Q3 2024 Cohen & Steers Inc Earnings Call
Speaker Change: Ladies and gentlemen, thank you for standing by. Welcome to the Coenance Dears 3rd Quarter 2020 for earnings conference call. During the presentation, all participants will be in a listen only mode. After words, we will conduct a question and answer session. At that time, if you have a question, please press the star, follow by the one on the telephone keypad.
Speaker Change: If at any time during the conference you need to reach an operator, please press star 0. As your reminder, this conference is being recorded, Thursday, October 17, 2024. I would now like to turn the conference over to Brian Heller, Senior Vice President and Corporate Council of Colonists do this. Please go ahead.
Brian Heller: Thank you, and welcome to the Coenin Steers, third quarter 2024 earnings conference call.
Brian Heller: Joining me are Joe Harvey, our Chief Executive Officer, Rajah DeKouri, our Chief Financial Officer, and John Cheigh, our Chief Investment Officer. I want to remind you that some of our comments and answers to your questions may include forward-looking statements.
Brian Heller: We believe these statements are reasonable based on information currently available to us.
Brian Heller: But actual outcomes could differ materially due to a number of factors, including those described in our accompanying third quarter earnings release and presentation. Our most recent annual report on Form 10K and our other FTC filings.
Brian Heller: We assume no duty to update any forward-looking statement.
Brian Heller: Further, none of our statements constitute an offer to sell for the solicitation of an offer to buy the securities of any fund or other investment vehicle.
Brian Heller: Our presentation also contains non-gap financial measures, referred to as as adjusted financial measures. If we believe our meaningful and evaluating our performance.
Brian Heller: Even non-gap financial measures should be read in conjunction with our gap results.
Brian Heller: A reconciliation of these non-gap financial measures is included in the earnings release in presentation.
Brian Heller: to the extent reasonably available.
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.coonandsteers.com
Brian Heller: With that, I'll turn the call over to Roger. Thank you, Brian, and good morning, everyone. My remarks today will focus on our as-adjusted results. A reconciliation of gap-to-as-adjusted results can be found in the earnings release and presentation.
Roger: Yesterday we reported earnings of 77 cents per share compared to 68 cents sequentially. Revenue was 133 million compared to 122 million sequentially.
Roger: The increase in revenue from the prior quarter was primarily due to higher average AUF.
Roger: Our effective fee rate during the quarter was 58 basis points, which is consistent with the prior quarter.
Roger: operating income was 47.6 million, compared to 42.5 million to quenchily, and our operating margin improved to 35.7%. Poll expenses were higher compared to the prior quarter, primarily due to an increase in our reputation and benefits, and to a less extent and increase in our distribution and service fees.
Roger: The increase in compensation in benefits was in line with the sequential increase in revenue as the compensation ratio remained at 40.5%.
Roger: The increase in distribution and service fees was due to higher AUM related to our open-end funds.
Roger: Regarding taxes, our effective rate was 25.1% for the quarter.
Roger: Our burning's presentation notes liquidity at the end of Q3 and prior quarters. Our liquidity total 348 million at quarter end, which represents an increased versus Q2.
Roger: AUM was 91.8 billion at quarter ends.
Roger: This was an increase of over 11 billion from the prior quarter, primarily due to market appreciation. AUM was also impacted by net inflows during the period. Joe Harvey will provide an update on our flows and pipeline.
Roger: Let me briefly touch on a few items to consider for the rest of the year.
Roger: With respect to compensation and benefits, we maintain a measured approach.
Roger: We would expect the compensation ratio to remain at 40.5% for the rest of the year.
Roger: We still expect GNA to increase 6 to 7% for the year as compared to 2023. Most of the increases related to investments in our technology and infrastructure.
Roger: And finally, we expect our effective tax rate for Q4 to be in line with the year to date rate of 25.3%. I'll now turn it over to John Cheigh, who will discuss our investment performance.
John Cheigh: He, thank you, Russia and good morning.
John Cheigh: Today I'd like to cover three topics, our performance scorecard, the investment environment for the quarter, and finally our outlook for infrastructure, and how we believe our listed infrastructure strategy is positioned to capture share of a growing market.
