Ladies and gentlemen, thank you for standing by. Welcome to the Cohen & Steers Second Quarter 2019 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 is being recorded Thursday, July 18, 2019. 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 2019 earnings conference call. Joining me are our Chief Executive Officer, Bob Steers; our President, Joe 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 most recent annual report on Form 10-K and other SEC filings. We assume no duty to update any forward-looking statement. Also, our presentation contains non-GAAP 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. 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. As per usual, my remarks this morning will focus on our as adjusted results. As Brian mentioned, the reconciliation of GAAP to as adjusted results can be found on pages 18 and 19 of the earnings release, or on Slide 16 and 17 of the earnings presentation. Yesterday, we reported earnings of $0.62 per share, compared with $0.59 in the prior year's quarter and $0.58 sequentially. Revenue was $101.8 million for the quarter, compared with $94.2 million in the prior year's quarter and $93.9 million sequentially. The increase in revenue from the first quarter was primarily due to higher average assets under management and an additional day in the quarter. Average assets under management were $63 billion, compared with $58.7 billion in the prior year's quarter and $59.5 billion sequentially. Our as adjusted effective fee rate for the second quarter was 58.2 basis points, compared with 57.5 basis points last quarter. The increase was primarily due to a favorable shift in asset mix, as average assets under management in U.S. open end funds as a percentage of total average assets under management increased. Operating income was $38.8 million for the quarter, compared with $36.4 million in the prior year's quarter and $35.8 million sequentially. Our operating margin increased slightly to 38.2% from 38.1% last quarter. Expenses increased 8.2% on a sequential basis, primarily due to higher compensation and benefits, distribution and service fees and G&A. The compensation to revenue ratio was 35.75% for the quarter, consistent with the guidance we provided on our last call. The increase in distribution and service fee expense was primarily due to higher average assets under management in U.S. open end funds. And the increase in G&A was primarily due to higher T&E. Our effective tax rate for the…

Thank you, Matt and good morning. Our investment performance both absolute and relative is very strong, reflecting favorable macroeconomic conditions, ongoing returns from the investments we have made in our teams and processes, and positive results from performance improvement efforts when they are needed. In the second quarter, and for the past year, seven of our nine core strategies outperform their benchmarks. Measured by AUM, 95% of our portfolios are outperforming on a one year basis, 97% are outperforming over three years, and 98% are outperforming over five years. The recovery in our one year batting average from 71% last quarter was half due to our core preferred strategy and 40% attributable to U.S. real estate. Our three and five year batting averages have been consistent and high and 88% of our open end fund AUM are rated four or five star by Morningstar. Absolute performance for our asset classes in the second quarter was strong, but decelerated from the extraordinary pace in the first quarter. The macro shift towards a goldilocks environment that began powerfully in the first quarter continued with expectations for slowing that positive economic growth and benign inflation supporting a dovish fed. The progression in the quarter was a jump forward to anticipation of rate cuts in the U.S. and the potential for another round of quantitative easing in Europe. It could be that without inflation, the lower amplitude of the economic cycle will prevent hard turns by the Fed and enable small tweaks to extend the cycle. The specter of additional monetary stimulus by Central Banks unleased a scramble for yield globally. To illustrate, the average yield for 10 years sovereign bonds in the U.S., U.K., Japan, France and Australia is just 0.6%. Nearly 13 trillion or 12% of the global bond market has negative…

