Ladies and gentlemen, thank you for standing by, and welcome to the Cohen & Steers Second Quarter 2018 Earnings Conference Call. During the presentation, all participants will be in a listen-only mode. Afterwards we'll conduct a question-and-answer session. [Operator Instructions] As a reminder, this conference is being recorded Thursday, July 19, 2018. I would now like to turn the conference over to Danielle Brown, Vice President and Associate Counsel of Cohen & Steers. Please go ahead.

Thank you and welcome to the Cohen & Steers second quarter 2018 earnings conference call. Joining me are Chief Executive Officer, Bob Steers; our President, Joseph Harvey; and our Chief Financial Officer, Matt Stadler. I want to remind you that some of our comments and answers to your questions may include forward-looking statements. We believe these statements are reasonable based on information currently available to us. But actual outcomes could differ materially due to a number of factors including those described in our SEC filings. We assume no duty to update any forward-looking statements. Also, our presentation contains non-GAAP financial measures that we believe are meaningful and evaluating our performance. These non-GAAP financial measures should be read in conjunction with our GAAP results. A reconciliation of these non-GAAP financial measures is included in the earnings release and presentation. The earnings release and presentation as those linked to our SEC filings are available on our website. With that, I'll turn the call over to Matt.

Thanks Danielle, and good morning, everyone. Thanks for joining us today. My remarks this morning will focus on our as adjusted results. A reconciliation of GAAP to as adjusted results can be found on Pages 17 and 18 of the earnings release or on Slide 16 and 17 of the earnings presentation. Yesterday, we reported earnings of $0.59 per share compared with $0.50 in the prior year's quarter and $0.62 sequentially. This quarter's results included a $0.02 per share accumulative adjustment to increase the year-to-date compensation to revenue ration to 33.75%. Revenue was $94.2 million for the quarter compared with $92.6 million in the prior year’s quarter and $94.4 million sequentially. The decrease in revenue from the first quarter was primarily due to a lower effective fee rate resulting from a change in asset mix as lower average assets under management will basically offset by one more day in the quarter. Average assets under management for the quarter were $58.7 billion compared with $59.7 billion in the prior year’s quarter and $59.2 billion sequentially. Operating income was $36.4 million for the quarter compared with $37.4 million in the prior year's quarter and $38.3 million sequentially. Our operating margin decreased to 38.7% from 40.6% last quarter, primarily due to higher compensation and benefits and G&A compared to revenue. Expenses increased 2.9% on a sequential basis, primarily due to higher compensation and benefits and G&A, partially offset by a decrease in distribution and service fees. The compensation to revenue ratio which included accumulated adjustment increase incentive compensation was 34.5% for the quarter, previous guidance was 33%. We have managed to an annual 33% compensation to revenue ratio since 2014 and have been add for below that target since 2012. The decision to raise the guidance to 33.75% was based upon strategic not…

Thanks, Matt and good morning everyone. We are enhancing our earnings call by adding a specific section on investments, but the goal of sharing perspectives on asset class performance, our relative performance and initiatives in our investment department. The second quarter was a good quarter for absolute performance but a tough quarter for our relative performance with just three of our ten core strategies out performing. For the latest 12 months, performance remain strong with 10 – with 7 out of 10 strategies outperforming. Measured by AUM, 96% of our strategy are outperforming over the last 12 months and 93% are outperforming for the past three years. Looking at Morningstar ratings for open-end funds, 85% of our AUM is rated 4 or 5 stars. Macroeconomic trends shifted in the quarter influencing our short term performance as the rising interest rates cycle in the U.S. continued and investors began to discount its impact on economic growth. 10-year treasury yields rose from 2.7% to 3.1% inter quarter then settled out at 2.9%. Bond markets with the exception of high yield had negative returns. Concerns about slowing global growth and now trade wars have made U.S. growth stand out. While the Federal Reserve continues to tighten monetary policy, the European Central Bank continues to be dovish. Consequently, the dollar rose 5%. Another key market for several of our real asset strategy is oil, which grows 14% in the quarter. To generalize about our performance, our portfolios have been positioned pro-cyclically. Moderating growth expectations have caused lagging sectors primarily interest rate sensitive sectors where we’ve been underweight to have a nice bounce. We’re making some but not wholesale adjustments to our portfolios and are confident that our teams and processes will guide us to long term outperformance. We continue to execute a performance enhancement…

