Ladies and gentlemen, thank you for standing by. Welcome to the Cohen & Steers' Second Quarter 2024 Earnings Conference Call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. [Operator Instructions] As a reminder, this conference call is being recorded Thursday, July 18, 2024. I would now like to turn the conference over to Brian Heller, Senior Vice President and Corporate Counsel of Cohen & Steers. Please go ahead.

Thank you, and welcome to the Cohen & Steers' Second Quarter 2024 Earnings Conference Call. Joining me are Joe Harvey, our Chief Executive Officer; Matt Stadler, our Executive Vice President; and until late June, Chief Financial Officer; Raja Dakkuri, our new Chief Financial Officer; and Jon 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. 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 second quarter earnings release and presentation, our most recent annual report on Form 10-K and our other SEC filings. We assume no duty to update any forward-looking statement. Further, none of our statements constitute an offer to sell or the solicitation of an offer to buy the securities of any fund or other investment vehicles. Our presentation also includes non-GAAP financial measures referred to as-adjusted financial measures, that we believe are meaningful in evaluating our performance. These non-GAAP financial measures should be read in conjunction with our GAAP results. A reconciliation of these non-GAAP financial measures is included in the earnings release and presentation to the 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.

Thank you, Brian. Good morning, everyone. Thanks for joining today. Before we begin the call, I'd like to welcome Raja Dakkuri, our new CFO, who joined us on June 24th. Raja will be reviewing the financial results on our earnings calls going forward. 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 17 and 18 of the earnings release and on Slides 16 through 20 of the earnings presentation. Yesterday, we reported earnings of $0.68 per share compared with $0.70 in the prior year's quarter and $0.70 sequentially. Revenue was $122 million in the quarter compared with $120.3 million in the prior year's quarter and $122.9 million sequentially. The decrease in revenue from the first quarter was primarily due to lower average assets under management. Our effective fee rate was 58 basis points in the second quarter, consistent with our rate in the first quarter. Operating income was $42.5 million in the quarter compared with $43.8 million in the prior year's quarter and $43.7 million sequentially. And our operating margin decreased slightly to 34.9% from 35.5% last quarter. Total expenses were essentially flat when compared with the first quarter as an increase in G&A was partially offset by a decrease in compensation and benefits. The increase in G&A was primarily due to higher recruitment costs as well as an increase in professional fees. And the decrease in compensation and benefits was in line with the sequential decline in revenue as the compensation to revenue ratio for the second quarter remained at 40.5%. Our effective tax rate was 25.4% for the second quarter, consistent with our prior guidance. Page 15 of the earnings presentation sets forth our cash and cash equivalents, corporate investments in US treasuries…

Thank you, Matt, and good morning. Today, I'd like to first cover our performance scorecard and then discuss the investment environment for the quarter, including recent market shifts, which we believe favor our asset classes. Last, I'd like to discuss rising global energy demand and how we are taking advantage of this trend within our investment portfolios and how this should drive investor interest into our strategies. Turning to our performance scorecard. For the second quarter, 96% of our total AUM outperformed its benchmark, maintaining our exceptional performance from the previous quarter. On a one-year basis, 98% of our AUM outperformed its benchmark, while our three, five and 10-year outperformance now stands at 96%, 97% and 99% respectively. From a competitive perspective, 94% of our open-end fund AUM is rated four or five star by Morningstar, which is up modestly from 93% last quarter. Our AUM weighted alpha over the last year has been 270 plus basis points, an acceleration versus our longer-term numbers. Put simply, our short and long-term performance are compelling and we keep getting better. Transitioning to investment market conditions. On one hand, the second quarter was more of the same. Global Equity saw a gain of 2.6% and the market fretted daily over the precise timing and amount of interest rate cuts for 2024 and 2025. Equity momentum during the quarter remained highly concentrated in select large-cap growth stocks, leaving behind the majority of the market, including value, small and mid-cap stocks. Our equity-oriented asset classes all continued to lag cap-weighted indices with US and global REITs and global listed infrastructure all modestly negative for the quarter. Taking a step back, over the last five years, while listed REITs and infrastructure have had periods of outperformance, overall, performance differences versus equities are stark. For example, over…

Thank you, Jon, and good morning. Today, I will review our second quarter key business metrics and trends, then discuss our current positioning and growth initiatives for the future. Our asset classes lagged the stock market in the second quarter. In terms of flows, some of our clients continue to react to broader challenges they are facing related to funding obligations and portfolio reallocation as the regime change in markets continues to play out. As to factors we can control such as investment performance, client education on our asset classes and resource allocation, we are performing well and continue to innovate and invest for the future. I remain optimistic about our positioning. For most of the second quarter, the macroeconomic environment was dominated by the higher for longer expectation for interest rates. The 10-year treasury yield averaged 4.44%. However, after quarter end, we finally saw inflation continuing to ease. The focus has now turned back to the potential for rate cuts later this year with yields on the 10-year treasury declining. If our flow patterns since 2017 are any indication, the onset of this easing cycle, combined with our strong investment performance, could portend a shift in our flows. That is from outflows to the longer-term trend of organic growth. This perspective is supported by our flows over this current interest rate cycle, up until the first Fed rate hike in the second quarter of 2022, which took Fed funds from 25 to 50 basis points. We had experienced 11 straight quarters of net inflows, averaging $2.15 billion per quarter. Since then, as rates increased to 5.5%, we had nine straight quarters of outflows, averaging $745 million per quarter. If the yield curve normalizes at a higher level with less monetary policy extremes, it is possible that our flows and…

Thank you. [Operator Instructions] Our first question comes from John Dunn from Evercore ISI. Please go ahead. Your line is open.

Hi and congratulations, Matt. Maybe just a little more on the wealth management channel for US REITs and preferreds. Are you starting to see those conversations shift? And then also the 15% of redemptions from private markets? Thanks for delineating that. Can you update us on the push and pull of demand for public versus private in the wealth management channel.

Sure. Let me start and maybe Jon can add some things here. Just in terms of the wealth flows this year, if you recall in the first quarter when there was anticipation about rate cuts, we had some very strong months early in the quarter and that included both inflows into REITs as well as preferreds. In the second quarter as the expectations got pushed out, we then saw some redemptions in preferreds. However, we've continued to see inflows into our open-end refunds. Now most of the flows have come from our what we call our institutional version of our core real estate strategy. And so driving those flows have been some important large RIAs, which is a market that we've been targeting. And they've been averaging into this process of REIT starting to signal a new return cycle. So I would expect that, again to the extent that you can have an expectation for flows, they are impossible to predict. But if you go back to my comments about what we've seen over the long-term, if we're entering an easing cycle, I think, that's positive for both of those strategies in the wealth channel. As it relates to the our institutional advisory clients redeeming to fund private investments, taking a step back, the bigger picture is private allocations have been going up in portfolios for some time and that's being turbocharged recently with the love fest with private credit. So as we -- as these asset owners navigate the regime change, they've made commitments to private investments. And so it's -- the money's got to come from somewhere. And they can't get it from private because realizations aren't happening. Fixed income is gaining more share in portfolios. So it's got to come from listed allocation and that's been equities and in some cases are listed asset classes. As it relates to the real estate return cycle, we think that the price correction that we've been looking for in the private markets is about two-thirds of the way complete. And but it's highly variable depending on the property sector. As I mentioned, we've been putting some money to work in the shopping center sector, which hadn't had the cyclical top off that other sectors like apartments or industrial had as interest rates went to new lows and cap rates went to new lows. But we've started to put money to work and we feel that with the signaling that's happened from the REIT market, that's a good indicator of those bottoming process. And if as both Jon and I talked about, we're into a rate cutting cycle that will start to help on the cost of capital for real estate, but there still needs to be adjustments in seller expectations and the marks that they have in their portfolios.

Got it. And then on Japan, could you talk about how NISA actually could be end up being a significant tailwind down the road? And then maybe a little more on this idea of Japan going into renaissance and how you plan to take advantage of that across maybe multiple channel -- distribution channels?

Well, the renaissance stems from the very positive investing related trends that have been happening in Japan, including reflation starting in Japan and getting out of a deflationary environment, improved corporate governance, Warren Buffett blessing the market and global allocators wanting to find a different home rather than China. And so money has been going into Japan. And as I mentioned so far, it's been going into equities, which is not inconsistent with what we've seen here with the leadership of some of the growth related technology companies. So but I think more importantly, if it, if this -- and the regulators have been putting a focus on the investing markets and trying to improve the quality of the investment vehicles that are there and educating investors. So if that as a whole is favorable for investing, we think we'll get our share of portfolio allocations. And our partners, Daiwa, are optimistic about this and they wanted to market our strategies more and we've committed to giving them more sales resources. So it's early days, but we're -- I think a transition in this renaissance context will take some time and we're -- we've been there for 20 years and we think we should get our fair share of that activity.

Thank you.

[Operator Instructions] Our next question comes from Adam Beatty from UBS. Please go ahead. Your line is open.

Hi. Good morning, and congrats to Matt. Fittingly perhaps, I'd like to kick it off with a question about sources and uses of capital. You did have the recent offering. Joe mentioned maybe seeding some funds. So just wondering how else you might deploy that capital and maybe whether or not M&A might be on the table just given some of the valuations around? Also, your stock has done very well. So I was wondering how you might think about maybe issuing some more shares to take advantage of that and then having maybe some dry powder for future initiatives? Thank you.

Yes. Let me start and maybe Matt can add. So, yeah, our stock has done very well and that can be linked to this inflection point on interest rates and a shift as Jon talked about and market leadership for the small cap and value. And so we've seen a nice rally in the stock. As it relates to raising capital, our balance sheet is very strong. We've got plenty of capital. What we did earlier in the year was opportunistic. And with the context being -- our business has become a little bit more capital intensive with the private real estate business, which requires more co-investment than a listed security vehicle would require. And those commitments include $125 million for our non-traded REIT and $50 million for our opportunistic traditional private equity vehicle. So with that as a context and then thinking about launching active ETFs in light of the markets bouncing around, we just thought it would be a good insurance policy to be opportunistic and take advantage of the inclusion trade, which where the stock went up 10% overnight and show up the balance sheet. And right now it's as strong as it's ever been and -- but as it relates to uses of capital, they're going to be primarily organic. And at this time, we don't have any acquisitions in mind as you know. We've been more of an organic growth oriented firm. And right now we have plenty of that opportunity with our private real estate business and with active ETFs.

Got it. Thank you. Yes and point taken on the private coinvest. Just shifting over a little bit to maybe real estate subsectors, Jon talked a lot about energy, obviously, and then Joe mentioned open air shopping centers. On the -- and data centers as well. I'm just wondering about, in the context of a potential regime change here, any concern about growth areas like data centers, maybe being a little bit less robust? And then broadly, how you're thinking about allocating to different real estate subsectors? Thanks.

Sure. I mean, obviously, there's been big performance dispersions in the listed market over the last 12 months for a lot of different reasons. I think to your point, really it's just going to be the fundamental drivers in the data center business, which has driven wholesale rents up meaningfully. It's going to continue to drive wholesale rents up meaningfully over the next few years, mainly because there's a lot of demand and there's an absence of supply because frankly there's just difficulty in sourcing power, which is the necessary ingredient, of course, for data center. So I'm not sure there's going to be a big shift as it relates to some of the fundamental trends that we're seeing. But, of course, there's going to be differences as it relates to the listed market in terms of sector dispersion and things like that. So we've moved our portfolios over time to capitalize on big dispersions and returns, for example, between the tower sector which was a darling, if you will, for many years, but frankly it's been a big laggard over the last few years. So tower REITs for us, we see as a very big opportunity and data centers also continue to be a very big opportunity. So I think there's certainly shifts like that. But most of the dynamic changes that I was referring to more relate to some of the multiple compression and expansion that's happened within the different parts of the market. Large cap has beaten small really across all GICS categories. And the REIT market, when you look at it, has basically had very comparable earnings growth. It's lagged a little bit versus the S& P over the last five years. And that's been surprising to people because I think the USA today view is real estate is bad. It must be an earnings story, but that's fundamentally not true. And so a lot of our conversations have been about office is a very small part of our portfolios in areas like data centers, healthcare and towers are much bigger parts of the REIT market, much bigger parts of really what's driving earnings growth. And as you expect, there's a lot of tailwinds still in those areas.

That's great. Appreciate the detail. That's all I had today. Thank you.

Our next question comes from Mac Sykes from Gabelli. Please go ahead. Your line is open.

I just want to reiterate, thank you to Matt and the team there. I mean, he's been a great support to me and as well as Industry Insight. And I would note that's been many years over the course of my coverage of the firm. So thank you, Matt, and best wishes. I had two questions, I just I'll ask them together. On the active ETFs, are there any specific product areas that you're targeting REITs versus preferreds etcetera? And then on the closed end fund side, I know you're a pretty big provider there and we have this purging IPO coming up. I was wondering if that catalyst there is changing your opinion on opportunities in closed-end funds? Thank you.

Sure. As we launch active ETFs, it will happen in several phases. And the product positioning question is a really complicated one in light of all the incumbent relationships that we and all of our peers have. But we will lead with our strength, with core strategies and it will include REITs and preferreds, and one other area that Jon talked about today, which we just feel very -- very strongly about investment wise. So that's how we'll start. We'll start not slow, but medium. And then as the market evolves and it's evolving rapidly, we'll see how the different technology evolves. You know that many firms have filed a lawsuit with the SEC to try to get ETF share classes of open end funds. But so this is going to play out over a long period of time, but we will lead with our strength. As it relates to closed end funds, there hasn't been a traditional closed end fund in a while and the reason is interest rates have been so high. One feature of the majority of new issue closed end funds is to have a leverage component to it. And with the cost of debt right now, it's hard to create a positive spread on your portfolio relative to the cost of your borrowing. So that is still a pretty big headwind. What Bill Ackman and Pershing are trying to do is very different -- they're very different and it's very different than the traditional closed end fund market, but it's going to play to his market position and investing style, which isn't an income oriented investment strategy that you'll typically find in closed end funds. And that has been a differentiating factor as it relates to how closed end funds trade in the aftermarket.

Great. Thank you.

So we would love for that market to open up, but I don't see it happening until we get some more relief on the interest rate front.

We have no further questions. I would like to turn the call back over to Joe Harvey for closing remarks.

Well, thank you, Julianne, and thanks everybody for taking time to listen to us today. We look forward to reporting to you next quarter. Have a great day.

This concludes today's conference call. Thank you for your participation. You may now disconnect.