Right. Thank you, Joe. As Matt indicated firm wide AUM declined slightly in the quarter. And more importantly, we made significant progress towards our goal of improving growth rates in the products and segments which have historically been positive, while also shifting into growth mode in the subadvisory channels that have recently struggled to deliver net organic growth. As you know by now, we have designed new strategies and structures to promote inflows and address the sources of past outflows. On offence [ph], we are focused on capitalizing on the continued strong investment performance that Joe just spoke of, and the currently favorable market environment for real assets and alternative income strategies. We’re now in the market with a number of new products and delivery vehicles for both the wealth and advisory channels, which I’ll expand upon in a minute. In addition, strategies aimed at takeaways or market share gains, to capitalize on our investment performance and competitive fees are also bearing fruit. On defense, we’ve eliminated several drags on growth by exiting the large cap value effort and stepping away from non-strategic subadvisory relationships. We believe that these actions aimed at improving AUM growth in combination with our decision to scale back sources of organic decay will enhance our firm white growth prospects today and in the future. I’m pleased to say as Matt indicated that the wealth channel had another outstanding quarter, net inflows total $1.2 billion, which included $632 million of reinvested dividends. As has been the recent trend, inflows were heavily skewed to U.S. REIT and preferred security strategies. Encouragingly, DCIO generated $164 million of net inflows, which represents the fourth consecutive quarter of positive flows and a 26% organic growth rate, year-over-year. This is a good example of an important multi-year strategic investment that is…

Thank you. [Operator Instructions] Our first question comes from Macrae Sykes with G. Research. The line is open, please proceed.

Good morning, gentlemen. Congratulations on a solid quarter. I was wondering if we could just dig into the RIA channel a little bit, which products and vehicles are most in demand? And then just to follow-up on that, what are the important aspects to supporting in growing this channel?

Thanks for the question, Mac. In the RIA channel, it’s not too dissimilar, frankly from the traditional FA channel in terms of the flows into preferred and to REITs. I would however, just point out that we do segment the RIA market into RIA, super RIA and multifamily office and a number of our newer product launches, SMAs, et cetera are designed for both RIAs but also as we move up the size scale to super RIAs and multifamily offices. Some of our concentrated LP portfolios are appropriate also for not just institutional clients, but some of these multifamily office and super RIA entities.

Great. Just one other follow-up. In the past, we talked about real assets and their benefits in an inflationary environment. Now, it seems that we may be in a kind of a lower inflationary environment but demand still it’s very healthy. Can you talk about sort of the messaging in terms of the benefits of real assets kind of in a different trend that we may be in?

Sure, yeah, you’re right. For real assets broadly, inflation protection is one benefit, and we don’t have inflation. So that has curtailed some of the interest in the broader real asset portfolios, which include the asset classes that are most sensitive to inflation, commodities and resource equities. But stepping away from that, because of the income profile of real estate and infrastructure, there is very significant demand for the characteristics of those strategies provide. So, we do have a line-up of strategies that enables us to be live, if you will in a variety of macroeconomic environments. And right now, with low rates and benign inflation, if the interest is channel mostly into real estate infrastructure and preferred.

Great. Thank you very much.

Our next question comes from John Dunn with Evercore ISI. The line is open, please proceed.

Hey, guys. Question on the close-end fund side, we saw black rock launch of close-fund where it paid distributors like front to get pretty high fee 12 year money. I know, Bob, you said in the past the window was closed for that channel. But where we are now? Does it make sense for you in the industry to maybe look at launches again?

Great question. Yeah, that’s – I think the window is open. And the new model does require sponsors to take care of all the upfront expenses, which still makes a lot of sense, if you have the opportunity. So now we’ve been on ongoing discussions with the major distributors on potential launches. We’re also in discussions about potential rights issues, because you may or may not have noticed, but a number of our closed-end funds are trading at premiums to their asset values. There’s nothing I can tell you today that, is going to happen. But the closed-end fund market isn’t important piece of our business. Market conditions, as you observed have changed. And if there’s an opportunity to capitalize on that, we’ll be all over it.

Gotcha. And just a little more on the SMA areas, I mean it’s definitely a growth area. Do you have any idea like what your early innings expectations of where maybe growth rate or how big that piece that could be and then the incremental margins of that business versus other vehicles?