John Cheigh: Beginning with our performance scorecard, the third quarter marked a major turning point across most of our markets.
John Cheigh: Many of our asset classes saw double-digit returns in the quarter, aided by three drivers I mentioned on the last call, attractive valuations, clarity on fed rate cuts, and severe under ownership of our asset classes.
John Cheigh: From a relative performance perspective, the third quarter saw 39% of our AUM, I'll perform with Spanish Mark.
John Cheigh: While our out-performance metrics were touched softer over the last few months, we don't manage for the short term.
John Cheigh: On a one year basis, 96% of our AUM is outperforming the benchmark while our 3, 5 and 10 year outperforming stands at 97%, 97% and 99% respectively.
John Cheigh: Our one-year and three-year access returns of 394 basis coins and 192 basis points respectively are at or above our targets.
John Cheigh: In particular, out highlight our global listed infrastructure performance, which is up 520 basis points versus its benchmark over the last 12 months.
Speaker Change: Congratulations to that investment team, life by then more than.
Speaker Change: The 95% of our open-end fund AUM is rated 4 or 5 star by morning star, which is slightly up from 94% last quarter.
Speaker Change: In short, we have strongly delivered both the Alpha and the Beta for our investors over the last 12 months.
Speaker Change: Transitioning to Investment Martin Conditions, I say as I stated a moment ago.
Speaker Change: Sentiment in the quarter shifted in favor of listed real assets as a group led by real estate and global infrastructure, which outperform the broader equity market by a wide margin.
Speaker Change: For example, U.S. Reads rose by nearly 17% in the quarter, while global listed infrastructure rose by more than 13%.
Speaker Change: Referred securities was up 5.6% by comparison US equis rose, 5.9% and MSCI world was up about 6.5%.
Speaker Change: Amid, easing inflationary pressures in cooling labor market conditions alongside already tight policy, fed cut it's benchmark rate by 50 basis points in September.
Speaker Change: Well, also suggesting excuse me, a steady path of additional cuts, you're 2025.
Speaker Change: While Rate Marcus liked we got two doves a month or so ago, the general trend of lower rates auger's well for continued improvements in sentiment and performance for listed real assets.
Speaker Change: This important shift adds to the already sound earnings growth for listed real asset companies that we anticipate with a remainder of 2024 and 2025.
Speaker Change: Also worth noting, is that despite REIT's significant outperformance in the quarter, they remain a tractively valued compared with stocks on a historical multiple basis.
Speaker Change: Private Real Estate Meanwhile, as measured by the preliminary results for the NACREV Odyssey index, had a total return of 0.25% for the quarter.
Speaker Change: In which while modest marks the first positive quarter in two years, and is consistent with the lead lag relationship with listed real estate, which bottomed one year ago.
Speaker Change: Peak to trough the indexes down 18.6% over the last two years while US reads rough 32 and a half percent in the same time frame.
Speaker Change: On the private side of our business, we remain focused on taking advantage of reprised real estate, particularly shopping centers, where we see attractive cash yields coupled with underappreciated future growth prospects.
Speaker Change: As I just mentioned, listed infrastructure also handling out-performs equities in the court. A start of a new break-cutting cycle supported more interest rate census stocks in the communications and electric utility sectors. Additionally, investors continue to evaluate the implications of increased power demand.
Speaker Change: and began to price some of this into the share valuations for some utilities, natural gas producers and pipeline owners, and independent power producers.
Speaker Change: Turning to fixed income, preferred securities had a solid gain amid the decline in bond yields. Returns in preferred's outperformed high yield bonds, but modestly trailed investment grade bonds and tenure treasuries.
Speaker Change: However, preferred remains the top performing 16-come category year-to-date.
Speaker Change: Notably, the technical backdrop for a preferred remained positive, amid limited, net-need supply in an environment of strong demand for quality income.
Speaker Change: As a rate-cutting cycle unfolds, lower yields on money market funds and short-term bonds may lessen the appeal of quote-unquote safe havens, and result in investor demand for hiring solutions such as preferred securities.
Speaker Change: Turning to the topic of listed infrastructure, I'd like to discuss our optimism on three levels. First, on infrastructure as an asset class. Second, for listed infrastructure in particular, and last, for CNS's investment strategy in our ability to take share of a growing market.
Speaker Change: First, to reiterate the investment case for infrastructure.
Speaker Change: The ownership of a central assets has in the past and in our view will continue to deliver very attractive, less economically sensitive and more inflation resistant total returns.
Speaker Change: This investment profile on further support in the economic trends of decarbonization, digitization, legalization, and I'll add another detail.
Speaker Change: The world has significant infrastructure investment requirements and sovereigns have too much debt to adequately address these needs.
Speaker Change: Infrastructure Companies, both listed and private, will have significant investment opportunities to deliver new projects and expansions that are attractive for both investors and the public sector.
Speaker Change: Second, listed versus private infrastructure. Historically, private infrastructure has not delivered meaningful illiquity return premiums relative to listed.
Speaker Change: This statement is surprising to investors because they have observed that such a premium has existed in areas like corporate private equity, venture capital and private debt.
Speaker Change: In contrast to the long term tight correlation of listed in private over the last two and a half years, private infrastructure, as measured by the Burgess private IQ data, has returned more than listed as of the last reported date.
Speaker Change: Our high conviction view is that this anomaly will normalize just as the disconnect between listed and private real estate has normalized dramatically the last two years.
Speaker Change: From today's valuation starting point, we believe listed in for structure will have more compelling returns versus private.
Speaker Change: Additionally, listed gives investors greater access to areas like core digital infrastructure, dominant marine ports, and utilities.
Speaker Change: Without sacrificing liquidity or experiencing a J-curve of returns, comment in private.
Speaker Change: We also believe that society's essential assets are best owned by transparent listed companies with governance that is subject to the discipline of public market standards.
Speaker Change: Finally, while we expect the overall infrastructure and listed infrastructure markets to grow, we also expect that our significant and deep team and compelling short and long-term track record will help us to win more than our fair share over time. Just as we have done, within listed real estate.
Speaker Change: Already, we are seeing takeaway opportunities from our competitors who haven't delivered returns relative to what our team has produced over 20-year track record.
Speaker Change: Paul for the last 12 months. Our global infrastructure funds has returned 33.3%. Beating its benchmark by almost 5% is points and handily beating private infrastructure and the vast majority of our peers.
Speaker Change: We were made very excited about what's unfolding within infrastructure and specifically our opportunities to deliver for both our existing and new investors.
Speaker Change: With that, let me turn it to our CEO Joe Harvey.
Joe Harvey: Thank you, John and good morning. I'd like to formally welcome Rajah as Chief Financial Officer to his first Cohen-the-Siers earnings call.
Joe Harvey: Today, I will review our key metrics and business trends for the third quarter, and talk about our initiatives for future growth.
Joe Harvey: The third core marked a major turning point in the market and business cycles for many of our asset classes.
Joe Harvey: This manifested in both appreciation and net inflows for us in the quarter.
Joe Harvey: Our relative up-performance batting average in the quarter was moderate, it can happen when oversold out-of-favoris socks or sectors lead turning point rallies such as this.
Joe Harvey: For our clients portfolios and our AUM, we'll take the beta and appreciation over the alpha for the quarter.
Speaker Change: John laid out our one year and longer period in investment performance remains stellar and it's at the top of our corporate priorities.
Speaker Change: This is why, after two and a half years of headwinds, due to regime change, we now have some tailwinds brewing and feel good about our positioning.
Speaker Change: Our relative performance is strong. The return cycle has turned broadly positive for what we do. Business activity is up, our fee rates are stable. We continue to enhance distribution, and we have meaningful new initiatives in front of us.
Speaker Change: Two of the more challenging acid allocation dynamics of recent years were the restoration of fixed income allocations in investor portfolios.
Speaker Change: was drove away from lifted allocations.
Speaker Change: and private allocations that were either increasing or inaccessible due to illiquidity.
Speaker Change: We believe we're finally in the late stages of that process.
Speaker Change: There are still $6.4 trillion sitting in U.S. money market funds, realizing a solid, but perhaps fleeting yield, considering the downward trend in rates.
Speaker Change: and on the private side, investors may start to rethink the calculus of opportunity cost, recognizing that overallocation to private constrains the ability to capitalize on the types of opportunities we have seen over the past few years.
Speaker Change: This may seem counter-intuitive in light of the firver over trends such as private credit. But this idea continues to resonate with me, especially in light of the crowding of capital and certain private markets.
Speaker Change: Of course, more listed allocations could benefit us.
Speaker Change: Turning to our key metrics and flows, in the third quarter, we had Firmweide net inflows of 1.3 billion.
Speaker Change: After nine consecutive quarters of outflows, this was our first quarter of firm-wide net inflows since the first quarter of 2022 when the Fed began its series of rate hikes.
Speaker Change: We had net inflows in each major business segment with the exception of defined contribution and Japan's sub-advisory, both of which had modest outflows.
Speaker Change: U.S. Reached Strategies led the way with 1.3 billion in net inflows. By vehicle, open-end funds accounted for 1.2 billion of those inflows.
Speaker Change: Institutional Advisory had 9 million in net out inflows with no account terminations in the quarter. Sub-Advise Reacts Japan had 131 million in net inflows.
Speaker Change: and Sub-Advise and Japan Sub-Advisery had net outflows of 32 million.
Speaker Change: This year today, we've had net inflows in North America and Asia Pacific Extrapand, which includes Australia.
Speaker Change: Our flagship U.S. Reef Fund co-enisters Rilty Shares and its institutional sibling accounted for the lion's share of flows.
Speaker Change: Driving those flows were allocations by a major asset management, multi-strategy allocator, and several independent RIAs.
Speaker Change: These flows were offset by outflows of 221 million from our international real estate fund, primarily from an RAA that reduces waiting in international real estate, which is under-perform US real estate for some time.
Speaker Change: For First Strategy Flows, turned nominally positive after 10 straight quarters of Net Outflows.
Speaker Change: Sub-Advisory Ex Japan was more active in the quarter with inflows of 454 million from two Australia financial institutions through open-ended vehicles.
Speaker Change: We're seeing in general uptickin' activity on Australia. These inflows were partially offset by $192 million outflow.
Speaker Change: Completing a liquidation that began last quarter from a European institution who terminated a U.S. down-to-side allocator.
Speaker Change: Our one unfunded pipeline was 651 million compared with 1 billion last quarter.
Speaker Change: 617 million of last quarter's pipeline funded and we were awarded 170 million in three new mandates. And they were 51 million in net positive adjustments to what was already in the pipeline.
Speaker Change: The pipeline composition is 53% U.S. real estate, 22% global listed infrastructure, and 19% private real estate.
Speaker Change: We do know of one billion in expected redemption pending from advisory and sub-advisory clients that will likely be split roughly half in the fourth quarter and half in the first quarter of 2025.
Speaker Change: About one-third of the changes are eliminations of US reads and listed infrastructure from strategic allocations.
Speaker Change: The remainder are sub-advisory mandates where the vehicles have competitive pressures due to the investment architecture for multi-strategy vehicles or from fee pressures.
Speaker Change: Thinking about the state of the industry, over many years, asset management has been a high margin, innovative, industrious, and accordingly a very competitive business.
Speaker Change: Even now, these dynamic and innovative forces drive the industry's continuing evolution.
Speaker Change: Key areas of strategic change today include the migration of investment advisors from wirehouses to independent and enterprise RIA firms.
Speaker Change: Schiff's and vehicle preferences to ETS.
Speaker Change: The integration of insurance companies and their portfolios with private equity and the adoption of private strategies in the wealth channel.
Speaker Change: So, what are we doing to adapt to capitalize on the strategic shifts?
Speaker Change: First, and on the leading edge for several of these trends, beginning this fourth quarter, we re-aligned our US wealth distribution team to engage with advisors in a cross-channel capacity nationally.
Speaker Change: This is a move that aligns with RIAs having a highest growth rate in AUM.
Speaker Change: Accordingly, we want to enhance our outstanding wealth market position that we have built over 30 years.
Speaker Change: Each of our advisor consultants will cover our clients and prospects regardless of whether they affiliate with a broker dealer or running an independent IA or some combination thereof.
Speaker Change: In addition, we have created a group to focus exclusively on the larger star arrays who allocate using an endowment model approach.
Speaker Change: Possessed dedicated due diligence and asset allocation capabilities and have increasingly demonstrated a proclivity toward private markets.
Speaker Change: These firms also value active strategies where there are persistent sources of alpha, and they're willing to allocate fee and risk budgets accordingly.
Speaker Change: We believe our new sales structure will both drive our core business as well as open new relationships with the fastest growing, wealth advisory teams in the industry.
Speaker Change: In addition, considering the criticality of the RAA channel for launching new strategies,
Speaker Change: We expect to facilitate the launch of our first Active ETFs planned for early next year and include U.S. Reads, Global Proverbs, and our Natural Resource Equity Strategies.
Speaker Change: Further, with respect to our non-traded REIT, the second phase of our capital raising strategy post the seed capital round has commenced with RIAs.
Speaker Change: John talked about the positioning of our global listed infrastructure strategy, which has 9.5 billion in AUM.
Speaker Change: We're seeing early signs of increasing allocations to infrastructure in more channels.
Speaker Change: The timing couldn't be better as our performance ranks highly among our peers.
Speaker Change: The significant growth in private allocations is pretty well known.
Speaker Change: And we believe future investment opportunities will be abundant due to the under-investment infrastructure, as well as the emergence of new opportunities such as digital infrastructure, AI, and the associated demands for power.
Speaker Change: We believe that just like in real estate, better portfolios can be built and infrastructure across both listed and private markets based on the complementary nature and varying return cycles of the sub sectors.
Speaker Change: In institutional advisory, we are working on both new allocations and takeaways from underperforming managers.
Speaker Change: Turning to our real estate franchise, we are excited about the timing of the cycle, as listed as experiencing a new return cycle, and we believe the private market is well into its price-trouffing process.
Speaker Change: As we discussed on our last several calls, we are deploying our seed capital in our non-traded breed, focusing on open air shopping centers, both rotary anchored and certain power centers.
Speaker Change: From its initial real property acquisition in January, through September, Coenice Sears income opportunities read has been a top-performing, non-traded read with a total return of 8.3% for class I shares.
Speaker Change: By comparison, the return on the widely used core property index, Nate Creep Odyssey was negative 2.6% for the 9 months through September.
Speaker Change: Return drivers include our shopping center strategy, as well as Alpha from our listed read sleeve. Both of these strategy elements are differentiating factors for our non-traded read and demonstrate using listed and private together.
Speaker Change: We continue to work on developing advisory strategies and other vehicles to provide our listed private expertise to our clients.
Speaker Change: We are excited about the investment environment for both our strategies and growth initiatives.
Speaker Change: I'd like to thank all of our employees for persevering through the regime change and preparing for our next phase of growth.
Speaker Change: We look forward to reporting our fourth quarter and full year 2024 results in January. At this point, I'll turn the call back to Julie Ann, who will facilitate a Q&A session.
Speaker Change: Thank you, as a reminder to ask a question, please press star, follow by the number one on your telephone keypad. To withdraw any questions, please press star one again.
Speaker Change: Our first question comes from John Dunn from Evercore, ISI, he's going ahead your line is open.
John Dunn: Hi, it seems like money is flowing into your higher fee areas. Can you maybe talk about how you expect the fee rate and incremental margins to be for the new business that's coming online?
John Dunn: Yeah.
Speaker Change: So thanks for the question. Yes, as you properly noted, the inflows are going into certain of the open-ended funds which tend to be the higher fee. And so we'll just have to see how that develops over time and in terms of...
Speaker Change: Plus being pleased with that flow we definitely are and then as Joe talked about in terms of CNS read, we're seeing the momentum there in terms of the returns and how that's presenting itself as compared to the index.
Speaker Change: John, if you look at our average fee rates over the past three years or so, they've been very consistent.
Speaker Change: and over that time period that I've been puts in takes in terms of
Speaker Change: The so-called makeshift between our different vehicles.
Speaker Change: Most Importantly.
John: are a strong investment performance, puts us in a very good position to compete for institutional advisory business with attractive fees, fees that we've been accustomed to. We can't necessarily control where money's flow, whether it's into our open and funds or into institutional advisory, but I think the track record of stable fees is a long one and when we think we'll persist.
Speaker Change: Got it. And then you mentioned, you know, your two newer focuses over the next couple of years are active ETFs and private real estate. You know, it's likely to be two competitive spaces. Look, how do you approach developing them? And what do you think, you know, it actually takes to be successful in those two areas?
Speaker Change: Well, investors now want to invest in vehicles that they prefer, and the flows to ETF, or start the validate, you know.
Speaker Change: that in active for ETFs. So, we're going to lead with our core strategies, one in real estate and one in preferred.
Speaker Change: and so it will help us reach investors who have shifted their preferences to that vehicle. But we want to be able to offer to the most segments of the market, our strategy. So we've been bringing on that.
Speaker Change: The various talent that will help us.
Speaker Change: with the launch of ACTIVTS in terms of capital markets and sales and our new head of wealth has a good track record from his prior firms of launching in ACTIVTF strategy. So that's...
Speaker Change: Some of the elements to the active ETF part of it, and in terms of the private real estate,
Speaker Change: areayou know are noton trade to read as a is
Speaker Change: One of the things we're most excited about, and as I talked about, we believe one of the differentiating factors, A is the property sector that we're focused on initially, which we think is.
Speaker Change: Barry Miss Price.
Speaker Change: and we can go into the details behind that, but the other factor is how we're using listed to complement the private allocation which has not really been done to the extent that it should be. In other words, other non-trade read managers think about having a sleeve to provide liquidity and invest in CNBS or other fixed income, but we use our active ...
Speaker Change: Listed real estate team to compliment...
Speaker Change: What we're doing on the private side of Portfolio and...
Speaker Change: So far, it's worked extremely well because the Alpha that our list of teams has added to sheer as spectacular.
Speaker Change: Thanks very much.
Speaker Change: As a reminder to ask a question, please press star, follow by the number one on your telephone keypad.
Speaker Change: Our next question comes from Ben Rubin from UBS. Please go ahead and rewind it open.
Speaker Change: Hi, good morning. Thank you for taking my questions.
Ben Rubin: Last quarter, net flows into your US real estate strategies where the strongest and recent years as you pointed out, and it sounds like some of those past headwinds are shifting now towards tailwinds. And that said, could you just provide any additional color or drill down on the nature of last quarter's inflows? You mentioned in your private remarks a big win from a large asset allocator, so with the flows last quarter more broad-based, or they driven by just a few lump beer mandates. And then secondly, have you seen that same level of engagement sustained quarter to date, either in the form of client RFPs or flows? Thanks for taking my questions.
Speaker Change: Well, you make a good observation on the third quarter of flows. We did have a one very large allocator who we've worked with historically and has been very disciplined about how to allocate throughout the cycle. So I guess the foundation is that we feel good about, you know.
Speaker Change: You know, investors such as that starting to allocate.
Speaker Change: because they tend to be the leading edge on the leading edge of the turns and the cycles. While that is counted in our wealth flows, I consider it to be more like an institutional type allocation. So we think that the wealth...
Speaker Change: You know, channel is still early days in terms of, you know, coming back into our asset classes, so that the flows are more concentrated in the quarter and, you know, if history is any, you know, guide that, you know, those would tend to broaden out in the wealth channel as the cycle progresses.
Speaker Change: Let me see what this...
Speaker Change: Could you repeat the second part of the question I'm sorry. P.F. of course, thanks for answering the first part. The second part was about the level of engagement you're seeing in court today. Are you seeing a sustained momentum, either in the form of RFP's or flows, or has the pace moderated from some time.
Speaker Change: Well, we're not going to discuss the October flow, you know, we'll report those in the first week of November, but as it relates to, you know, just overall business activity, it's ticked up.
Speaker Change: and you know it's across the board and so that's very encouraging.
Speaker Change: This is John, the only thing I'd add is
John: I actually think our activity has been strong all year over the last 12 months.
John: But people didn't necessarily feel like there was a catalyst if you will or urgency, because, again, for a while, whether it was on the institutional side or the outside, they were dealing with other issues, whether it was illiquidity in a private portfolio or...
John: There have been some changes going with managers in fixing come-world so it just wasn't a priority and I think what we're seeing is the same level of activity or more But maybe at the margin a little bit more a little bit of a greater sense of
Speaker Change: U.S. Reets and other asset classes have lagged U.S. equities.
Speaker Change: Maybe they missed it a little bit for a quarter, but some expectation that it's not a one-quarter allocation. It's how do we think these ask classes will do over the next three, five, seven years?
Speaker Change: You know, some of the moves we've seen from these allocators, generally they're going from zero weights to market weights. So there's some exposure in their portfolios.
Speaker Change: God, thanks for having some of my questions. My second one is on margin specifically.
Speaker Change: So you're operating margins last quarter showed some nice improvement, but if I'm looking at 20, 24 versus the first nine months of last year, your margins are actually lowered despite some market tailwinds. So as I'm thinking about the pace of margin expansion the next year, what will be the primary drivers and additionally how flexible do you see your expense space today that will allow you to expand margins off this base. Thank you.
Unknown Executive: Well, let me start, and then Roger can perhaps fill in. So last year, I would say that one of the biggest factors, well, two factors that affect our margins. One is depreciation in our, you know, asset classes, you know, that starting the prior year and that flowing through the results this year, but then the second is building our private real estate investment capabilities and, you know, we've, not, not had a lot of, you know, fee-paying assets that have, you know, started to hit our, our A-E-E-Lem and revenues.
Speaker Change: Let me start and then Roger can pass fill in.
Speaker Change: When...
Speaker Change: Last year I would say that one of the biggest factors, well, two factors that affect our margins, one is depreciation in our asset classes.
Speaker Change: You know, that starting the prior year and that flowing through the results this year, but then the second is building our private real estate and investment capabilities and we've.
Speaker Change: We've not had a lot of, you know, fee-paying assets that have, you know,
Unknown Executive: So, as we go forward and, and, you know, assuming the appreciation holds and that starts to flow through our average A-E-E-Lem, that would be the largest factor that will help our margins. But then, as we start to, you know, raise A-E-Lem in our private real estate business, that will then start to offset the expense load that is in our cost structure for the private real estate team.
Speaker Change: You know, start to hit our A-U-M and Revenants. So as we go forward and you know,
Speaker Change: Assuming the appreciation holds, and that starts to flow through our average AUM, that would be the largest factor that will help our margins. But then as we start to raise AUM in our private real estate business, that will then start to offset the expense load that is in our cost structure for the private real estate team.
Unknown Executive: Great. And if I could just squeeze one more in, as you mentioned in your prepared remarks, the reality cash and securities continue to build last quarter. I know you're holding more liquidity than this time last year.
Speaker Change: Thank you for watching!
Speaker Change: Great, and if I could just squeeze one more in. As you mentioned in your prepared remarks, the balance, balance sheet cash and securities continue to build last quarter. And now you're holding more liquidity than this time last year. So I know you aren't in the market buying shares, so I'm just curious if your capital return framework or your priorities will shift as we enter a macro backdrop, which would be more conducive to flows and thus earnings growth. Thank you.
Unknown Executive: So I know you aren't in the market buying shares, so I'm just curious if your capital return framework or your priorities will shift as we enter a, you know, a macro backdrop, which would be more conducive to flows and thus earnings growth.
Unknown Executive: Thank you. Sure.
Unknown Executive: Well, that's always a dynamic question, but I think that, or analysis, I should say. But let's start with the foundation. We believe in maintaining a very strong balance sheet, and that's due to the nature of investing in liquid markets, and there are, our most important revenue drivers completely out of our control. And, and just to, also, you know, further paint the picture last year when we, you know, had depreciation or asset classes, we arranged a line of credit to, you know, give us additional firepower.
Speaker Change: Sure, well that's always a dynamic question, but I think that our analysis, I should say, but let's start with the foundation. We believe in maintaining a very strong balance sheet, and that's due to the nature of investing in liquid markets, and there are most important revenue drivers completely out of our control. And just to also further paint the picture last year when we...
Speaker Change: You know, had the appreciation or asset classes, we arranged a line of credit to, you know, give us additional firepower.
Unknown Executive: And one of the things that has, has changed in our business with, with the launching private strategies is that it requires more co-investment with, with these vehicles, and, and so the business become a little bit more capital intensive. But as we sit today with the appreciation in our assets, we're in a very strong position as it relates to our cash flow profile, improving. Also, remember that earlier this year, opportunistically, as when the stock was added to the S&P 600 Small Cap Index, we did an inclusion trade to raise some more capital. So, you combine those factors that we've got to extraordinarily strong balance sheet right now.
Speaker Change: and one of the things that has changed in our business with launching private strategies is that it requires more co-investment.
Speaker Change: with these vehicles, and so the business become a little bit more capital intensive.
Speaker Change: but as we sit today with appreciation in our assets.
Speaker Change: We're in a very strong position as it relates to our cash flow profile improving. Also remember that earlier this year, opportunistically when the stock was added to the S&P 600 small cap index, we did an inclusion trade to raise some more capital. So you combine those factors that we've got an extraordinarily strong balance sheet right now. In terms of
Unknown Executive: And, in terms of, you know, uses of capital, we think about our seed strategies and needs there. And, in terms of the core business, I'd say we're, we're steady state. In other words, every time we launch something new, we tend to harvest something else. You know, the private co-investments are, you know, kind of steady state. And then we'd like to just make sure we have enough capital for anything that could be opportunistic.
Speaker Change: You know, uses of capital, we think about our seed strategies and needs there, in terms of the core business, I'd say we're steady state in other words, every time we launch something new, we tend to harvest something else, you know, the private co-investments are, you know,
Speaker Change: You know, kind of steady state, and then we'd like to just make sure we have enough capital for anything that could be opportunistic. When you look at our dividend policy,
Unknown Executive: When you look at our dividend policy and look at our record on Bloomberg, you can see that we've tended to address our quarterly dividend in the first quarter, and our strategy there is to have a very predictable and growing quarterly dividend. And then, over the years, you know, we've paid special dividends, and you know, once we go through the analysis of what all of our needs are, the last special that we paid wasn't in 2021. And of course, that was the pandemic period and also the period when we started making the private investments. So hopefully that provides some context, but just all end by saying that our balance sheet is very strong, and with the markets where they are right now, our cash flow profile is also improving accordingly.
Speaker Change: Look at our record on Bloomberg, you can see that we've tended to address our quarterly dividend in the first quarter and our strategy there is to have a very predictable and growing quarterly dividend. And then over the years, we've...
Speaker Change: Page Special dividends and once we go through that.
Speaker Change: Analysis of what all of our needs are. The last special that we paid was in 2021. And of course, that was the pandemic period and also the period when we started making the private investments. So hopefully that provides some context.
Speaker Change: just to all end by saying that our balance sheet is very strong and with.
Speaker Change: The markets where they are right now, our cash flow profile is also improving.
Unknown Executive: Understood.
Unknown Executive: Thank you for taking my questions.
Speaker Change: Accordingly.
Speaker Change: Understood, thank you for taking my questions.
Unknown Executive: We have no further questions in queue.
Joseph Harvey: I'd like to turn the call back over to Joe Harvey for closing remarks. Well, again, thanks everyone for joining, and we look forward to talking to you next quarter.
Speaker Change: We have no further questions in cue. I'd like to turn the call back over to Joe Harvey for closing our marks.
Unknown Executive: Thank you, Julianne, for moderating the call.
Joe Harvey: Well, again, thanks everyone for joining and we look forward to talking to you next quarter. Thank you, Julianne, for moderating the call.
Unknown Executive: This concludes today's conference call. Thank you for your participation.
Unknown Executive: You may now disconnect. Thank you.
Speaker Change: This concludes today's conference call. Thank you for your participation. You may now disconnect.