10-Q: Cohen & Steers Reports Strong Asset Growth in Q3 2024, Driven by Market Appreciation

Cohen & Steers saw a significant increase in assets under management in the third quarter of 2024, primarily driven by market appreciation and net inflows into open-end funds.

Summary

• Cohen & Steers reported a 22.1% increase in assets under management (AUM) to $91.8 billion as of September 30, 2024, compared to $75.2 billion at the same time last year.
• The increase in AUM was primarily due to $21.2 billion in market appreciation, partially offset by $2.0 billion in net outflows and $2.6 billion in distributions.
• Open-end funds saw a 27.6% increase in AUM to $43.0 billion, driven by net inflows of $1.1 billion and market appreciation of $9.4 billion.
• Institutional accounts experienced an 18.2% increase in AUM to $36.9 billion, with varying performance across advisory, Japan subadvisory, and subadvisory accounts excluding Japan.
• Closed-end funds' AUM increased by 15.9% to $11.9 billion, primarily due to market appreciation of $2.2 billion.
• The company's organic decay rate for the twelve months ended September 30, 2024 was (2.6%).
• The company's organic growth rate for open-end funds for the twelve months ended September 30, 2024 was 3.4%.

Sentiment

Score: 7

Explanation: The document presents a generally positive outlook with strong AUM growth and improved earnings, but there are some concerns about net outflows and a slight decrease in operating margin. The successful capital raise is a positive sign for future growth.

Positives

• The company experienced significant market appreciation, which drove a substantial increase in assets under management.
• Open-end funds saw strong net inflows and market appreciation, indicating investor confidence in these products.
• The company successfully completed an equity offering, raising $68.5 million in net proceeds.
• The company's net liquid assets increased to $346 million from $286 million at the end of 2023.

Negatives

• The company experienced net outflows of $2.0 billion across all investment vehicles.
• Institutional accounts saw net outflows in advisory and Japan subadvisory accounts.
• The company's organic decay rate for the twelve months ended September 30, 2024 was (2.6%).
• Operating margin decreased to 32.7% for the nine months ended September 30, 2024, from 34.2% for the same period in 2023.

Risks

• The company is exposed to market risk, which can impact the value of assets under management and seed investments.
• Changes in interest and currency rates, securities markets, and general economic conditions can affect the company's performance.
• The company's revenue is dependent on the value of assets under management, which can fluctuate due to market conditions.
• The company's business has become more capital intensive, requiring investments in new strategies and infrastructure.

Future Outlook

The company intends to use the net proceeds from the recent equity offering for general corporate purposes, including seeding track record strategies and investment vehicles. The timing for funding the remaining portion of the company's commitments to Cohen & Steers Real Estate Opportunities Fund, L.P. and Cohen & Steers Income Opportunities REIT, Inc. is uncertain.

Management Comments

• Management believes that use of the as adjusted (non-GAAP) financial results provides greater transparency into the company's operating performance.
• Management uses these as adjusted financial results to prepare the company's internal management reports which are used in evaluating its business.

Industry Context

The company's performance reflects broader trends in the asset management industry, where market appreciation and investor flows significantly impact AUM. The company's focus on real assets and alternative income positions it well in the current market environment, where investors are seeking diversification and yield.

Comparison to Industry Standards

• Cohen & Steers' AUM growth of 22.1% year-over-year is strong compared to the industry average, which has seen more modest growth.
• The company's organic decay rate of (2.6%) is a concern, as it indicates that the company is losing assets at a rate of 2.6% per year, however, the organic growth rate for open-end funds of 3.4% is a positive sign.
• The company's operating margin of 32.7% for the nine months ended September 30, 2024, is slightly lower than some of its peers, which have seen margins closer to 35% or higher.
• The company's focus on real assets and alternative income is a differentiator, as many asset managers focus on traditional equity and fixed income strategies. Competitors such as Brookfield Asset Management and Blackstone also have significant real asset businesses, but Cohen & Steers is more specialized in listed real estate and infrastructure.

Related Party Transactions

• The company is an investment adviser to, and has administration agreements with, company-sponsored funds and investment products for which certain employees are officers and/or directors.
• The company earned $97.4 million in investment advisory and administration fees and distribution and service fees from affiliated funds for the three months ended September 30, 2024.
• The company had receivables from company-sponsored funds of $37.2 million and payables to company-sponsored funds of $0.8 million as of September 30, 2024.
• The company had an advance to CNSREIT of $8.2 million as of September 30, 2024.

Stakeholder Impact

• Shareholders will benefit from the company's strong AUM growth and improved earnings.
• Employees may benefit from the company's continued growth and success.
• Clients will benefit from the company's expertise in real assets and alternative income.
• The company's financial stability and growth will benefit its creditors and suppliers.

Next Steps

• The company will continue to monitor market conditions and investor flows to manage its assets under management.
• The company will use the proceeds from the recent equity offering to seed new strategies and investment vehicles.
• The company will continue to evaluate its capital needs and may draw on its credit facility if necessary.
• The company will pay a quarterly dividend of $0.59 per share on December 2, 2024.

Key Dates

Keywords

Assets Under Management, Real Assets, Alternative Income, Investment Management, Open-End Funds, Institutional Accounts, Closed-End Funds, Market Appreciation, Net Outflows, Seed Investments