Thanks, Joe. With Joe’s market commentary as the backdrop, I’d like to comment on the recent results and outlook for our key strategies and markets. In a nutshell extreme uncertainty and sentiment chefs’ beginning in the first quarter was a major change in the mix of fund flows which in turn highlighted the importance of having complimentary strategies and diverse markets. As Joe said earlier this year, U.S. real estate and preferred security strategies saw market declines that resulted in net outflows in the wealth channel. In addition, is U.S. REIT share price declines will compound it by a weak dollar making it difficult to reverse the outflows from our Japanese sub advisory relationships. At the outset of the second quarter, retail market sentiment remained negative towards U.S. REIT and preferred securities strategies and outflows stayed elevated. Concurrently, inflows into our non-U.S. strategies such as global real estate made up for a portion of these outflows. In addition, as investors who were concerned about rising interest rates sold out of long duration strategies we benefit from record inflows into our low duration preferred fund which we launch less than three years ago. The point here is that early in the year as market preferences abruptly shifted away from U.S. REITs and preferred securities. We were positioned to successfully offer investors the right alternative solutions. Turning from individual strategies to markets and channels here to we’re seeing positive momentum and the benefits of expanded breath. The green shoots in Europe which we spoke about in the first quarter have grown into meaningful flows in the second quarter further diversifying our sources of asset growth for both the advisory and wealth management businesses. Also in the quarter, Japan sub advisory showed good improvement and it’s potentially approaching an inflection point. As has…

Thank you very much. [Operator Instructions] One moment please for our first question which comes from the line of John Dunn with Evercore ISI. Your line is open. Please go ahead.

Hi, guys. You haven’t really been an active in the strategic fee cut front. But can you talk about what you’re seeing at an industry and maybe some of things that might enable you to hold the line on pricing?

Sure, John. It’s hard to generalize I think some competitors are being more active and right sizing their fees and expense, caps and so I think from our standpoint, I think our fees are pretty much where we’d like them to be which is add are actually below the midpoint of the range from our most important direct competitors. In fact, one of the most as we alluded to one of the most exciting aspect during opportunities that we see is in the midstream energy space where the fundamentals and that area as Joe said are improving rapidly and we have among that not the best performing fund in the sector. We also recently reduced our expense cap and fees they are so having the best performance and the lowest cost product is one of the reasons why we’re very optimistic about asset gathering there. Obviously we’re most aggressive and managing our fees in strategies like this where we have a relatively low asset base but very exciting asset gathering prospects.

Got you. And then just a quickie specifically on the sub advisory extra pan channel, what do you think the main drivers are going to be for that channel strategy wise, client type wise or geography wise?

It’s pretty diverse, candidly the sub advisory relationships as I said our U.S. and non-U.S. based very they range cross number of strategies I would say the commodity strategy is really the only strategy or product where we felt vulnerable and we were so I think going forward, I would expect pretty nonvolatile flows from that sector.

We do see some opportunities in sub advisory in our core strategies where competitive managers have underperformed and the advisors are looking to improve their lineups and so we think there are some takeaway activity in sub advisory for things like our reach strategies mostly but both global and U.S.

Got it. Thanks

Our next question comes from the line of Ari Ghosh with Credit Suisse. Your line is open. Please go ahead.

Hey, good morning, everyone.

Good morning.

So quiet the macro volatility in Europe it sounds like you guys just increase from flows from the region. So just curious if you give us an update on our European business totally AUM headcount, net flow contribution are you continuing to add headcount in this region, do you view it as like one of your growth sectors and then just finally on the pipeline the 535. How much of that is from Europe and U.K.?

I’ll try to address a couple of the latter questions. As you suggested the activity in both in the wealth and the advisory channel in the U.K. and Europe in the Middle East is has grown significantly mainly because we’ve committed significant resources to the region. We don’t currently plan to add any additional headcount to the business development team. And I would say all the deferred to made on how much of the pipeline is derived from Europe. But I would say that, in addition to the pipeline, there are at least 200 million of opportunities that are not in the pipeline that because they’re not far enough along that we’re pursuing. So the opportunity is significant and we fully expect that the combination of wealth and the advisory channels over there will play an increasingly important role in our total asset growth. So Ari, in terms of our pipeline, there isn’t anything from Europe. But in terms of what’s after that finals that we are bought with there are several European mandates in that category and on our team tells us there’s continued interest in places like the Middle East which is something that we have not seen historically for with the listed markets we in the Middle East they’re big buyers of private assets and real estate and infrastructure but so it’s encouraging to see interest in the listed market another place we’ve mentioned is Germany which historically we’ve not seen a lot of interest are listed because of the very strong preference or private real estate but we’re seeing more activity there. So we’re primarily driven by the team that we have in our strong performance and we expect to be more active in Europe.

Got it. Appreciate all that color. And then just real quick I think you mentioned on the core non Com longer term guide maybe a range of 3% to 5%. I think that is a bit wider than you previously mentioned so just curious if what one of the initiatives in there that could maybe swing that core non Com rate from closer to 3% to the 4% to 5% range?

What that ranges excluding the three items that I called out that there’s really no wiggle room on and I think the majority of what’s left over is really just business related it’s travel and it’s conferences and I’m not sure that is really a lot of leverage and in that between now we’re at the end of July almost up to the bulk of the year these conferences are committed to and invested in upfront. So we’ve got these commitments we have to see through.

Got it.

Our next question comes from the line of Yian Dai with KBW. Your line is open. Please go ahead.

Hi, good morning. Thanks for taking my questions. I wanted to start with the open-end channel. So it does feel like overall if we look at this year versus last year, retail recommend [ph] bit more cautious we’re seeing some lower growth inflows some slightly elevated out flows, if I guess I’m curious that your perspective on the second half of this year. Are you seeing any change to some of that retail sentiment should we be expecting any meaningfully different trends heading into the next quarter and into the second half?

It’s a great question. We’re actually not seeing a diminution of investor interest our growth flows are actually in the range of record highs as we spoke about in the first quarter primarily as a results of the flight from duration and the strong negative returns from U.S. REITs. Offsetting those relatively high inflows were very high level of outflows and what we were very pleased about as we traveled through the second quarter was that our outflows remain our inflows remain elevated but had dropped dramatically shifted from our traditional sources of U.S. REITs and preferred securities to low duration and global real estate in a few others. In addition, as U.S. REITs rebounded strongly, outflows there diminished somewhat. So going forward, obviously flows will be influenced substantially about the sentiment in the well channel on interest rates and continued strong performance the U.S. REITs and so far this quarter they’ve registered a solid 3% or so positive return. To us what’s important is I think we demonstrated that even in a higher rate environment where retail choice are away from REITs, U.S. REITs and preferred securities, we have alternative solutions which have offset that. So we really can’t predict what sentiment going to look like but we think we’re well positioned for either the first quarter type environment or the second quarter.

Okay. Thanks Rob. And…

In addition, I just add because I said we’re pretty excited about the outlook for midstream energy particularly in the wealth channel.

Okay. Appreciate the color. Maybe moving on just to the Japan sub advisory channel, Bob mentioned in his remark the moderation in the growth outflows and I guess I’m curious on the other side, also just the growth in first come down to further so can give us some color on what you’re seeing there? are you see the expecting change to those trends?

Sure. Well growth inflows declined because mainly because the distributors didn’t see the merit and conducting seminars and actively promoting the funds immediately after the distribution cuts. In addition, as I mentioned in the first quarter with both significant absolute declines in U.S. REITs exacerbated by weak dollar again they say they didn’t see any merit and going out promoting these funds, that began to change in the second quarter. And so we’re seeing an increase in marketing activity, we’ve been told that our key distributors intend to ramp that up further going forward for not only because REITs and the dollar have turned around but also because they believe that the regulatory environment towards these types of funds is loosening and becoming more positive. So we anticipate that there will be significantly more marketing activity focused on these funds for the balance of the year.

Okay. Perfect. Thanks. One last one for me actually on the business transaction that you have valuated last quarter and I guess I’m just wondering if there’s been any meaningful shift in your approach towards M&A where there or you’re still actively in the market looking or it really felt like that’s with the closeness that that you’ve got and there’s not really anything else that’s an interesting?

Probably somewhere in between we have we’ve always had a very high bar for transactions especially on cultural and social issues. We’re still very engaged with this REIT and I think in the flow of what’s going on and if something comes along that would enhance our investment, capabilities in a way that is related to our core focus and net assets in the process we would absolutely do that and I would emphasize that the transaction we evaluated which I think we could have executed if we wanted to would have been meaningful, meaningfully a creative, that’s not our first or only criteria.

Okay, very helpful. Thank you for taking my question.

Our next question comes from the line of Greggory Warren with Morningstar. Your line is open. Please go ahead.

Yeah. Good morning. Thanks guys. John sort of touched on my question a little bit earlier with regards to the fees in the open-end channel. But it did I want to sort of step a little bit deeper there. If we think about what’s happened within the industry and the impact was DLO, I mean it seems like with that winding down some that there might not be as much pressure overall and I think you noted that you’re sort of that median below the median price point and more concerned about being where your position relative to peers. But my question is have you seen any sort of active pressure from these platforms? As far as calling goes I mean are they are they talking to you about maybe we don’t have enough invested in these funds or did any sort of pressure on that regard as far as what gets on the platforms and how you positioned?

Yeah that pressure is ongoing, we’re fortunate in that we have few if any funds that are poor performers high fee and/or don’t have significant assets. The only place where we’re seeing that still at least as it affects us is are some of our non-core strategies which is mainly large cap value. Other than that again we are very close to the distributors we know that they’re not letting up and that regard but it largely does not affect us.

So overall you guys are you I mean again when you look at sort of your fund offerings relative to a lot of peers you’re not doing other than sort of the large value or not really in a lot of the areas where we’re seeing a lot of the pressure so I think from that perspective you feel comfortable? I also want to follow-up a little bit on that sort of M&A questions a sort of can general to that. As you look at products that I would imagine that you’re looking for are the things that are either slide right into your core business or that are going to be differentiated, so that you’re not again facing your fee issues or problems, you’re not going to go out and jump and buy a large cap growth or large cap land operation. But I’m wondering if it if there’s been any sort of discussion out there about potentially carving out pieces of businesses from other large shops where they’ve tried to run up REIT operations they tried to run up other stuff, that doesn’t necessary fit haven’t got the focus it’s needed?

So what if I understand your question as relates to REITs I mean that that’s not something that would be on our target list and we feel like we can achieve our growth and the capacity we can manage the organically. So something like that or any other of our strategies where we have a good, very great market position and team and performance where we would want to grow organically. One of the situations of the past couple years we’ve looked at was a team with then a broader asset management group. So in theory, I think that was the other part of the question that that could be a match if there was something that fit our criteria that was not as wanted in a bigger better sharp. So I think it’s important to keep in mind on this topic that when you look at this tragedy have been a potential extensions of those strategies in our smaller real asset classes which are not of scale. There are not a lot of players that vision’s us really well but it means that they’re not a long list of opportunities out there. So on the topic, I think everybody should just risk adjusts for that those dynamics.

Okay. Perfect.

For [indiscernible] mind that the strategies where we already have a high market share which would be REIT strategies, preferred strategies that there’s really no reason for us to consider M&A activity, It shows really on as we expand continuously from our core strategies.

Perfect. Thank you much.

Yeah.

And our next question comes from the line of Michael Carrier with Bank of America. Your line is open. Please go ahead.

Hey, thanks guys. This is Jeff Ambrosi on for Mike. Thanks for taking a question. Just another one just kind of building on that the fee rate, not necessarily in terms of price cut but more like your outlook for market inflows across region strategy and client is there any sort of color or guidance you can give us on the likelihood of the trajectory of your fee rate going forward?

Not really. As you know unless you can tell me what markets are going to do over the next year or two and that will dictate flows at least in the wealth channel. We’re not seeing I think that the institutional channels around the globe are very focused on real estate, infrastructure and income strategies like preferred but also fixed income strategies across the full range a real asset strategies. So I get some disappointed you asked the question because the point of my comments where we’re not sure where rates are going to go, we’re not sure where investor sentiment is going, I think we’ve demonstrated that wherever it goes. We’re prepared and we’re in good position and even in the first quarter where the market through pretty much as much as they could against our best strategies we did well. So we feel pretty good about our positioning.

Okay, got it. And then maybe just one just follow-up on the G&A, I just curious of the three initiatives I guess like which is slows since last quarter that caused the lower the lower guide there?

Well I think we had said on one previous calls that year-over-year. The research costs were about a million dollars. We never really quantified strategic investments so the redistribution but that the research question is the biggest. I think Ari asked there earlier if there’s any potential to move that around a little bit and I think we are constantly revisiting our research providers and looking to take more of that in-house unlikely that between now and the end of this year, we’re going to see a change in that for perhaps going forward we can get more efficiency but you have the overhang of what’s going on in the U.S. there not that said 2019 happening but we all believe it’s kind of inevitable.

Okay, great. Thanks taking the questions.

And there appear to be no further questions on the phone lines at this time. You may continue with your presentation or closing remarks.

Okay. Well thank you all for joining us this morning and we look forward to speaking to you next quarter. Thank you.

Ladies and gentlemen, that does conclude our conference call for today. We thank you for your participation and ask that you please disconnect your lines. Have a great day, everyone.