Yeah. It’s too early to share any early indications on any of these initiatives, including the repositioning of realty shares or now alternative income. But we do think that offering our key strategies in the SMA format, we’ll raise not only raise money directly in the SMAs, but we’ll also enhance flows into the respective mutual funds as well as financial advisors want to use just one manager in each asset class. And again, an advisor doesn’t necessarily want, for example, our REIT Manager for mutual funds, but a different manager for SMAs. So, there’s going to be some synergy there. There’s a tremendous amount of excitement from our salesforce on our new alternative income fund. It is going to have a very significant yield and both absolute and relative in the marketplace. It represents the best of Cohen & Steers, and the performance numbers as Joe alluded to earlier, in each sleeve of this best of portfolio delivers outstanding performance well above benchmark. So, I think the repositioning of CSR, the conversion to all income in a SMAs, I can’t tell you the timing, but we think all three have very substantial potential.

Understood. Thanks.

[Operator Instructions] Our next question comes from the line of Michael Carrier with Bank of America. Your line is open, please proceed.

Good morning. Thanks for taking the question. Maybe first one, just on the model portfolios, you’ve given that you had to conversion in the quarter. Maybe just a few things on that, like one is, are you seeing increased demand that we are throughout the industry? How do you guys think about it, maybe the fee rate on those products? I guess at $4 billion, it seems like you have enough scale. So, it looks like something that the incremental margin would be still very attractive even if the fees a little bit lower. But just any color, on how that kind of impacts the business and what you’re seeing in terms of growth?

Thanks for the question, Mike. Look, I think model based is going to continue to grow, there are intermediaries, such as the one we spoke of this quarter is converting most if not all of our relationship to it. There is no economic impact. And generally speaking, we view model based both from a portfolio management standpoint, but also an economic standpoint has really no different than traditional separate accounts. So, we are getting of scale there and it as you mentioned it’s – it takes a little or no additional effort to accommodate those additional assets. Just related to that, on the subadvisory side where some of this model based these models based assets are going, we do anticipate adding OCIO relationships. As you know, the OCIO business or industry is growing quite rapidly. Some of those OCIOs utilize the subadvisor format, some the model based and some just separate accounts, but we do expect significant growth from that channel, and some of which will likely be model based.

Okay, that’s helpful. And then maybe just second question. You laid out, like a lot, initiatives in place, that you guys have been working on, whether it’s with the new products, the new share classes, the fees, the SMAs, and you guys had the performance, and it seems like at least from an asset class, the products are in demand, given the rate out the backdrop. Just from a distribution standpoint, like, are you starting to see, traction, maybe, I know, on the SMAs, you said it’s still early, but on some of the other, products and initiatives that you have out there, whether it’s in the U.S. on the wealth side, are you like getting into more like portfolios and then outside the U.S. in terms of the subadvisory, in terms of new relationships, just any update on how like the distribution traction is going given that you kind of repositioned some of these products and some of the growth initiatives?

Well, as I mentioned earlier, it’s – we’ve literally just hit the market with most of these new initiatives either in the last several months, some of which are actually still in just the rollout phase, so it's too soon to tell. But what isn't too soon to tell is, again, we've reiterated that, you know, we think this is the time in the industry, where our market share gains or losses are going to occur. And we think that we are in just an incredibly strong position between our performance and our ability to deliver our strategies at fees that are median or below median. And we're gaining market share in all of our core strategies, REITs, global REITs, preferred, so we're even starting to gain market share in midstream energy. And the formula is top decile or quartile performance with fair fees. And we are gaining a lot of traction utilizing that strategy. Some of the newer strategies that we're talking about, don't exactly fit into that mold, because we're creating products that are institutional, super RAA foundation and down the clients are interested in which tend to be highly focused or concentrated, thematic limited capacity. And in those strategies, we have different delivery vehicles and different fee structures, which are not oriented towards gaining market share. And so those are two distinct strategies that we're employing. And – but in the process, you know, we absolutely believe that we're going to be gaining market share in all of our key strategies.

Okay, thanks a lot.

Our next question comes from Robert Lee with KBW. The line is open, please proceed.

