Q1 2024 Cohen & Steers Inc Earnings Call

Ladies and gentlemen, thank you for standing by welcome to the Cohen <unk> Steers first quarter 'twenty 'twenty four earnings conference call.

Operator: Ladies and gentlemen, thank you for standing by. Welcome to the Cohen & Steers first quarter 2024 earnings conference call. During the presentation, all participants will be in a listen-only mode. Afterward, we will conduct a question and answer session. At that time, if you have a question, please press the star followed by the number one on your telephone. If at any time during the conference you need to reach an operator, please press star zero.

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 number one on your telephone.

If at any time during the conference you need to reach an operator, Please press star zero.

Operator: As a reminder, this conference is being recorded Thursday, April 18th, 2024. And I would now like to turn the conference over to Brian Heller, Senior Vice President and Corporate Counsel of Cohen & Steers. Please go ahead.

As a reminder, this conference is being recorded Thursday April 18 2024.

I would now like to turn the conference over to Brian Heller Senior Vice President and corporate Counsel of Cohen <unk> Steers. Please go ahead.

Yeah.

Brian William Heller: Thank you and welcome to the Cohen & Steers First Quarter 2024 Earnings Conference Call. Joining me are our Chief Executive Officer, Joe Harvey; Chief Financial Officer, Matt Stadler; and our Chief Investment Officer, John Cheigh.

Brian William Heller: Thank you and welcome to the Cohen <unk> Steers first quarter 2024 earnings conference call joining.

Brian William Heller: Joining me are our Chief Executive Officer, Joe Harvey, Our Chief Financial Officer, Matt Stadler.

Brian William Heller: Our Chief investment Officer, John Chad.

Brian William Heller: I want to remind you that some of our comments and answers to your questions may include forward-looking statements. I believe these statements are reasonable based on information currently available to us, but actual outcomes could differ materially due to a number of factors. Including those described in our accompanying first quarter earnings release and presentation, our most recent annual report on Form 10-K, and our other SEC filings. I assume no duty to update any forward-looking statements. Furthermore, 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.

Brian William Heller: I want to remind you that some of our comments and answers to your questions.

Brian William Heller: Forward looking statements.

Brian William 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 first quarter earnings release and presentation.

Brian William Heller: Our most recent annual report on Form 10-K.

Brian William Heller: In our other SEC filings.

Brian William Heller: We assume no duty to update any forward looking statements.

Brian William Heller: 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.

Brian William Heller: Our presentation also contains non-GAAP financial measures referred to as adjusted financial measures that we believe are meaningful in evaluating our performance.

Brian William Heller: Our presentation also contains non-GAAP financial measures, The Bulletproof Executive 2013, that we believe are meaningful in evaluating our performance. These non-GAAP financial measures should be read in conjunction with our GAAP results. The reconciliation of these non-GAAP financial measures is included in the earnings release and presentation, and is, to some extent, reasonably available. The earnings release and presentation, as well as links to our SEC filings, are available in the Investor Relations section of our website at www.cohenandsteers.com. With that, I'll turn the call over to Matt.

Brian William Heller: These non-GAAP financial measures should be read in conjunction with our GAAP results.

Brian William Heller: A reconciliation of these non-GAAP financial measures is included in the earnings release and presentation to the extent reasonably available.

Brian William 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 Dot Cohen <unk> steers Dot com.

Brian William Heller: I'll turn the call over to Matt.

Matthew Scott Stadler: Thank you, Brian. Good morning, everyone.

Matthew Scott Stadler: Thank you Brian good morning, everyone.

Matthew Scott Stadler: As in previous quarters, my remarks will focus on our as-adjusted results. A reconciliation of GAAP to as-adjusted results can be found on pages 13 and 14 of the earnings release and on Slides 16-20 of the Earnings Presentation. Yesterday, we reported earnings of $0.70 per share, compared with $0.76 in the prior year's quarter and $0.67 sequentially. Revenue was $122.9 million in the quarter, compared with $126.3 million in the prior year's quarter and $119 million sequentially.

Matthew Scott Stadler: As in previous quarters, My remarks will focus on our as adjusted results a reconciliation of GAAP to as adjusted results can be found on pages 13, and 14 of the earnings release.

Matthew Scott Stadler: On slides 16 through 20 of the earnings presentation.

Matthew Scott Stadler: Yesterday, we reported earnings of <unk> 70 per share compared with 76 in the prior year's quarter and 67 sequentially.

Matthew Scott Stadler: Revenue was $122 9 million in the quarter compared with $126 3 million in the prior year's quarter and $119 million sequentially.

Matthew Scott Stadler: The increase in revenue from the fourth quarter was primarily due to higher average assets under management across all three types of investment vehicles and an increase in the effective fee rate, partially offset by one fewer day in the quarter.

Matthew Scott Stadler: The increase in revenue from the fourth quarter was primarily due to higher average assets under management across all three types of investment vehicles and an increase in the effective fee rate partially offset by one fewer day in the quarter. The fourth quarter included 1.3 million performance. Our effective fee rate was 58 basis points in the first quarter, compared with 57.7 basis points in the fourth quarter. Excluding the $1.3 million of performance fees, the fourth quarter effective fee rate would have been 57 basis points.

Matthew Scott Stadler: The fourth quarter included $1 3 million of performance fees.

Matthew Scott Stadler: Our effective fee rate was 58 basis points in the first quarter compared with 57 seven basis points in the fourth quarter.

Excluding $1 3 million of performance fees for fourth quarter effective fee rate would have been 57 basis points the.

Matthew Scott Stadler: The increase in the first quarter fee rate was due in part to the termination of two institutional accounts with assets under management of $2.3 billion that eliminated their strategic allocation to real estate. These two accounts had lower than average fee rates.

Matthew Scott Stadler: The increase in the first quarter fee rate was due in part to the termination of two institutional accounts with assets under management of $2 3 billion that eliminated the strategic allocation to real estate fees.

These two accounts had lower than average fee rates.

Matthew Scott Stadler: Operating income was $43 7 million in the quarter compared with $48 million in the prior year's quarter and $41 3 million sequentially.

Matthew Scott Stadler: Operating income was $43.7 million in the quarter, compared with $48 million in the prior year's quarter and $41.3 million sequentially, and our operating margin increased to 35.5% from 34.7% last quarter. Expenses increased 2% from the fourth quarter, primarily due to higher compensation and benefits, an increase in depreciation and amortization, and higher distribution and service fees, partially offset by a decrease in G&A. The compensation to revenue ratio for the first quarter was 40.5%, with the guidance provided on our last call.

Matthew Scott Stadler: And our operating margin increased to 35, 5% from 34, 7% last quarter.

Matthew Scott Stadler: Expenses increased 2% from the fourth quarter, primarily due to higher compensation and benefits an increase in depreciation and amortization and higher distribution and service fees, partially offset by a decrease in G&A.

Matthew Scott Stadler: The compensation to revenue ratio through the first quarter was 45%.

Matthew Scott Stadler: Just with the guidance provided on our last call.

Matthew Scott Stadler: The first quarter included the full quarter effect of depreciating and amortizing fixed assets and leasehold improvements associated with our new corporate headquarters.

Matthew Scott Stadler: The first quarter included the full quarter effect of depreciating and amortizing fixed assets and leasehold improvements associated with our new corporate headquarters. The fourth quarter included only one month of depreciation and amortization. The increase in distribution and service fees was primarily due to higher average assets under management in U.S. open-end funds. The decrease in GNA was primarily due to lower recruitment.

Fourth quarter included only one month of depreciation and amortization expense.

Matthew Scott Stadler: The increase in distribution and service fees was primarily due to higher average assets under management in U S. Open end funds.

And the decrease in G&A was primarily due to lower recruitment fees.

Matthew Scott Stadler: Our effective tax rate was 25, 4% for the quarter in line with the guidance provided on our last call.

Matthew Scott Stadler: Our effective tax rate was 25.4% for the quarter, in line 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. Our firm liquidity totaled $233.1 million at quarter end, compared with $318.8 million last quarter. Firm liquidity as of March 31st reflected the payment of employee bonuses in January.

Matthew Scott Stadler: 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.

Matthew Scott Stadler: Our firm liquidity totaled $233 1 million at quarter end compared with $318 8 million last quarter.

