Cohen & Steers, Inc. (New York) Q3 FY2024 earnings call

• Raja Dakkuri discussed as-adjusted results, noting earnings of $0.77 per share vs $0.68 sequentially, revenue of $133M vs $122M sequentially, operating income of $47.6M vs $42.5M sequentially with operating margin at 35.7%, and AUM at $91.8B. • Jon Cheigh covered investment performance, stating 39% of AUM outperformed benchmarks in Q3, 96% over 1-year, 97% over 3-year, etc. He also discussed the investment case for infrastructure, listed vs private infrastructure, and optimism for listed infrastructure. • Joseph Harvey reviewed key metrics and business trends, noting firm-wide net inflows of $1.3 billion (first since Q1 2022), net inflows in major segments except defined contribution and Japan sub-advisory, pipeline composition, and growth initiatives like realigned wealth distribution team and active ETFs.

Revenue was $133 million compared to $122 million sequentially. The increase in revenue was primarily due to higher average AUM. AUM was $91.8 billion at quarter end, an increase of over $11 billion from the prior quarter, primarily due to market appreciation. US REIT strategies led firm-wide net inflows with $1.3 billion, open-end funds accounted for $1.2 billion of those inflows, institutional advisory had $9 million in net inflows, sub-advisory ex Japan had $131 million in net inflows, and Japan sub-advisory had net-net outflows of $32 million. Revenue contribution: US REIT strategies were a key driver of net inflows.

• Raja expects the compensation ratio to remain at 40.5% for the rest of the year. • G&A is expected to increase 6%-7% for the year compared to 2023, mostly related to investments in technology and infrastructure. • Effective tax rate for Q4 is expected to be in line with the year-to-date rate of 25.3%. • Firm-wide net inflows of $1.3 billion in Q3, with expectations for continued momentum in business activity.

Q: 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?

A: Raja Dakkuri noted inflows into higher fee open-ended funds and Joseph Harvey added that average fee rates have been consistent over the past three years, and the strong investment performance positions the company well to compete for institutional advisory business with attractive fees.

Q: You mentioned your two newer focuses over the next couple of years are active ETFs in private real estate. It is likely to be two competitive spaces. How are you approaching developing them? And what do you think it actually takes to be successful in those two areas?

A: Joseph Harvey said they will lead with core strategies in real estate and preferreds to reach investors shifting preferences to ETFs, bringing on talent for active ETF launches. In private real estate, the non-traded REIT is a focus, using listed to complement private allocation.

Q: Last quarter, net flows into your US real estate strategies were the strongest in recent years. Could you provide additional color on the nature of last quarter's inflows? Were the flows more broad-based? And have you seen sustained momentum quarter-to-date?

A: Joseph Harvey said one large allocator was a key driver, with flows more concentrated in the quarter but expecting broadening as the cycle progresses. Jon Cheigh added activity has been strong all year but people had other priorities, and now there's a greater sense of US REITs and other asset classes being important over the long term.

Q: Your operating margins last quarter showed improvement, but margins are lower in 2024 vs first nine months of last year. What are the primary drivers for margin expansion next year?

A: Joseph Harvey said appreciation holding and private real estate AUM growth will help margins, as well as offsetting expense load from the private real estate team as AUM in that business increases.

Q: The balance sheet cash and securities continue to build. Will your capital return framework or priorities shift with a more conducive macro backdrop?

A: Joseph Harvey stated the company maintains a strong balance sheet, with a focus on steady state for core business, addressing seed strategies, and having a predictable dividend policy, with the balance sheet and cash flow profile improving due to asset appreciation and prior capital raising activities