Ladies and gentlemen, thank you for standing by. And welcome to the Cohen & Steers Second Quarter 2014 Financial Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded, Thursday, July 17, 2014. I would now like to turn the conference over to Mr. Adam Johnson, Senior Vice President and Associate General Counsel. Please go ahead, sir.

Thank you. Welcome to the Cohen & Steers Second Quarter 2014 Earnings Conference Call. Joining me are Chief Executive Officer, Bob Steers; Executive Chairman, Marty Cohen; our President, Joe Harvey; and our Chief Financial Officer, Matt Stadler. Before I turn the call over to Matt, I want to point out that during the course of this conference call we may make a number of forward-looking statements. These forward-looking statements are subject to various risks and uncertainties and there are important factors that could cause actual outcomes to differ materially from those indicated in these statements. We believe that some of these factors are described in the Risk Factors section of our 2013 Form 10-K, which is available on our website at cohenandsteers.com. I want to remind you that the company assumes no duty to update any forward-looking statements. Also, the presentation we make today contains pro forma or non-GAAP financial measures, which we believe are meaningful in evaluating the company's performance. For disclosures on these pro forma metrics and their GAAP reconciliations, you should refer to the financial data contained within the press release we issued yesterday, as well as in our previous earnings releases, each available on our website. Finally, this presentation may contain information with respect to the investment performance of certain of our funds and strategies. I want to remind you that past performance is not a guarantee of future performance. This presentation will also contain information about funds that have filed registration statements with the SEC that have not yet become effective. This communication does not constitute an offer to sell or the solicitation of any offer to buy these securities. For more complete information about these funds, including charges, expenses and risks, please call 1(800) 330-7348 for a prospectus. With that, I'll turn the call over to Matt.

Thanks very much Adam, and good morning, everyone. Yesterday, we reported net income of $0.49 per share compared with $0.34 in the prior year and $0.43 sequentially. Revenue for the quarter was a record $78.4 million, compared with $77.8 million in the prior year and $72.8 million sequentially. The increase in revenue from the prior year's quarter was attributable to higher average assets resulting from market appreciation, and net inflows into open-end mutual funds, partially offset by net outflows from institutional accounts. Average assets for the quarter were a record $50.7 billion, compared with $50.2 billion in the prior year's quarter, and $47.7 billion sequentially. Our effective fee rate for the quarter was 57.7 basis points, up from 57.4 basis points last quarter. The increase was primarily due to the continued shift in the mix of our assets under management toward open-end funds. Operating income for the quarter was $29.7 million, compared with $28.6 million in the prior year's quarter and $27.6 million sequentially. Our operating margin decreased slightly to 37.8% from 37.9% last quarter. The decline was primarily due to higher G&A costs associated with the marketing for our real assets strategies. Bob will provide some color on the real assets institutes in his remarks. Pretax income, net of noncontrolling interest, was $33.9 million for the quarter compared with $25.2 million in the prior year's quarter and $30.6 million sequentially. With respect to average assets under management, our AUM totaled a record $52.3 billion at June 30, an increase of $3.3 billion or 7% from March 31. The increase in assets under management was attributable to market appreciation. At June 30, our U.S. real estate strategy comprised 52% of the total assets we managed, followed by global and international real estate at 19%, preferred securities at 11%, and global…

Thank you, Matt, and good morning. By almost every measure, we were pleased with the results and the momentum achieved in the second quarter. Evaluating our core metrics, which are investment performance, organic growth, the Real Assets Institute, which is our marketing initiative to educate on real assets, and the development of new products and markets. The outcomes have been outstanding and the momentum shift to real assets strategies is now palpable. Starting with investment performance. Absolute and relative returns for all of our strategies were strong in the second quarter and for the latest 12 months. Including MLPs and commodities as core strategies, 7 of 9 teams outperformed their benchmarks in the second quarter. And all 9 teams outperformed for the latest 12 months. By any measure our teams have been delivering strong and consistent alpha. And in recognition of our listed infrastructure team's long-term track record, Morningstar has recently awarded this fund a 10-year 5-star rating. Next, I'd like to update you on our real assets multi-strategy teams, and our main marketing initiative, the Real Assets Institute. First, our decision to enhance our real asset investment capabilities by bringing in-house active management of commodities and resource equities has worked very well, as has the addition of Vince Childers as our real assets portfolio manager and strategist. This portfolio, which includes as core allocations: real estate, commodities, resource equities and infrastructure, has outperformed its benchmark by over 300 basis points over the latest 12 months, with strong alpha generation from each of the individual sleeves. Our major marketing initiative, the Real Assets Institute, is off to an excellent start, aided by market-leading returns from real asset strategies this year. We've now conducted institutes in 5 cities and received outstanding feedback followed by accelerating inflows. As a result of this…

[Operator Instructions] Our first question comes from the line of Adam Beatty with Bank of America.

First, just a question on, I guess, around G&A spend and some of the build out that you're doing, firstly, about the Real Assets Institute, and then also what you just mentioned about Tokyo. What is the time horizon for this? What kind of -- are you expecting kind of a higher run rate level in future years or is it more of a onetime spend? If you could just give some details around your plans there, it would be appreciated.

Sure, Adam. Thank you. So with respect to our expansion in Japan, which will be a combination of office space and personnel, we expect that to occur very late in the fourth quarter to early first quarter of next year. And we don't really expect that it will be meaningful. So for -- I'll be giving guidance with our fourth quarter call on 2015. But as of this point, we don't think it's going to be a significant change to any run rate.

Great. And then just maybe stepping back, there seem like a couple of moving parts lately on the sub-advisory front, one client going way and it sounds like some new ones coming on. Any takeaways from that in terms of, especially, I guess the one that went away are -- does it reflect a certain, a certain sentiment or shift in sentiment amongst your clients? And then, maybe on the inbound, obviously, folks are starting to recognize the validity of your approach in certain areas, maybe some takeaways from that as well?

Adam, it's Bob. It's actually not quite as confusing as perhaps we've made it sound. In the sub-advisory channel there's really been 2 dominant issues. One, is been investment performance in large cap value which, ironically, for the year-to-date and latest 12 months were top quartile if not top decile there. But we had this one extremely large sub-advisory relationship who took -- has taken money out previously and now terminated, and that's done. The other has been flows-in, flows-out in Japan. And as I mentioned -- and we're not going to predict flows, but we feel between the current funds that we sub-advised and the new launches. We're very optimistic about, at some point in the near future, having a positive sign on those flows. Again, we're not predicting, but that's what it feels like. The other sub-advisory relationships are all significantly smaller and generally focused on real estate and so on. And they're going fine, and not, not that dramatic either way. And so our sense is, just as retail flows have been strong, institutional flows this quarter were solid as I mentioned. We've had some significant fundings since the end of the quarter and the pipeline is very full there. That feels very good. And I think, following this quarter and the termination of the large cap value relationship, the sub-advisory channel is going to be much simpler and directionally will be following the other 2 channels.

Great. Just one last one. On sort of real assets and competition in that area. I think there have been some other folks, other firms lately coming to the table in terms of similar offerings. Do you see yourselves as having a competitive lead or other advantages in that area? And how do you see that shaking out in the future?

Well, I think, having more competition come in, it is both a positive and a negative. I think the more voices making, educating the market, there's been a lot of -- a lot written in the last year or 2 about in liquid alternatives. The first step, and the most important step, is to fill the knowledge gap as to what is a liquid alternative and so on. And we have a similar knowledge gap. And for us, we think it's an opportunity in that space. But the more voices out there, I think, real assets gains a larger piece of the asset allocation pie. That said, when it comes down to competing, it'll come down to investment performance. It'll also come down to the fact that, as I mentioned, really, 3 out of 4 of our core sleeves, we have very long-term track records, and real estate at 25 years. As I mentioned, global listed infrastructure, we now have a 5-star -- a 10-year 5-star rating. There's no shortcut to that. Our commodities team, which has only been with us for about 1.5 years, but previously had a tremendous 8-year track record. And so, I think, to compete well, you have to perform, you have to educate the market. And that's why, our Real Assets Institute, which is not the only initiative we have to educate and promote the real asset allocation, but it's an excellent opportunity to become sort of the go-to guys, the trusted advisor in the real assets space. And that's why we think that this is the time to devote investments and time to educating the market. And I think that's going to be a significant component for success, whether it's in real assets or any of the alternative asset classes.

Our next question comes from the line of John Dunn with Sidoti & Company.

Just on Real Assets Institute. I know this is probably a hard question to answer, but do any of you guys have any expectation about the time line of from when the -- you go to Chicago or whatever city and you start to see a ramp-up. Is it a multiyear process or something less than that? Just a sense of how you think that might play out at this point?

It's hard to predict. We've, frankly, had expected it would be a longer, a slower response curve, if you will. But I think the combination of the fact that real assets strategies, real estate infrastructure, real estate, have been market leaders this year, has been a great wind to our back. And so, as I mentioned in the first quarter, we had virtually no -- at $4 million inflows into real assets, our real assets fund, second quarter that it went to $54 million or $55 million and growing. And we think these, as we go around the country and having these seminars with retail and institutional investors, the effect is -- it's not linear, it's a compounding effect. And so, I think, as long as the environment is pushing investors to think about inflation, interest rate, maturing cycles and real assets strategies continue to perform, I think, we'll see more immediate results. On the other hand, if market conditions change, that could be stretched out.

I think you have to think about this as a multiyear process too, when you look at, say, in the wealth management channels, some of the recommendations for how much of a portfolio should be in real assets, we're looking at 5% to 11% recommendations. And yet, investors are much, much lower than that in their portfolios today. So that reallocation process is not going to happen overnight, it's going to take place over a period of time. And that's one of the things that makes it so excited. You can say the same thing about institutional portfolios. If you look at how the real asset targets are changing, they're going from 10% to 20%, in that sort of magnitude. And they're 2 in that market, it's a multiyear process.

And if I could just add, I would encourage you not to look at our real assets funds as the benchmark for that because these institutes are not designed to sell a fund, they are designed to educate the market. And there's lots of ways for us to win. We can win by the flows into the turnkey real assets fund going up. But as we're seeing, we're winning in even bigger ways in getting individual sleeves from large institution. And so the way to measure this is really our overall real asset flows, not an individual fund.

Great. Thanks for all your comments on distribution. But just on the DCIO channel, what's your strategy there for getting flows there?

Well, we had mentioned previously that, last year, Matt Gannon joined us. A very successful and experienced leader in the DCIO marketplace. And we worked together to put together a comprehensive business plan that ranges from making sure that we have, whether it's in our mutual funds, CITs, whatever the vehicles are, that we have the appropriate vehicles and structures for the large, medium and small segments of the DCIO marketplace. We are in the process of adding several senior national accounts people there to develop the relationships with record keepers and others, and we're in the process there. And again, many of these institutes are aimed at gatekeepers, including those involved in the DCIO marketplace. Lastly, we're also going to, which is somewhat new for us, add personnel for direct sales in the DC marketplace. And heretofore, we've not had a significant effort in direct sales in our institutional group.

[Operator Instructions] Our next question comes from the line of Mac Sykes with Gabelli & Company.

Just 3 questions. One, just a technical one. The LCV fee rate, is that below the aggregate for the firm on the outgoing assets?

Yes.

Okay. And then on the Japan front, the other relationships that you will be developing, are those on par with your distribution capabilities with the current provider?

Yes. Yes, they're both leading distributors in Japan.

Okay. And then knowing a little bit about the Japan market, would you expect a step inflow with decent velocity of flows once you launch one of these products? Or could we see a more gradual affect?

In Japan, I think you have to be very cautious. It was years before our flows with our current partner really ramped up. And on the other hand, the window is open for new fund launches and there's been some significant successes there. So we're very optimistic, but we're really -- we're really not going to try to predict flows. I just think that we've got great income-oriented strategies that are proven in the Japanese market. And we're going to be delivering them through 3 of the leading distributors in Japan. So we're in a very good place and we're very optimistic about where the flows are going to go.

Mr. Johnson, there are no further questions at this time.

Thank you. Thank you for participating, everyone. This concludes the earnings conference call.

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