Matthew Scott Stadler: Firm liquidity as of March 31 reflected the payment of employee bonuses in January.

Matthew Scott Stadler: As well as the firm's customary repurchase of common stock to satisfy withholding tax obligations arising from the vesting and delivery of restricted stock units to participating employees, it also reflected the funding of a portion of our capital commitment to Cohen & Steers Income Opportunities REIT, our recently launched non-traded REIT, which made its first real property investment in January, and we have not drawn on our $100 million revolving credit facility. Assets under management were $81.2 billion at March 31st, a decrease of $1.9 billion, or 2.3% from December 31st. The decrease was due to net outflows of $2 billion, $2.3 billion of which was attributable to the two terminated accounts I mentioned earlier, and distributions of $610 million, partially offset by market appreciation of $679 million.

Matthew Scott Stadler: As well as the firm's customary repurchase of common stock to satisfy withholding tax obligations arising from the vesting and delivery of restricted stock units to participating employees.

Matthew Scott Stadler: It also reflected the funding of a portion of our capital commitment to Cohen <unk> steers income opportunities for our recently launched non traded REIT, which made its first real property investment in January.

Matthew Scott Stadler: And we have not drawn on our 100 million revolving credit facility.

Matthew Scott Stadler: Assets under management were $81 2 billion at March 31.

Matthew Scott Stadler: A decrease of $1 9 billion or two 3% from December 31.

Matthew Scott Stadler: The decrease was due to net outflows of $2 billion to $3 billion of which was attributable to the two terminated accounts I mentioned earlier.

Matthew Scott Stadler: And distributions of $610 million, partially offset by market appreciation of $679 million.

Joe Harvey who will provide an update on our flows in institutional pipeline.

Jon Cheigh: Joe Harvey will provide an update on our flows and institutional pipeline, as well as awarded unfunded mandates. Let me briefly discuss a few items to consider for the remainder of the year. With respect to compensation and benefits, we continue to take a disciplined and measured approach to both new and replacement hires so that, all things being equal, we would expect to maintain a compensation-to-revenue ratio of 40.5%. We expect GNA to increase 5-7% per year from the 55 million we recorded in 2023.

Matthew Scott Stadler: Of awarded unfunded mandates.

Joseph Martin Harvey: Let me briefly discuss a few items to consider for the remainder of the year.

Joseph Martin Harvey: With respect to compensation and benefits, we continue to take a disciplined and measured approach to both new and replacement hires so that all things being equal we would expect to maintain our compensation to revenue ratio of 45%.

Joseph Martin Harvey: We expect G&A to increased 5% to 7% for the year from the $55 million, we recorded in 2023.

Jon Cheigh: As a reminder, 2023 G&A included an adjustment to reduce the accrued costs associated with the implementation of our trade order management system. Excluding that adjustment, we would expect GNA to increase 3-5%. The majority of the increase is related to investments in technology, as well as costs associated with the relocation of our London and Tokyo offices. We continue to review all of our non-client-related expenses. As I noted earlier, the first quarter included the full effect of depreciating and amortizing fixed assets and leasehold improvements for our new corporate headquarters.

Joseph Martin Harvey: As a reminder, 2023 G&A included an adjustment to reduce the crude costs associated with the implementation of our trade order management system.

Joseph Martin Harvey: Excluding that adjustment, we would expect G&A to increase 3% to 5%. The majority of the increase is related to investments in technology as well as costs associated with the relocation of our London and Tokyo offices.

Joseph Martin Harvey: We continue to review all of our non client related expenses.

Joseph Martin Harvey: As I noted earlier the first quarter included the full effect of depreciating and amortizing fixed assets and leasehold improvements for our new corporate headquarters.

Jon Cheigh: We expect depreciation and amortization expense to approximate $9.5 million for 2024. And finally, we expect that our effective tax rate will remain at 25.4%. Now I'd like to turn it over to our Chief Investment Officer, Jon Cheigh, who will discuss our investment performance.

Joseph Martin Harvey: We expect depreciation and amortization expense to approximate $9 5 million for 2024.

Joseph Martin Harvey: And finally, we expect that our effective tax rate will remain at 25, 4%.

Joseph Martin Harvey: Now I would like to turn it over to our Chief investment Officer, John <unk>, who will discuss our investment performance.

John Y. Cheigh: Thank you, Matt and good morning today I'd like first to cover our performance scorecard.

Jon Cheigh: Thank you, Matt, and good morning. Today, I'd like to first discuss our performance scorecard. Second, summarize the first quarter market environment for our asset classes. And last, I'd like to provide our latest investment viewpoint on why asset allocators should increase their exposure to real assets in a higher inflation regime.

John Y. Cheigh: <unk> summarized our first quarter market environment for our asset classes and last I'd like to provide our latest investment viewpoint on why asset allocators should increase their exposure to real assets.

Speaker Change: Higher inflation regime.

Speaker Change: Turning to our performance scorecard for the first quarter, 96% of our total AUM outperformed its benchmark a market improvement from last quarters, 35%.

Jon Cheigh: In the first quarter, 96% of our total AUM outperformed its benchmark, a marked improvement from last quarter's 35%. When looking at our AUM on a one-year basis, 99% of our AUM outperformed its benchmark, which is up on our 2023 outperformance figure of 85%. This uptick in one-year performance can be attributed to our core preferred strategy, turning from a relative underperformer to an outperformer. The preferred strategy has now outperformed for four straight quarters following its pullback in the first quarter of last year.

When looking at our AUM on a one year basis, 99% of our AUM outperformed its benchmark, which is up on our 2023 outperformance figure 85%.

Speaker Change: This uptick in one year performance can be attributed to our core preferred strategy turning from a relative underperformer to outperformer.

Speaker Change: Our preferred strategy has now outperformed for four straight quarters. Following its pullback in the first quarter of last year.

Speaker Change: As a result, 96% of our total AUM is now outperforming its benchmark on a three year basis, and 97% on a five year basis.

Jon Cheigh: As a result, 96% of our total AUM is now outperforming its benchmark on a three-year basis and 97% on a five-year basis. From a competitive perspective, 93% of our Open End Fund AUM is rated 4 or 5 stars by Morningstar, relative to 94% last quarter. All eight of our core strategies outperformed in the quarter, with natural resource equities and low duration preferred strategies exhibiting the strongest relative performance. Specifically, low-duration preferreds outperformed by roughly 200 basis points during the quarter, bringing their one-year-out performance to 640 basis points.

Speaker Change: From a competitive perspective, 93% of our open end fund AUM is rated four or five star by Morningstar relative to 94% last quarter.

Speaker Change: All eight of our core strategies outperformed in the quarter with natural resource equities and low duration preferred strategies exhibiting the strongest relative performance.

Speaker Change: More specifically low duration preferreds outperformed by roughly 200 basis points during the quarter.

Speaker Change: It's one year outperformance to 640 basis points.

Jon Cheigh: Natural Resources, for its part, also outperformed by 200 basis points, bringing its 1 and 3-year outperformance figures to 400 and 427 basis points, respectively. I want to congratulate Portfolio Manager Tyler Rosenlich and his team for putting up this extremely compelling performance in this dynamic area requiring active management. Our global listed infrastructure portfolio also experienced strong alpha, outperforming its benchmark by 140 basis points, while global real estate and U.S. real estate outperformed by 120 and 100 basis points, respectively.

Speaker Change: Natural resources for its part also outperformed by 200 basis points.

Speaker Change: Bringing its one and three year outperformance figures to 400 427 basis points respectively.

I want to congratulate portfolio manager either erosion linked and his team for putting up this extremely compelling performance in this dynamic area requiring active management.

Speaker Change: Our global listed infrastructure portfolio also experienced strong alpha outperforming its benchmark by 140 basis points, while global real estate and U S real estate outperformed by 120, and 100 basis points respectively.

We believe active management works and our asset classes and the numbers clearly demonstrate that we are delivering value for our clients.

Jon Cheigh: We believe active management works in our asset classes and the numbers clearly demonstrate that we are delivering value for our clients. Transitioning to market conditions, prevailing risk-on sentiment persisted into the first quarter, mirroring what we observed in the final quarter of last year.