Great, that's taking my questions. I'm just kind of curious. And with all that, you know, the new share class to the SMAs obviously, you know, as you've talked at length about focus to better penetrate the wealth channel. But with all that you feel like you have are enough platforms at this point, or you know, with all these changes, you first have to kind of get them on more platforms, and this is obviously designed for that and get on more approved list. Just trying to get a sense of, you know, make all these changes, but we really going to see like the impact more like several quarters down the road as you first have to kind of get on more platforms and then more portfolios.

No, I don't think so. I think the only part of our business where we still have work to do to get on platforms is in Europe with C Cab vehicles. But you know, candidly in here in the U.S., you know, we have not had any issues with being selected from platforms, you know, which is, as you know it's been going on. I think our national accounts team has done an outstanding job of getting us the appropriate ratings, which for the most part are strong buy ratings, or inclusions in models where our asset classes are in those models. And so, no, I think that, you know, CSR constitutes realty shares is really the only existing product that, frankly, it was never designed to be brought distributed. It was a participant in Schwab's rollout of one source in 1991. So, we're just bringing that fund up to date, and getting it, its expense ratio in line with our corporate philosophy. So, I think we're everywhere we need to be. And we're just going to, you know, continue to, to talk to our relationships about our outstanding performance, and the role that our asset classes can play in their portfolios.

Okay, and then maybe follow-up question on the more advisory or institutional channel. Obviously also you've talked about at Length [ph] made a lot of investment there, new product structures, strategies, and whatnot. And your track record speaks for itself. So, is there – are you happy with kind of the pace so far? I mean, is there any sense that Gee, you know, we have this compelling story for liquid and real estate and institutional investors, not enough institutional investors, it's not resonating with enough of them? Do you have any concern about that, and if so, why do you think that why maybe?

Actually, and we've spoken about this, both Joe and I, in the past, we've never been more excited about the institutional opportunity. As we've spoken about, we're seeing some of the world's largest investors, who previously had only invested in real assets privately through private investments. Our shifting into listed, including infrastructure, and Joe spoke to that in his comments, actually saw a headline from Blackstone's call that that Jon Gray mentioned they're having trouble putting out their infrastructure capital. And it's very consistent with our thesis that one way or the other that money is going to be put out. And the public market offers a large and an appropriate opportunity there. So, we're seeing benefits at several levels. One is asset gathering and level of activity. And while we don't share numbers, I would say that activity related to inquiries, searches RFPs and so on, remain extremely high, level of finals activity is high. And we expect to win our fair share and gain market share both in real estate and in infrastructure. And I would also be point out and again, Joe spoke to it maybe can add to my comment, there's been tremendous internal benefits to this now almost two year old project, to respond to our clients and our markets interest in the spoke and unique strategies within our core strategies. And it’s really invigorated our investment teams and just created tremendous enthusiasm and momentum internally, which I think has benefited performance.

Yeah, absolutely. An example of that is, like we might have talked about this in the past is, we've seen it as a strategy and a version of infrastructure, a small cap approach to it. And this plays to the theme of the private equity, you know, trying to find a home and looking to the public market. And as I mentioned on my comments earlier, that we've seen a couple of privatizations announced earlier this year, and these are smaller cap infrastructure companies that are in the seed account, but it's an investment thesis, right. And it's something that we're not just mining in the seed account, we're mining in our broader portfolios, as well. So, it's kind of represents the DNA of our investment department, you know, trying to find new sources of alpha great investment ideas and then put them into our portfolios or can potentially developing a new strategy. So, if I were a CIO of a sovereign wealth fund, and wanted to allocate money to infrastructure, I'd put it into our small cap infrastructure portfolio, because it's a differentiated way to play a theme, an investment thesis that everyone's talking about.

Great, thanks for taking my questions. Appreciate it.

[Operator Instructions] Mr. Steers, there are no further questions at this time. I will now turn the call back to you. Please continue with your presentation or closing remarks.

Great. Well, thank you all for joining us this morning. And we look forward to speaking to next quarter. Thank you.

That does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines.