in, but certainly it's been more muted so far.
I would say maybe over the past year.
Year, we've had six situations where institutions.
Have have changed a passive mandate to inactive men mandate and hired us.
And.
Speaker 5: I think the rationale is pretty simple, right? When you can generate 200 to 300 basis points of excess returns.
I think the rationale is pretty simple when you can generate 200 to 300 basis points of excess returns and compound that over a long period of time.
Speaker 5: and compound that over a long period of time, it's very substantial. So it's just very interesting to see investor behavior.
Joseph Harvey: Maybe I'll turn it back to Joe to talk about. Sure, maybe break it down in terms of wealth versus institutional advisory. So on the on the wealth side, historically. Investors have typically been more coincident with how the markets move, but you should understand, too, that we have professional allocators at platforms who are using these vehicles. Some of whom can be very move a large amount of money. And there are several that are looking for the cues and indicators that John mentioned on the on the.
Very substantial so.
It's just very interesting too.
See the investor behavior.
Speaker 5: uh you know act like in a rational way which is
Act like an irrational way.
Which is you should look at the excess returns net of fees and.
Speaker 5: you should look at the excess returns net of fees and if in our asset classes where we've proven that we can consistently outperform and there's a reason for that. It may be a little bit different than core style box asset classes where active managers don't have a great batting average of outperforming. So maybe a little unique to us. I'd say it's more prevalent in the institutional advisory channel than
And our asset classes, where we've proven that we can consistently outperform and theres a reason for that it may be a little bit different than core style box asset classes, where we're active managers don't have a great.
Batting average of outperforming so maybe a little unique to us I'd say, it's it's more prevalent in the institutional advisory.
Joseph Harvey: For example, on the institutional side, we would expect those investors to be more anticipatory. And if you kind of follow the past couple earnings calls, you'll remember that in the second quarter, we felt like the activity just slowed very significantly, just due to the significance of the regime change and investors taking stock of their portfolios. But we've seen activity pickup that was evidenced in our third quarter pipeline numbers where we had a lot of fundings, some of those fundings were just sitting around waiting.
Channel than wealth.
Speaker 5: you know, which is more dominated by the overall.
Joseph Harvey: We've seen some new accounts being won and our activity levels are good. So the institutional market is getting through the regime change process and I'd say activity is maybe not normal, but it's getting closer to normal. Overlying all this is the comments that I made about the fact that fixed income now presents a real return opportunity. And in particular, with Treasury bills being over 5% in the wealth channel, that's enabling investors to wait and watch to see how things play out.
<unk>.
<unk> is more dominated by the.
The overall.
Speaker 5: total fee structure. So, but we're happy to see it happen and institutional.
Total fee structure so.
But we're happy to see it happen in institutional.
Great. Thank you very much.
Okay.
Speaker 1: have no further questions in queue, I would like to turn the call back over to Joe Harvey for any closing remarks.
We have no further questions in queue I would like to turn the call back over to Joe Harvey for any closing remarks.
Speaker 5: Well, great thanks for spending time with us today and we look forward to reporting our fourth quarter results in January . So have a great day and Julian. Thanks for moderating. Thanks.
Well, great. Thanks for spending time with us today, and we look forward to reporting our fourth quarter results in January so.
Have a great day and Julian Thanks for moderating.
Speaker 1: This concludes today's conference call. Thank you for your participation. You may now.
This concludes today's conference call. Thank you for your participation you may now disconnect.
Speaker 7: You You You You
Yes.
[music].
Joseph Harvey: So these changes are a process. This regime change, as we've talked about, has been won the longest and dramatic that we've seen. But what I'm excited about, as I said, is that the alpha opportunities that are going to come out of it and that's why our investment teams are highly focused and motivated to capitalize on these opportunities.
Joseph Harvey: Got it. And then on private markets, it sounds like we're getting closer, but it's going to be newer products on the block. Give us maybe a flavor of how the conversations are going, the demand, and eventually where might you envision it being as part of the AUM base? How much of a contribution? Well, we don't really try to make projections on how much AUM it can represent. Now, we focus on investment performance and providing strategies that are compelling and unique.
Yes.
[music].
Joseph Harvey: That's where we spend our time. Clearly, the real estate sector is one of the biggest asset classes in the world. So the potential, if we deliver on performance and deliver on distribution, could be meaningful to the company. We have two different investment strategies. One is a core strategy that would be executed through the non-traded REIT vehicle. And as I mentioned, we are mobilized. We're ready to go. And we're just waiting for prices to decline to the point that notwithstanding all the uncertainty in the world that we can say, look, these are going to be great investments over the next five to 10 years.
Joseph Harvey: So I think we're much closer to that. And I would expect that as we get into early next year, it's going to be time to put money to work. The other strategy is an opportunistic, you know, higher return strategy that is focused on, you know, properties that might have a over leveraged situation or a vacancy situation. And there, too, we're waiting for the dynamics of depoturities and changing cost to capital to present the opportunities.
Joseph Harvey: And so as I mentioned, we continue to raise capital, but it's probably going to take a little bit longer for some opportunities to emerge there. We're just doing the nature of the dynamics of how properties are financed and the process that donors and lenders need to go through to ultimately make sale decisions. Right, right.
Joseph Harvey: Maybe just a little like commentary on how you're finding the reception, you know, since you're, you know, you're kind of breaking into the channels. The environment, you know, fundraising wise is more difficult just for all the factors that we mentioned. The reception of our approach to investing in private real estate and also including some investing enlisted alongside of it is being received very well. It's a unique approach by bringing both of our teams together to have information advantage and idea advantage.
Joseph Harvey: And in some cases putting both types of investments in a vehicle is very compelling. So as it relates to non-traded read, you know, our strategy is different than the ones that are out there. And as we've been talking to gatekeepers over the past year and a half, you know, what they're going to see is that we've been right on that strategy. And so as we can then demonstrate what we can do on the investment side, I think, I think they'll, they'll receive us very well.
Joseph Harvey: On the on the opportunistic vehicle side, it's a multi property sector strategy, which three years ago maybe wasn't as popular. But now with the breadth of opportunities in the private market that are emerging investors are warming up to that approach to that approach, as well as including some listed opportunities in that vehicle.
Matthew Stadler: Gotcha. Maybe a couple on expenses. You guys gave the fourth quarter comp ratio. Any early thoughts on like the philosophy for for for next year, you know, retention versus keeping in check. Right. So John, we typically give the 2024 guidance in the fourth quarter. So not prepared to signal where that is. But I think when, as I said in my remarks, you know, the market declines in the end of the third quarter sets us up for a larger decline in full year revenue than what we had forecasted.
Matthew Stadler: So we needed to make an adjustment. And we did that keeping in mind like we always do, you know, retaining our employees and returning should hold a value. So we think where we have it set now is going to be where it needs to be all things being equal, but, you know, all things are not always equal.
Matthew Stadler: So, but for 2024, you know, we'll give you that guidance on the next call. Gotcha. And in GNA, maybe, you know, the core GNA flat, you know, every year, maybe, you know, looking forward what are some of the, you've done a ton of investing over the, you know, for many years now. What are the kind of the levers you can pull to dial that up or dial it back. And you're willing to do that.
Matthew Stadler: Just, you know, also given that you have put a lot of things in place already. Right. I mean, we've are controllable, GNA is about 30 to 35% of total GNA. We've always been very thoughtful about deploying capital towards items that incur expenses and trying to keep those under control. I would say that the only variable in there that might be a little higher would be, as John and Joe have pointed out, client activity will start to increase.
Matthew Stadler: We might have more business-related travel and entertainment and conferences, which are important to do. But all the other things, inter-office travel and things that are not client-facing or the things that we're really paying a lot of attention to. I think achieving flat-year-over-year excluding the build-out, which as you point out, are you going to be baked in the numbers 23 versus 24? I would say that the things that we can control will be pretty tight on that.
Matthew Stadler: But again, next call will provide some guidance on where we think GNA will be. I'll just add that the corporate infrastructure investments that we've made are going to set us up for many years of growth. While they hit quite a bit this year, we rounded the turn and those are going to be behind us going forward. On the personnel and headcount front, we've got a lot of opportunities, but we're very mindful of where the markets are, where AUM is, and we're going to be very disciplined on our hiring process, whether it's adding new people or replacing people until we get to this regime change. We're very conscious of this on all fronts. However, based on our view on where the markets are, we are going to position ourselves to capitalize on opportunities for our clients.
Matthew Stadler: I did want to touch on advisory. I think it was positive first time in eight quarters, I think. What clients, what regions drove that and ended U.S, advisory participate? Well, absolutely. U.S, advisory, the people who are involved with on the sales side, touch on what we do on other regions as well. So it's a unified team. In the quarter, the fundings came primarily from real estate. The biggest one was from an existing client in global real estate, but we also had some smaller U.S, real estate fundings.
Matthew Stadler: It also includes some advisory, which might include You know, OCIO providers here in the US, but you know clients in other regions. So we interestingly we had a couple of fundings from our multi strategy real assets portfolios, which is consistent with, you know, the comments John made and I made about that strategy. So the activity, you know, is as picked up and it's US advisory, but again, it's, you know, in many cases, we've, you know, it's a global team and it requires contributions from different parts of the world.
Matthew Stadler: Gotcha. And then, you know, the non-Japanese advisory sometimes doesn't get as much attention, you know, it did better this quarter. Can you kind of remind us, like, you know, frame that business and like, you know, who are your clients there, what regions you're in, you know, a couple of years after you kind of reframed it. And then what should be looking, what should we be looking there? To drive inflows in that channel.
Matthew Stadler: Yeah, historically, you know, our flow results from submit advisory hasn't been great. And it's, it's just been more challenging business. But, you know, in the quarter, we had a couple of new mandates and fundings of, you know, from existing mandates. The two multi strategy, you know, real assets portfolios and reference were sub advisory situations from different financial services firms, one in Canada and one in Taiwan. And the other was an OCEO, OCEI old provider that is managing money for a, for a Korean entity. So, you know, I wouldn't say, you know, right now that there's necessarily a trend on that front, but it was certainly positive to see it improve recently.
Joseph Harvey: I would only just add one thing, you know, you see in the Wall Street Journal today, there's an article on, you know, is a 6040 dead concerns on that. I think in 2022 people got worried about inflation. And then in the first half of 2023 people thought, oh, that was just a bad year. I think with what's happening now, there's a greater appreciation of maybe investors need to get their act together for the next five years, seven years, eight years.
Joseph Harvey: And so I think we're going to see more of these in these cases were slightly customized strategies in two different markets. But I think the amount of real asset solutions that we're going to be able to provide to different clients in different jurisdictions is only going to increase because there's a greater appreciation that this is a regime change, not a 2022 was a bad year, a bad year for 6040 and the need for inflation protection or sensitivity. Right.
Joseph Harvey: And then, you know, an infrastructure, you talked about people potentially moving some of the private allocations into public. So maybe that's one, but what do you think the factors are going to be where that infrastructure can move to being a bigger contributor and more consistently for flows? Well, let me start, and then John can add on, you know, infrastructure is well understood as being an area that's been under invested in globally, and then you have other things like the evolution of energy, and so there are huge capital investment needs.
Joseph Harvey: Investors have recognized that, and there's been a lot of investment and infrastructure mostly on the private side. But, you know, we have this view that you've, you've heard it from us that investing in an asset like real estate or infrastructure can be enhanced if you use both the listed and the private markets. So, you know, we talked, you know, earlier about the listed market in real estate is foreshadowing what's happening in the private market.
Joseph Harvey: The prices have already gone down. So, right now, the place to put your monies in listed real estate, not in private real estate, and that's to come. But the same thing will evolve, we believe, in infrastructure. There's a very attractive universe of listed companies that can complement private allocations, and the same dynamic of lead lag in listed versus private will continue to develop there. You know, the same types of conversation for private infrastructure is taking place as in real estate where changes in interest rates are changing asset prices, and so allocations are money being put to work and private infrastructure has slowed.
Joseph Harvey: So, that creates an opportunity for investors to allocate to the listed market. So, we just think that the infrastructure asset class will evolve the same way real estate has in terms of investors using both listed and private to make the best portfolios.
Joseph Harvey: Gotcha. And last one for me, but I do want to give a big congratulations to Matt and say thank you for everybody on the side of the phone. But Joe, my ears perked up when you said in your remarks, you saw some opportunity from passive to active. Anything you could share with us on that? You know, this, you know, I'd say maybe over the past year we've had six situations where institutions have changed a passive mandate to an active mandate and hired us.
Joseph Harvey: And I think the rationale is pretty simple, right, when you can generate 200 to 300 basis points of excess returns and compound that over a long period of time, it's very substantial. So, it's just very interesting to, you know, see investor behavior, you know, act like an irrational way, which is you should look at the excess returns net a fees and if in our asset classes where you know, we've proven that we can consistently outperform and there's a reason for that.
Joseph Harvey: It may be a little bit different than, you know, core style box asset classes where active managers don't have a great, you know, batting average of outperforming. So, maybe a little unique to us. I'd say it's more prevalent in the institutional advisory channel than wealth, you know, is more dominated by, you know, the overall total fee structure. But we're happy to see it happen in an institutional.
Unknown Executive: Great. Thank you very much.
Joseph Harvey: We have no further questions in queue. I would like to turn the call back over to Jill Harvey for any closing remarks. Well, great.
Unknown Executive: Thanks for spending time with us today and we look forward to reporting our fourth quarter results in January. So have a great day and Julian thanks for moderating. Thanks.
Unknown Executive: This concludes today's conference call. Thank you for your participation.
Unknown Executive: You may now disconnect.