Speaker Change: Transitioning to market conditions, the prevailing risk on sentiment persisted into the first quarter mirroring what we observed in the final quarter of last year. This dynamic unfolded, even as expectations shifted regarding the feds rate policy, reflecting resilient economic data, particularly in the U S.

Speaker Change: Yes.

Speaker Change: In the first quarter global equities saw a robust gain of nearly 9% while global bonds experienced a decline of two 1% driven by a rise in the 10 year U S treasury yield of around 30 basis points.

Jon Cheigh: This dynamic unfolded even as expectations shifted regarding the Fed's rate policy, reflecting resilient economic data, particularly in the U.S. In the first quarter, global equities saw a robust gain of nearly 9%, while global bonds experienced a decline of 2.1%, driven by a rise in the 10-year U.S. Treasury yield of around 30 basis points. U.S.-listed REITs, our largest asset class, were down 1.3% in the quarter.

Speaker Change: U S listed Reits, our largest asset class were down one 3% in the quarter.

Speaker Change: In light of the significant rally to end 2023, some pullback in REIT shares was to be expected.

Speaker Change: Strategically we remain positive on listed <unk> as we continue to see attractive entry points and return prospects, even as the market digests sticky inflation and higher rates in the last decade.

Jon Cheigh: In light of the significant rally to end 2023, some pullback in re-chairs was to be expected. Strategically, we remain positive on listed reefs, as we continue to see attractive entry points and return prospects, even at the Market Digest. With sticky inflation, and higher rates than the last decade, private real estate measured by the preliminary results for the NACREF Odyssey Index at total returns for the quarter of negative 2.4%. This is the sixth consecutive quarter of declines, consistent with the catching up process between private and enlisted returns.

Speaker Change: Private real estate as measured by the preliminary results for the <unk> Odyssey Index at total returns for the quarter of negative two 4%.

Speaker Change: This is the sixth consecutive quarter of declines, which is consistent with the catching up process between private enlisted Richards.

Speaker Change: Since the end of the third quarter of 2022 listed REIT have now outperformed the Odyssey index by 33%.

Speaker Change: We believe investing at this stage in the cycle will capture the bottoming of prices and private real estate and deliver strong vintage returns overtime.

Speaker Change: Already our team is beginning to see more compelling opportunities in both of our private real estate strategies.

Jon Cheigh: Since the end of the third quarter of 2022, listed REITs have now outperformed the Odyssey Index by 33%. We believe investing at this stage in the cycle will capture the bottoming of prices in private real estate and deliver strong vintage returns over time. Already, our team is beginning to see more compelling opportunities in both of our private real estate strategies. Real assets moved higher during the quarter, led by commodities and natural resource equity.

Speaker Change: Real assets moved higher during the quarter led by commodities and natural resource equities.

Speaker Change: Energy was the main contributor given stronger than expected demand growth, which was driven by improving global PMI data.

Speaker Change: Sustained OPEC plus cuts.

Speaker Change: This kept crude oil comfortably trading above $80 per barrel.

Speaker Change: Even before the escalation of geopolitical risk and the middle East.

Speaker Change: Listed infrastructure had modestly positive returns in the quarter, but also trailed broader equity market performance.

Jon Cheigh: Energy was the main contributor, given stronger-than-expected demand growth driven by improving global PMI data. Stand OPEC Plus Cuts. Just kept crude oil comfortably trading above $80 per barrel, even before the escalation of geopolitical risks in the Middle East. Invested infrastructure had modestly positive returns in the quarter, but it also trailed broader equity market performance. However, certain rate-sensitive sectors facing headwinds, segments such as marine ports and midstream energy had significant gains. Communication Sector with a Challenge.

Speaker Change: Certain rate sensitive sectors facing headwinds.

Speaker Change: Both segments, such as marine ports, and midstream energy and significant gains.

Communications sector was challenged with tower company evaluations impacted by elevated interest rates and modest near term growth outlooks.

Speaker Change: Lastly, our core preferred security strategies delivered a return of four 2% during the quarter outperforming other segments of fixed income as credit spreads significantly narrowed exchange.

Speaker Change: Exchange listed $25 par securities, notably generated.

Speaker Change: Substantial total returns buoyed by a scarcity of new supply early in the year and robust inflows into preferred securities exchange traded funds.

Jon Cheigh: Tower Company Valuations Impacted by Elevated Interest Rates and Modest Near-Term Growth Outlook. Lastly, our core preferred security strategy delivered a return of 4.2% during the quarter, outperforming other segments of fixed income as credit spreads significantly narrowed. Exchange-Listed $25 PAR Securities Notably Generated, total returns buoyed by a scarcity of new supply early in the year.

Speaker Change: Moreover, heightened activity in new preferred issuance and call activity signals, a favorable environment, particularly within the institution OTC and Cocos markets.

I'd like to turn our attention to multi strategy real assets and topic that has been in the headlines for quite some time.

Speaker Change: Sticky inflation.

Speaker Change: Overall markets now appear to be pricing in what our firms economist John Bluth refers to as a no landing scenario.

Jon Cheigh: Robust Inflows into Preferred Securities, Exchange Traded Funds, Moreover, heightened activity in new... For more information, visit www.fema.gov. I'd like to turn our attention to multi-strategy real estate, a topic that has been in the headlines for quite some time. Icky Inflation Overall, markets now appear to be pricing in what our firm's economist, John Muth, Sticky inflation leads. We have made two interest rate cuts this year, aligning closely with our own base case.

Speaker Change: We're sticky inflation leads to interest rate cuts this year aligning closely with our own base case, that's significantly less easing and compared to the six cuts the market had fully priced just a few months ago.

Speaker Change: We continue to see a strong case for real assets amid this regime of sticky inflation.

Speaker Change: Here for longer interest rates.

Speaker Change: Elevated equity market valuations.

Speaker Change: And on the other hand, our more attractive starting point for evaluations and real assets.

Speaker Change: When combined with other factors, including commodity underwritten investments tight labor markets.

Jon Cheigh: That's significantly less easing than the six cuts the market had fully priced just a few months ago. We continue to see a strong case for real assets amid this regime of sticky inflation, higher for longer interest rates, and an elevated equity market valuation, and, on the other hand, a more attractive starting point for valuations in real assets. When combined with other factors, including commodity underinvestment, tight labor markets, geopolitics, and de-globalization, the regime shift makes real assets a vital component of a strategic asset allocation. Especially with most investors still underweight inflation-sensitive allocations in their portfolios. Take target date funds as one example. The average Dedicated Allocation to Real Assets in the Target Date Fund is less than 5%.

Speaker Change: Politics in D globalization, the regime shift mix real assets, a vital component of our strategic asset allocation, especially with most investors still underway inflation sensitive allocations in their portfolios.

Speaker Change: Take target date funds as one example.

Speaker Change: The average dedicated allocation to real assets and a target date fund is less than 5%.

Speaker Change: <unk> and tips are just one 7% and two 8% respectively.

Speaker Change: <unk> allocations averaged just 0.1%.

Speaker Change: In multi strategy real assets averaged less than 1%.

Speaker Change: Not only is this a low absolute allocation to inflation sensitivity. It also includes a near zero dedicated allocation to natural resource equities and infrastructure.

Speaker Change: Why is this important.

Speaker Change: Diversified real assets have a demonstrated history of defending well against inflation surprises.

Speaker Change: Whereas for stocks and bonds are tended to suffer simultaneously.

Jon Cheigh: REITs and TIPs are just 1.7% and 2.8%, respectively, while commodity allocations average just 0.1%. In multi-strategy real assets, this is a low absolute allocation to inflation sensitivity, but it also includes a near-zero dedicated allocation to natural resource equities and infrastructure. Why is this important?

Speaker Change: Starting in 1991, a real assets planned comprise.

Speaker Change: Comprising listed real estate infrastructure natural resource equities and commodities and.

Speaker Change: Outperformed global equities by three nine percentage points on an annualized basis and U S. Treasuries by 10, two percentage points during inflationary periods.

Speaker Change: That gap becomes even more pronounced when the inflation rate not just rising, but when the acceleration and inflation.

Speaker Change: <unk> consensus estimates in other words, when we experience inflation surprises.

Speaker Change: Commodities natural resource equities and infrastructure in that order drove that outperformance. Moreover, as I mentioned earlier. These are the real asset classes, most significantly underrepresented in portfolios like target dates.

Jon Cheigh: Diversified Real Estate, demonstrated a history of defending well against inflation surprises, Whereas CoreStocks and Bonds tended to suffer simultaneously. Starting in 1991, a Real Assets Blend. We provide listed real estate, infrastructure, natural resource equities, and commodities that outperformed global equities by 3.9 percentage points on an annualized basis and U.S. Treasuries by 10.2 percentage points during the inflationary period. That gap becomes even more pronounced when the inflation rate is not just rising but when the acceleration in inflation exceeds consensus estimates.

Speaker Change: In that same period, our real assets blend at a beta or sensitivity to global equities.

Speaker Change: <unk> 0.65, indicating the allocations to blended real assets up to reduce equity sensitivity in our portfolio.

Speaker Change: This could be important given today's relatively high equity valuations, especially relative to higher interest rates.

Speaker Change: Allocations to real assets have dampened volatility and improved risk adjusted returns, while also helping to protect against inflation pressures.

Jon Cheigh: In other words, when we experience... The Bulletproof Executive 2013, Commodities, natural resource equities, and infrastructure, in that order, drove that outperformance. Moreover, as I mentioned earlier, these are the real asset classes most significantly underrepresented in portfolios like TargetDate. In that same period, a real assets blend had a beta, or sensitivity to global equities, of 0.65, indicating that allocations to blended real assets help to reduce equity sensitivity in a portfolio.

Speaker Change: Using the last three years, which is when inflation started rearing its head as an example.

Speaker Change: <unk> hundred 40 equity bond portfolio at annualized returns of four 2%.

Speaker Change: If you added a 20% allocation to real assets, the same portfolio, reducing each of the stock and bond allocations by 10%. Each the annual return would have been higher at four 7% with lower volatility and reduce drawdowns.

Speaker Change: When industry observers are saying, we face a retirement crisis.

Speaker Change: And especially as we enter a more challenging return environment. These differences matter.

Jon Cheigh: This could be important given today's relatively high equity valuation, especially relative to higher interest rates. Allocations to real assets have dampened volatility and improved risk-adjusted returns while also helping to protect, using the last three years when inflation started rearing its head as an example, a 60-40 equity-bond portfolio had annualized returns of 4.2%. We added a 20% allocation to real assets to the same portfolio, reducing each of the stock and bond allocations by 10% each. The annual return would have been higher at 4.7% with lower volatility and reduced drawdowns.

Speaker Change: We know that markets go in cycles and can focus on certain themes a few years ago those crypto.

Speaker Change: Today people wonder if they have enough AI exposure.

Speaker Change: We believe that in five to 10 Years' time investors will asset advisors, where cio's why didn't we do a better job protecting our portfolios from inflation.

Speaker Change: We believe a well constructed allocation to real assets.

Speaker Change: Generating strong returns and protecting against inflation and reducing drawdowns will help to deliver better investor outcomes, we believe inflation and the need for real assets will emerge as the conventional wisdom over the next five years.

Speaker Change: With that let me turn it over to Joe.

Joseph Martin Harvey: Thank you John and good morning.

Joseph Martin Harvey: Today I'll describe how our fundamentals started off the year then discuss the opportunities we see in front of us.

Jon Cheigh: Industry observers are saying we face a retirement crisis. Especially as we enter a more challenging return environment, these differences matter. We know that markets go in cycles and can focus on certain themes. A few years ago, it was crypto. Today, people wonder if they have enough AI exposure.

Joseph Martin Harvey: Our first quarter financial results were solid in line with our expectations for improving returns in our asset classes based on a positive inflection in the interest rate cycle and continued repositioning and asset allocations.

Joseph Martin Harvey: Some investors are legging into the new return cycle, while others are reassessing their strategic allocations in response to higher yield fixed income options.

Jon Cheigh: We believe that in 5-10 years' time, investors will ask their advisors or CIOs, why didn't we do a better job protecting their portfolios from inflation? We believe a well-constructed allocation of real assets, aimed at generating strong returns, protecting against inflation, and reducing drawdowns will help to deliver better investor outcomes. We believe inflation and the need for real assets will emerge as the conventional wisdom over the next five years. With that, I will turn it over to Joe.

Joseph Martin Harvey: Most importantly, our relative investment performance is outstanding.

Joseph Martin Harvey: In addition to the stats that John sided.

Joseph Martin Harvey: Im proud of our one year weighted average excess return of 309 basis points across all strategies.

Joseph Martin Harvey: Simply we are delivering for our clients.

Joseph Martin Harvey: That said our asset classes that did not keep up with the torrid pace of the S&P 500, which returned 10, 6% in the quarter with our highest absolute return for our strategy at four 2% for core preferreds.

Joseph Martin Harvey: Thank you, John, and good morning. Today I'll describe how our fundamentals started the year, then discuss the opportunities we see in front of us. Our first quarter financial results were solid, in line with our expectations for improving returns in our asset classes based on a positive inflection in the interest rate cycle and continued repositioning in asset allocation. Some investors are stepping into the new return cycle, while others are reassessing their strategic allocations in response to higher yield fixed income options.

Joseph Martin Harvey: Real estate returns were modestly negative in all regions in the quarter after leading markets in the fourth quarter.

Joseph Martin Harvey: Looking at firm wide flows we had net outflows of $2 billion in the first quarter.

Joseph Martin Harvey: The major drivers were two large account terminations and advisory both in global real estate.

Joseph Martin Harvey: We announced last quarter, the termination of a $1 5 billion dollar account and the other during the quarter was $744 million.

Joseph Martin Harvey: Both clients eliminated listed Reits from their strategic portfolio allocations.

Joseph Martin Harvey: This was partially offset by net inflows of $569 million into open end mutual funds.

Joseph Martin Harvey: Most importantly, our relative investment performance is outstanding. In addition to the stats that John cited, I am proud of our one-year weighted average excess return of 309 basis points across all strategies. Said simply, we are delivering for our clients. That said, our asset classes did not keep up with the torrid pace of the S&P 500, which returned 10.6% in the quarter, with their highest absolute return for a strategy at 4.2% for core preferred. Listed real estate returns were modestly negative in all regions in the quarter after leading markets in the fourth quarter.

Joseph Martin Harvey: By month firm wide flows in January and February were negative then March turn positive with $183 million in net inflows.

Joseph Martin Harvey: Although we are disappointed to see some clients eliminate strategic allocations to reach.

Joseph Martin Harvey: Even as we are on the cusp of a new return cycle. We are pleased to see wealth flows turned positive in each month to date in 2024 and FERC total firm wide flows to turn positive in March.

Joseph Martin Harvey: Digging deeper into client segments, so $569 million and open end net inflows was the first positive quarter after seven consecutive quarters of outflows and reflects the transition in the macro environment with inflation declining and fed interest rate policy transitioning to pausing.

Joseph Martin Harvey: Looking at firm-wide flows, we had net outflows of $2 billion in the first quarter. The major drivers were two large account terminations and advisory, both in global real estate. We announced last quarter the termination of a $1.5 billion account, and the other during the quarter was $744 million. Both clients eliminated listed REITs from their strategic portfolio allocations.

Joseph Martin Harvey: Inflows were led by U S Reits and preferreds with about $250 million apiece flowing into both our institutional U S. REIT fund and our core preferred Securities Fund.

Joseph Martin Harvey: The registered investment advisor segment drove REIT flows.

Joseph Martin Harvey: In the Whitehouse and independent broker dealer channels led the preferred flows.

Joseph Martin Harvey: Our offshore see Caf funds had modest inflows continuing their positive trend and we see momentum building as we continue to gain scale and sign up more platforms and advance advisor education for our offshore vehicles.

Joseph Martin Harvey: This was partially offset by net inflows of $569 million into open-end mutual funds. By month, firm white flows in January and February were negative, then March turned positive with $183 million in net inflows. Although we are disappointed to see some clients eliminate strategic allocations to REITs, even as we are on the cusp of a new return cycle, we are pleased to see wealth flows turn positive, and each month to date in 2024, and for total firm-wide flows to turn positive in March.

Joseph Martin Harvey: Advisory had $2 2 billion in net outflows. In addition to the just mentioned global real estate terminations, we had two client mandates eliminate their strategic allocations, so preferreds totaling $236 million we.

Joseph Martin Harvey: We've seen some preferred clients replace preferreds with private credit.

Joseph Martin Harvey: These outflows were offset by two account fundings totaling $269 million in global and U S real estate.

Joseph Martin Harvey: Digging deeper into client segments, the $569 million in open-end net inflows was the first positive quarter after seven consecutive quarters of outflows, and it reflects the transition in the macro environment with inflation declining and Fed interest rate policy transitioning to pause. Inflows were led by U.S. REITs and PREFEREDs, with about $250 million apiece flowing into both our institutional U.S. REIT fund and our core PRE The Registered Investment Advisors segment drove REIT flows, and the Wirehouse and Independent Broker-Dealer Channels led preferred flows.

Joseph Martin Harvey: Sub advisory had net outflows of $35 million with relatively modest flows both ways.

Joseph Martin Harvey: Pan sub advisory had outflows of $312 million.

Joseph Martin Harvey: The outflows in Japan, we're off trend and are primarily attributable to a sponsor diversifying their global real estate managers for our mutual fund wrap program we.

Joseph Martin Harvey: We previously had 98% of this allocation and the sponsor believes manager diversification will make the vehicle more attractive.

Joseph Martin Harvey: As these fund wrap programs are becoming more popular and Jeff Japan well.

Joseph Martin Harvey: We remain optimistic about the opportunities in Japan, and we will allocate additional sales support to help our partners gather assets and what we believe could be a broad based investment resurgence.

Joseph Martin Harvey: Our offshore CCAF funds had modest inflows, continuing their positive trend, and we see momentum building as we continue to gain scale and sign up more platforms and advance advisor education for our offshore vehicles. Advisory had $2.2 billion in net outflows.

Joseph Martin Harvey: Following the reflation occurring in the country, along with improved corporate governance flows out of China, and new market highs on the Nikkei, while cash on the sidelines remains high.

Joseph Martin Harvey: Our one unfunded pipeline was $1 billion compared with $1 2 billion last quarter and the three year average of $1 2 billion tracks.

Joseph Martin Harvey: In addition to the just-mentioned global real estate terminations, we had two client mandates eliminate their strategic allocations to preferreds, totaling $236 million. Additionally, we've seen some preferred client clients replace preferreds with private credit. These outflows were offset by two account fundings totaling $269 million in global and U.S. real estate. Sub-advisory had net outflows of $35 million with relatively modest flows both ways. Japan's sub-advisory had outflows of $312 million.

Joseph Martin Harvey: Tracking the changes from last quarter.

Joseph Martin Harvey: $349 million funded from six accounts $185 million was added to the pipeline from two mandates and $80 million was remove or accounts funded at lesser amounts than expected.

Joseph Martin Harvey: The two new mandates were in global listed infrastructure and U S real estate.

Joseph Martin Harvey: We continue to see adoption of listed real estate listed infrastructure and multi strategy real assets by many investor types worldwide.

Joseph Martin Harvey: Turning to opportunities the real estate fundamental financing and return cycle is in full swing.

Joseph Martin Harvey: The outflows in Japan were off-trend and are primarily attributable to a sponsor diversifying its global real estate managers for a mutual fund WRAP program. We previously had 98% of this allocation, and the sponsor believes manager diversification will make the vehicle more attractive, as these fund-wrapped programs are becoming more popular in Japan's wealth. We remain optimistic about the opportunities in Japan and will allocate additional sales support to help our partners gather assets in what we believe could be a broad-based investment resurgence following the reflation occurring in the country along with improved corporate governance, flows out of China, and new market highs on the Nikkei while cash on the sidelines remains high. Our one unfunded pipeline was $1 billion compared with $1.2 billion last quarter and a three-year average of $1.2 billion.

Joseph Martin Harvey: As we've discussed before we believe that overall REIT share prices have bottomed and their next return cycle has commenced.

Joseph Martin Harvey: Meantime, private real estate prices continue to adjust lower primarily in response to the increase in the cost of debt capital.

Joseph Martin Harvey: Last weeks announcement by Blackstone, taking private for $10 billion the apartment income REIT at a 22% premium.

Joseph Martin Harvey: As a mile marker signifying that theres attractive value on the listed market.

Joseph Martin Harvey: This transaction may indicate that capital will begin to be deployed in the private market as well.

Joseph Martin Harvey: We expect several private real estate companies will test the IPO market this year, showing up balance sheets, and gaining access to capital to take advantage of the private opportunities.

Joseph Martin Harvey: We believe our listed in private real estate teams complemented by our real estate strategy group or at the intersect intersection of this activity and take taken together our real estate franchise has never been stronger.

Joseph Martin Harvey: Tracking the changes from last quarter, $349 million was funded from six accounts, $185 million was added to the pipeline from two mandates, and $80 million was removed for accounts funded at lesser amounts than expected.

Joseph Martin Harvey: Our listed real estate team is very active focus on the dynamism of the listed market at turning points and focusing on secular winners cyclical Miss pricings and companies that need capital.

Joseph Martin Harvey: The two new mandates were in Global Listed Infrastructure and U.S. Real Estate. We continue to see adoption of listed real estate, listed infrastructure, and multi-strategy real assets by many investor types worldwide. Turning to Opportunities. The real estate fundamental, financing, and return cycle is in full swing. As we've discussed before, we believe that overall, REIT share prices have bottomed, and their next return cycle has commenced. Meanwhile, private real estate prices continue to adjust lower, primarily in response to the increase in the cost of debt capital.

Joseph Martin Harvey: We also continued to expand our investment capabilities recently laying groundwork for investing in certain see MBS segments.

Joseph Martin Harvey: Companies and the application of derivative strategies for clients that need different return profiles.

Joseph Martin Harvey: Our private team is beginning to see improved pricing in some sectors such as shopping centers.

Joseph Martin Harvey: Our strategy group helps US chart, the course with a data driven foundation, while working with clients to help them with their strategic and tactical decision, making.

We are pleased that preferreds are back on track after the regional bank scare in the first quarter of last year.

Joseph Martin Harvey: Last week's announcement by Blackstone, taking private for $10 billion, the apartment income REIT at a 22% premium, is a mile marker signifying that there is attractive value in the listed market. This transaction may indicate that capital will begin to be deployed in the private market as well. We expect several private real estate companies will test the IPO market this year, showing up balance sheets and gaining access to capital to take advantage of the public opportunity.

Joseph Martin Harvey: Over the past year, our core preferred strategy has returned 15, 4% with 200 basis points of excess return over the benchmark.

Joseph Martin Harvey: Our core preferred fund has returned to inflows.

Joseph Martin Harvey: By contrast, our short duration fund LPX continued to have outflows as its yield still sees competition from short term treasuries.

Joseph Martin Harvey: That said Lpx's returned 11, 5% over the past year.

Joseph Martin Harvey: While we've seen some investors take preferreds out of their strategic allocations for now the business seems to be normalizing as preferred performance has improved over the past year.

Joseph Martin Harvey: We believe that listed private real estate teams, complemented by a real estate strategy group, are at the intersection of this activity, and taken together, a real estate franchise has never been stronger. Our listed real estate team is very active, focused on the dynamism of the listed market at turning points and focusing on secular winners, cyclical mispricings, and companies that need capital. We also continue to expand our investment capabilities, recently laying the groundwork for investing in certain CMBS segments, private companies, and the application of derivative strategies for clients that need different return profiles.

We continue to invest in this effort having funded a global preferred seat account in December 2022 that has demonstrated a strong return of 12, 5% over the past year and we are considering vehicle options for this broader opportunity set preferred strategy.

Joseph Martin Harvey: At the end of the first quarter, we launched our future of energy investment strategy by converting our midstream energy open end mutual fund the.

Joseph Martin Harvey: The investment thesis behind this strategy.

Joseph Martin Harvey: In order to meet the world's growing demand for energy, we need growth in both conventional as well as renewable energy.

Joseph Martin Harvey: And the conventional side will prevent present extraordinary opportunities due to the restraints and investment and supply.

Joseph Martin Harvey: Our private team is beginning to see improved pricing in some sectors, such as shopping centers. Our strategy group helps us chart the course with a data-driven foundation while working with clients to help them with their strategic and tactical decision making. We are pleased that Preferreds are back on track after the regional bank scare in the first quarter of last year.

Joseph Martin Harvey: The strategic allocation will be benchmark to the composition of energy usage between conventional and renewables, allowing investors to participate broadly in the energy transition.

Joseph Martin Harvey: We believe the strategy is unique and presents alpha opportunities through strategic allocation sector selection and stock selection.

Joseph Martin Harvey: Over the past year, our core preferred strategy has returned 15.4% with 200 basis points of excess return over the benchmark. Our core preferred fund has returned to inflows. By contrast, our short-duration fund, LPX, continued to have outflows as its yield still sees competition from short-term treasuries. That said, LPX has returned 11.5% over the past year.

Joseph Martin Harvey: This strategy is an extension of our infrastructure and resource equity teams core capabilities.

Joseph Martin Harvey: Turning to distribution priorities, we have many initiatives for the wealth channel, including allocating more resources to the RIAA and multifamily office segments. As this is where we see the greatest rate of growth in assets. In addition distribution of our non traded REIT in the wealth channel as a top.

Joseph Martin Harvey: While we've seen some investors take preferreds out of their strategic allocations for now, the business seems to be normalizing as preferred performance has improved over the past year. We continue to invest in this effort, having funded a Global Preferred Seed Account in December 2022 that has demonstrated a strong return of 12.5% over the past year, and we are considering vehicle options for this broader opportunity set preferred strategy. At the end of the first quarter, we launched our Future of Energy investment strategy by converting our midstream energy open-end mutual fund.

Joseph Martin Harvey: Priority.

Joseph Martin Harvey: The market's adoption of active Etfs is gathering steam and we are formulating potential plans for that type of vehicle.

Joseph Martin Harvey: As mentioned earlier, we are gaining traction with our <unk> distribution plan and have added an intermediary faced sales professional in Singapore, complementing our institutional sales professional hired last year.

Joseph Martin Harvey: Underpinning the rationale for these new roles as our belief that based on the merit investor portfolios are under allocated to our asset classes, most notably in listed real estate infrastructure and multi strategy real assets as John described very well.

Joseph Martin Harvey: The investment thesis behind this strategy... In order to meet the world's growing demand for energy, we need growth in both conventional as well as renewable energy, and the conventional side will present extraordinary opportunities due to constraints on investment and supply.

Joseph Martin Harvey: We recently published our annual report to shareholders under the theme endurance. Please.

Joseph Martin Harvey: Please visit our website to read the letter to shareholders.

Joseph Martin Harvey: We are proud that our team has navigated with the longest and most dramatic regime changes in a long time, we believe endurance athlete.

Joseph Martin Harvey: Happily describes the tenacity of our team.

Joseph Martin Harvey: The strategic allocation will be benchmarked to the composition of energy usage between conventional and renewables, allowing investors to participate broadly in the energy transition. We believe this strategy is unique and presents alpha opportunities through strategic allocation, sector selection, and stock selection. This strategy is an extension of our infrastructure and resource equity team's core capabilities. Turning to distribution Priorities, we have many initiatives for the Wealth Channel, including allocating more resources to the RIA and multifamily office segments, as this is where we see the greatest rate of growth in assets.

Joseph Martin Harvey: The important sustained focus for our clients and the need to continually innovate.

Joseph Martin Harvey: We are well organized and positioned to come out the other side stronger and are mobilized to help our clients allocate and take advantage of the return cycles to come.

Speaker Change: Thank you for listening.

Speaker Change: <unk> if you could please open the lines for questions.

Speaker Change: Thank you.

Speaker Change: And we will now begin the question and answer session. If you have dialed in and then we'd like to ask a question. Please press star one on your telephone keypad to raise your hand and join the queue.

Joseph Martin Harvey: In addition, distribution of our non-traded REIT and the Wealth Channel is a top priority. The market's adoption of active ETFs is gathering steam, and we are formulating potential plans for that type of vehicle. As mentioned earlier, we are gaining traction with our CCAV distribution plan and have added an intermediary-based sales professional in Singapore, complementing our institutional sales professional hired last year. Underpinning the rationale for these new roles is our belief that, based on merit, investor portfolios are under-allocated to our asset classes, most notably enlisted real estate, infrastructure, and multi-strategy real assets, as John described very well.

Speaker Change: If you would like to withdraw your question simply press Star one again.

Speaker Change: If you are called upon to ask your question and our listening via loud speaker on your device. Please pickup your handset and ensure that your phone is not on mute when asking your question.

Speaker Change: Again, crestar wanted to join the queue.

Speaker Change: And your first question comes from the line of John Dunn with Evercore ISI. Please go ahead.

Speaker Change: Okay.

John Joseph Dunn: Thank you.

John Joseph Dunn: Maybe you could could you talk about if you have any line of sight into any other like chunky institutional mandates that might be exiting over the next stretch and then also maybe take us through the puts and takes regionally of institutional advisory business.

Joseph Martin Harvey: We recently published our annual report to shareholders under the theme of Endurance. Please visit our website to read the letter to shareholders. We are proud that our team has navigated one of the longest and most dramatic regime changes in a long time. We believe endurance aptly describes the tenacity of our team, the importance of staying focused for our clients, and the need to continually innovate. We are well organized and positioned to come out on the other side stronger, and we are mobilized to help our clients allocate and take advantage of the return cycles to come. Thank you for listening. Abby, if you could please open the lines for questions,

Speaker Change: Sure John Good morning.

Speaker Change: Right now we have one client that has about $90 million that they want to trim from their account that's a small number but apart from that we don't have.

Speaker Change: Any any.

Speaker Change: Accounts that we know will be terminated.

Speaker Change: In terms of the.

Speaker Change: The business.

Speaker Change: Globally on advisory.

Speaker Change: Last quarter, we talked about how our pipeline was represented in the eight different countries and.

Speaker Change: That has not changed much. So when you go around the world I would say the largest market for advisory is in the U S.

Operator: And we will now begin the question and answer session. If you have dialed in and would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star 1 again. If you are called upon to ask your question and are listening via the loudspeaker on your device, please pick up your handset and ensure that your phone is not on mute when asking your question. Again, press star 1 to join the queue, and your first question comes from the line of John Dunn with Evercore ISI. Please go ahead.

Speaker Change: We've as we've talked about in the past couple of calls we've seen more interest in Asia, which is a new trend relative to the past.

Speaker Change: And again, it's mostly focused in listed real estate and listed infrastructure.

While in Australia.

Speaker Change: There's investors have invested in real assets real estate and infrastructure in particular.

John Joseph Dunn: Thank you. Maybe you could, could you talk about if you have any line of sight into any other chunky institutional mandates that might be exiting over the next stretch? And then also maybe take us through the puts and takes regionally of the institutional advisory business?

Speaker Change: We've seen some opportunities too.

Speaker Change: Take business away from competitors as well as <unk>.

Speaker Change: Aligned with some.

Speaker Change: Intermediaries, who are.

Speaker Change: Executing.

Speaker Change: Independent adviser.

Speaker Change: Growth strategies so.

Speaker Change: Asia, I'd say would follow U S and the level of interest.

Joseph Martin Harvey: Sure, John. Good morning.

Joseph Martin Harvey: Right now, we have one client that has about $90 million that they want to trim from their account. That's a small number. But apart from that, we don't have any accounts that we know will be terminated. In terms of the business globally on advisory, last quarter, we talked about how our pipeline was represented in eight different countries. That has not changed much. So when you go around the world, I would say that the largest market for advisory services is in the U.S.

Speaker Change: The middle East has been relatively dormant.

For Lister allocations, but with the growth in AUM, there we could see.

Speaker Change: Some activity in the future and then I'll, just wrap up by saying in Japan.

Speaker Change: There is something interesting going on with the investing markets there.

Speaker Change: We in addition to.

Speaker Change: Adding some sales support to help our.

Speaker Change: Or an intermediary clients.

Speaker Change: Gains sales support.

Speaker Change: Just brought on a new institutional sales person.

Joseph Martin Harvey: But as we've talked about in the past couple of calls, we've seen more interest in Asia, which is a new trend relative to the past. And again, it's mostly focused on listed real estate and listed infrastructure. While in Australia, investors have invested in real assets, real estate, and infrastructure, and, in particular, we've seen some opportunities to take business away from competitors as well as align with some intermediaries who are executing independent advisor growth strategies.

Speaker Change: So we see opportunity in Japan.

Speaker Change: Got it.

Speaker Change: And then maybe could you give us a little more of a flavor of the change in the wealth management channel, which has been positive now for a little bit.

Speaker Change: Okay.

Speaker Change: Later on.

Speaker Change: Demand in gross sales potential and is it sustainable for U S REIT and preferred.

Speaker Change: Well.

Speaker Change: This started at the end of last year and I'd say the catalyst is the inflection and interest rates fed going from tightening to pausing of course that had a run early this year, but it is now.

Joseph Martin Harvey: You know, the Middle East has been relatively dormant for, you know, listed allocations, but with the growth in AUM there, we could see some activity in the future. And then I'd just wrap up by saying in Japan, there's something interesting going on with the investing markets there. We just brought on a new institutional salesperson, and so we see opportunity in Japan.

Speaker Change: Reverse somewhat so we could see a little bit of a pause.

Speaker Change: But as I said, we've continued to see flows into wealth.

Speaker Change: And I'd say there is part of the market that is anticipatory in wa.

Speaker Change: Working alongside our sales support too.

Speaker Change: The slide lays out the investment case for how our asset classes will perform in this part of the cycle. There is another part of the.

Joseph Martin Harvey: Got it. And then maybe could you give us a little more of a flavor of the change in the wealth management channel, which has been positive now for a little bit, you know, more flavor on the demand and gross sales potential, and is it sustainable for U.S. retail? Well, uh, you know...

Speaker Change: The market there is a little bit more coincident, so might see a little bit of a pause on that but.

Speaker Change: Based on our comments.

Speaker Change: We think that these new return cycles have begun.

Joseph Martin Harvey: This started at the end of last year, and I'd say the catalyst was the inflection in interest rates fed going from tightening to pausing. Of course, that had a run early this year, but it has now reversed somewhat, so we could see a little bit of a pause in that. But, as I said, we continue to see flows into wealth, working alongside our sales support that lays out the investment case for how our asset classes will perform in this part of the cycle.

Speaker Change: Does it happen overnight it unfolds over a period of time so.

Speaker Change: Sure.

Speaker Change: And confident to be engaging in the wealth market at this point.

Speaker Change: Thanks very much.

Speaker Change: And as a reminder.

Speaker Change: Pardon me. Please press star one if you would like to ask a question and your next question comes from the line of Adam Beatty with UBS. Please go ahead.

Adam Quincy Beatty: Thank you and good morning, just wanted to broaden out the discussion around preferreds, a little bit and just maybe draw upon your historical experience obviously.

Joseph Martin Harvey: There's another part of the market that's a little bit more coincident. So you might see a little bit of pause in that, but based on our comments, we think that these new return cycles have begun. It doesn't happen overnight, so be confident to be engaging in the wealth market at this point.

Adam Quincy Beatty: Trailing returns are good.

Adam Quincy Beatty: Relative performance is probably better than good.

Adam Quincy Beatty: So just given your experience when would you expect flows there to kind of go a little bit more traction you mentioned competition from other short duration.

Operator: And as a reminder, please press star 1 if you would like to ask a question. And your next question comes from the line of Adam Beatty with UBS. Please go ahead.

Adam Quincy Beatty: Thank you and good morning. I just wanted to broaden the discussion around preferreds a little bit and maybe draw upon your historical experience. Obviously, trailing returns are good, and relative performance is probably better than good. Just given your experience, when would you expect flows there to get a little bit more traction? You mentioned competition from other short-duration instruments. Do you need to spread over that to get preferred flows? You also mentioned some competition from private credit. I'm just wondering how you see that playing out.

Adam Quincy Beatty: <unk>.

Adam Quincy Beatty: Do you need a spread over that to get preferred flows and you also mentioned.

Adam Quincy Beatty: Some competition from private credit and just wondering how you see that playing out thanks very much.

Adam Quincy Beatty: Yes.

Adam Quincy Beatty: Sure.

Speaker Change: Good question Adam So.

Speaker Change: When any investor is obviously evaluating how and when to allocate so obviously theyre thinking about valuation fundamentals.

Speaker Change: And whether we like it or not timing I think whether we're talking about rights or preferreds I think most of the investors we talk to.

Joseph Martin Harvey: Thanks very much.

Joseph Martin Harvey: Sure. A good question, Adam.

Speaker Change: They see the valuation case.

Speaker Change: I think there are parts of last year. There are concerns about some of the fundamentals with banks credit et cetera, but I think people are now comfortable with both valuation.

Joseph Martin Harvey: Any investor is obviously evaluating how and when to allocate, so obviously they're thinking about valuation and fundamentals. [inaudible] Now we're just on to the timing part, and we saw some of the flows start to pick up because there was optimism that we were at peak short-term rates. We think that that should still be the case, but what we see from most investors is they're so-called legging into it in a few different steps, and my guess is that when we actually see more clarity on terminal rates, we'll see even more flows come in. That would be my best guess.

Speaker Change: And the fundamentals.

Speaker Change: Now, we're just onto the timing part.

Speaker Change: And we saw some of the flow start to pick up because there was.

Speaker Change: Optimism that we are at peak short term rates.

Speaker Change: We think that that should still be the case, but what we see from most investors is there so called legging into it in a few different steps and my guess is that when we actually see.

Speaker Change: More clarity on terminal rates that.

We will see even more flows come in that would that would be my best guess.

Joseph Martin Harvey: You know, in terms of competition with short duration, Competitive Yield. Right now, the investor view is I'm getting a five or five and a half. That's similar to where we are in low duration preferreds, and their view is duration is a risk as opposed to an asset, to the extent interest rates go down. You're going to want duration. Right? And so that gets back to the extent to which we get to a peaking in long-term rates.

Speaker Change: In terms of.

Speaker Change: Yes.

Speaker Change: So in terms of competition with short duration.

Speaker Change: A competitive yield.

Speaker Change: Right now the Investor view as I'm getting up five or five and a half that's similar to where we are in low duration preferreds and their view is duration is a risk as opposed to an asset.

Speaker Change: To the extent interest rates go down.

Speaker Change: Youre going to want duration.

Speaker Change: Right.

Speaker Change: And.

Speaker Change: So that gets back to the extent, we get to a peaking in long term rates.

Speaker Change: All of that money on the sidelines.

Joseph Martin Harvey: All of that money on the sidelines, which is in the front end of the curve, will want to go further out and own longer-duration fixed income assets, equity assets, whatever the case may be. So I think that... Getting movement out of the short end to further along the curve is still back to when there's conviction that we are at.

Speaker Change: Which is in the front end of the curve will want to go further out and on longer duration fixed income assets equity assets, whatever the case might be so I think that.

Speaker Change: Getting movement out of the short end to further along the curve is still back to when Theres conviction that we are at peak.

Speaker Change: Peak.

Speaker Change: Fed funds.

Joseph Martin Harvey: Fed Funds, I guess, in terms of private credit, You know, a few years ago, we spent a lot of time educating wealthy people about the tax efficiency of preferreds and their yields. And you know, some of the movement that Joe talked about of certain investors looking more towards private credit, of course, number one, those are investors that can handle illiquidity. So those were institutional investors. Number two, preferreds are much more tax efficient than private credit.

Speaker Change: In terms of private credit.

Speaker Change: <unk>.

Speaker Change: There's a few years ago, we spent a lot of time educating.

Speaker Change: Wealth.

Speaker Change: About the tax efficiency.

Speaker Change: Of preferreds and their yields.

Speaker Change: And <unk>.

Speaker Change: Some of the movement that Joe talked about on certain investors looking more towards private credit of course number one those are investors that can handle illiquidity, so those where institutional investors number two.

Speaker Change: Preferreds are much more tax efficient than private credit.

Speaker Change: Those were institutions that I imagine it didn't have the same.

Joseph Martin Harvey: Those were institutions that I imagine didn't have the same after-tax view of comparing, you know, say, 9% in private credit versus 7% in preferred. So, as you know, the vast majority of our AUM within preferreds is in our wealth-facing channel, where, frankly, the tax-efficient yield has been a very powerful argument. So I suspect we will still have some comparison versus private credit and preferreds. If anyone has a pre-tax view, an after-tax view, that kind of thing.

Speaker Change: After tax view of comparing.

Speaker Change: Say, 9% in private credit versus 7% in preferred so.

Speaker Change: As you know the vast majority of our AUM.

Speaker Change: Within preferreds is in our wealth facing channel where.

Speaker Change: Frankly, the tax efficient yield has been a very powerful argument so.

Speaker Change: I suspect, we will still have some comparisons versus private credit and preferreds over time.

Speaker Change: But it will depend as I said on his one having pre tax view and after tax view.

Speaker Change: That kind of thing I hope that helps.

Joseph Martin Harvey: Yes, absolutely. Excellent.

Speaker Change: Yes, absolutely excellent I appreciate that.

Joseph Martin Harvey: I appreciate that. And then, maybe more strategically, your commentary around target date funds and the 60-40 allocation, you know, and being broadly under allocated to real assets was pretty compelling. So just wanted to get a sense of how you're thinking about the long term, you know, how Cohen & Steers can play into rectifying that, whether it's getting on retirement platforms, getting sleeves and target date funds, or other elements of your strategy. Thanks.

Speaker Change: And then a little bit more maybe strategically.

Speaker Change: Your commentary around.

Speaker Change: Target date funds and the 60 40 allocation being broadly under under allocated to real assets was pretty compelling. So just wanted to get a sense of how youre thinking about long term.

Speaker Change: How Cohen <unk> steers can play into rectifying that whether it's getting on retirement platforms getting sleeves in target date funds or other elements of your strategy. Thanks.

Speaker Change: Well.

Joseph Martin Harvey: Well, um... Obviously, we try to spend a lot of time educating, whether it's the record keepers, the target date managers, or the end investor on The Importance of Real Assets, be honest for the end investor I'm not sure they're always looking at their underlying exposure in their target date so I think we need to educate on all three of those levels again the end investor the 401k committee of a given company the record keepers and the manager so you know we're going through that education process and we're going to keep doing that, You know the way this goes, that, you know, I said that five years from now or ten years from now... One of those groups will say, why didn't we do a better job? You know, I talked about how over the last three years, you know, if you just had real assets, you know, you would have done 50 basis points better with lower drawdowns and volatility.

Speaker Change: Obviously, we try to spend a lot of time.

Speaker Change: <unk>.

Speaker Change: Or it's the <unk>.

Speaker Change: Record keepers, the target date managers or the end investor.

Speaker Change: John.

Speaker Change: <unk>.

The importance of real assets.

Speaker Change: To be honest for the end investor Im not sure. They are always looking at our underlying exposure.

Speaker Change: In their target dates so I think we need to educate on all three of those levels again the end investor.

Speaker Change: The 401, K Canadian a given company.

Speaker Change: Record keepers and the managers, so we're going through that education process, we're going to keep doing that.

Speaker Change: You know the way this goes that I said that five years from now or 10 years from now.

Speaker Change: One of those groups will say why didn't we do a better job I talked about how over the last three years. If you just had real assets you would've done 50 basis points better with lower drawdowns and volatility may not seem like a lot.

Joseph Martin Harvey: May not seem like a lot, but again, target dates, when you're talking about 10, 20, 30, 40 years, and you're compounding that, you know, you're talking about 4.2 versus 4.7, you're basically, you know, it's like saying, you know, you're improving your return. There probably needs to be some, I don't want to say pain, but what I would say is some remorse, before there's more action taken on this.

Speaker Change: But again target dates when you were talking about 10, 2030, 40 years and your compounding that.

Speaker Change: Youre talking about.

Speaker Change: Four two versus $4 seven youre basically.

Speaker Change: Thank you.

Speaker Change: You are improving your return.

Speaker Change: 12%.

Speaker Change: And your calm down in that.

Speaker Change: And so.

Speaker Change: So that's an education process that we continue to have we have.

Speaker Change: And we think over time there'll be more success, but frankly, there needs to be some.

Joseph Martin Harvey: I would say at the end of 2022, when the 60-40 was performing very poorly, a lot of people said, well, talk to me about real assets. At the end of 2023, when the 60-40 had a much better year, people thought, you know what? Maybe that inflation was just a blip. It was a moment in time. I think that towards the end of this year, there will be more people saying, you know what? Inflation goes in cycles. It goes higher, it goes lower, it goes higher. That's the lesson of the 70s and others. It needs to be part of my strategic allocation as opposed to, I wish I had it in 2022.

Speaker Change: There probably needs to be some.

Speaker Change: I don't want say pain.

Speaker Change: I'd say some remorse.

Speaker Change: Before there is more action taken on this.

Speaker Change: I would say at the end of 2022, when the 60 40.

Speaker Change: Correlate a lot of people said well talk to me about real assets.

Speaker Change: At the end of 2023, when the 60 40 had a much better year people thought you know what.

Speaker Change: Maybe that inflation was just a blip there was a moment in time.

Speaker Change: Think that towards the end of this year, there's going to be more people, saying.

Speaker Change: Sure.

Speaker Change: Inflation goes in cycle as it goes higher because lower it goes higher.

Speaker Change: That's the lesson of the seventies and it's others.

Speaker Change: It needs to be part of my strategic allocation as opposed to you I wish I had it in 2022.

Joseph Martin Harvey: So anyway, I think that's... The Bollinger Bands, LLC. All rights reserved. The Bollinger Bands, LLC.

Speaker Change: I think thats the <unk>.

Speaker Change: Acknowledgement process that we'll go through over the next 12 months.

Speaker Change: Broadly just to add to that is just it's education of asset consultants plan sponsors.

Joseph Martin Harvey: I think broadly, just to add to that, it's the education of asset consultants, plant sponsors, and, at this point in time, and ultimately, to a lesser extent, the end users. But it's also having the right vehicles and having the ability to customize them. Customized strategies at some point. So with our mutual fund and with our we have a collective and investment trust or CIT, those are vehicles that are designed for, you know, the end user, and over time, we could end up with some vehicles that will help us customize for different plant sponsor needs.

Speaker Change: At this point in time, and ultimately to a lesser extent.

Speaker Change: And users, but it's also having the right vehicles.

Speaker Change: Having the ability to customize.

Speaker Change: Customized strategies at some point, so with our mutual fund and with our.

Speaker Change: Our collective investment trust or <unk> of those are.

Speaker Change: Vehicles that are designed for.

Speaker Change: That.

Speaker Change: End user in and over time, we could end up with some.

Speaker Change: Vehicles that will help us customize for different.

Speaker Change: Sponsor needs.

Adam Quincy Beatty: Yep, that all makes total sense. No, I appreciate it. That's all for me today. Thanks.

Speaker Change: Yes that all makes total sense and I appreciate it that's all for me today. Thanks.

Operator: And that concludes our Q&A session. I will now turn the conference back over to Mr. Joe Harvey for closing remarks. Well, thank you.

Speaker Change: And that concludes our Q&A session I will now turn the conference back over to Mr. Joe Harvey for closing remarks.

Joseph Martin Harvey: Well, thank you Abby and thanks everyone for listening, and we look forward to talking to you next quarter. And, ladies and gentlemen, this concludes today's conference call, and you may now disconnect.

Joseph Martin Harvey: Thank you Abby and thanks, everyone for listening and we look forward to talking to you next quarter.

Speaker Change: Ladies and gentlemen. This concludes today's conference call you may now disconnect.

Operator: And ladies and gentlemen, this concludes today's conference call. You may now disconnect.

Speaker Change: [music].

Speaker Change: Yes.

Speaker Change: Yes.

Speaker Change: Yes.

Speaker Change: Sure.

Speaker Change: [music].

Speaker Change: Yes.

Speaker Change: [music].

Speaker Change: Sure.

Speaker Change: Yes.

Speaker Change: Okay.

Speaker Change: Yes.

Speaker Change: [music].

Speaker Change: Yes.

Speaker Change: [music].