Ladies and gentlemen, thank you for standing by. Welcome to the Cohen & Steers Second Quarter 2021 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 on Thursday, July 22, 2021. 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 2021 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 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. Our presentation also contains non-GAAP financial measures referred to as 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.

Thanks, Brian. 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 18 and 19 of the earnings release, and on Slide 16 to 19 of the earnings presentation. Please note that Slide 19 of the earnings presentation, which was introduced last quarter, now also includes a reconciliation of the adjustments to operating income for the full year of 2020. Yesterday, we reported record earnings of $0.94 per share compared with $0.54 in the prior year's quarter and $0.79 sequentially. Revenue was a record $144.4 million for the quarter compared with $94 million in the prior year's quarter and $125.8 million sequentially. The increase in revenue from the first quarter was primarily attributable to higher average assets under management across all three investment vehicles, the recognition of performance fees and one additional day in the quarter. Our implied effective fee rate was 58 basis points in the second quarter compared with 57.3 basis points in the first quarter. Excluding performance fees, our second quarter implied effective fee rate would have been 57 basis points. No performance fees were recorded in the first quarter. Operating income was a record $62.6 million in the quarter compared with $35.5 million in the prior year's quarter and $53.2 million sequentially. Our operating margin increased to 43.4% from 42.3% last quarter. The second quarter included a cumulative adjustment to reduce the compensation to revenue ratio. Expenses increased 12.6% compared with the first quarter, primarily due to higher compensation and benefits, distribution and service fees and G&A. The compensation to revenue ratio, which included the just mentioned cumulative adjustments to lower the incentive compensation accrual, was 35.03% for the second quarter and is now 35.25% for…

Thank you, Matt, and good morning, everyone. Today, I will review our investment performance and discuss related key themes such as our near record, our perfect record of outperformance, what we are doing to sustain and enhance performance, the impact of accelerating inflation on our asset classes and how our major asset classes are performing versus expectations at the beginning of the year. As we all know, in the second quarter, the U.S. economy reopened from the pandemic and surged powerfully, driving appreciation and positive returns and virtually all asset classes. A good portion of our AUM to better than the S&P 500, which was up 8.6%. And we continued to post stellar outperformance versus our benchmarks. One surprising development was that treasury yields declined in the quarter against the backdrop of accelerating economic growth and rising inflation. In fact, inflation surprised on the upside, something that hasn't happened in a long time. Looking at our performance scorecard, in the second quarter, eight of nine core strategies outperformed their benchmarks. For the last 12 months, all nine core strategies outperformed. 99% of our AUM is outperforming benchmarks on a one-year basis compared with 93% last quarter, driven by improvements in global listed infrastructure and certain global real estate portfolios. On a three-year basis 100% of AUM is outperforming and for five years 99% is outperforming, essentially the same as last quarter. 90% of our open-end fund AUM is rated 4 or 5 star by Morningstar compared with 88% last quarter. U.S. REITs returned 12% in the quarter, lifting the year-to-date return to 21.3%. We outperformed our benchmark in the quarter and for the last 12 months. Going into this year, we believe 2021 would be a good so called vintage year for real estate investing starting first with listed and…

Great. Thanks, Joe, and good morning, everyone. First of all, it's great to be back at work in my office and I'm 100% healthy. Also, I'd like to recognize Joe Harvey and our entire Executive Committee who stepped up seamlessly in my absence, which underscores the quality and depth of our leadership team. As I look back on the quarter and the year-to-date, it's apparent that we're in an environment that's very favorable for real assets. The historically strong cyclical recovery that we've experienced this year as foster to dramatic rebound in fundamentals for real assets ranging from real estate and infrastructure to resource equities and commodities. The rebound and prospects for real assets versus 2020 is starts. As Joe just pointed out, whereas the performance of virtually all real asset strategies badly lagged the broader equity markets last year, the reverse has been the case so far this year, especially for our real estate and diversified real asset strategies. We believe this is a unique point in time for real assets and CNS, one that will not be transient in nature and is supported by secular trends. First, this cyclical recovery is historic and underpinned by unprecedented fiscal and monetary stimuli, which are supportive of real asset fundamentals. Second, investor psychology is shifting towards real assets. The forces behind this shift are both fundamentals, including growing demand for hedges against unexpected inflation and technical also including expectations of massive capital flows into public and private infrastructure. We believe our strong brand and investment performance have put us in a unique position to capitalize on these trends as evidenced by our $2.6 billion and net inflows and the 12% organic growth in this latest quarter. That said, we're working hard to expand our breadth and depth of capabilities in the…

[Operator Instructions] Our first question comes from John Dunn with Evercore ISI. Please proceed.

Good morning and great to have you back on the call Bob. Maybe just looking at a little more on the advisory channel regionally, you mentioned the revamp of the team, and maybe just some other things that you've done over the past couple years to get that U.S. business and possibly when it could slip deposits, and then just also maybe a check-in on where the momentum is on the non-U.S. side of advisory?

Sure. Well, starting from the top down over the last two years, we brought on new leadership. That would be Dan Charles, in-charge of all distribution, but background is mainly institutional. And then Jeff Sharon, who came in about a year ago to head up U.S. Institutional. And we did reorganize our teams our talent into regional teams, which includes sales, consultant relations, relationship management people by region and shifted our focus on the 600 largest funds in the U.S. And so we're, I would say, we're about halfway down that path. We still have some seats that we need to fill. But what's encouraging us is a significant uptick in our team's activity levels, the search activity and more recently, some of the wins. And so I think from soup to nuts, it will be a two-year process. We're about halfway through that. And as you've heard from Matt, still the bulk of our new assets coming from U.S. institutional are from existing clients, which is great. And I think those existing clients we expect will be very supportive of many of our newer endeavors, including private. But we want to get the asset flows from new clients at a higher level. And that's really what our focus is.

And then maybe, what's the temperature there closed-end fund market these days? I think in the past, you talked about kind of a pilot with launches that the distributors, could we see that possibly ease somewhat in the back half of the year?

I think the calendar is pretty full at this point, but I will say there are two strategies that we've been working with our partners on the distribution side with, both of which - there is a high degree of interest in ones in real estate, which would include public and private real estate and the others in infrastructure. As we all know infrastructure is a topic du jour. And so I have a very high degree of confidence that we'll be on the calendar if not before the end of this year, early next year, for at least one of those strategies and we're tremendously excited still about the closed-end fund market. But bear in mind, best case scenario would be to get one or two transactions done per year.

[Operator Instructions] Our next question comes from Marla Backer with Sidoti. Please proceed.

So in terms of the recent wins, the recent mandates, and you talked about existing clients, can you provide any color on how that shakes out in terms of new clients? And where you want to see that? Obviously, you want to expand the new client portion significantly. Can you give us color at least directionally?

Matt, you went over those numbers in your remarks. What's the breakdown between new and existing?

Yes. So we had a $1.2 billion of inflows from existing accounts and $300 million from new mandates. So as Bob had mentioned, we're seeing an increase in new mandates, but the revamp of the area is relatively new and they're starting to find their stride. And part of what I said with the G&A was that we're going to be expanding capabilities in investment and distribution. And so we've got a couple of key people that we're looking to hire into that channel, which should result in increased new mandates as well. So we've not yet hit our stride there.

And then other question. In terms of ideally one to two transactions per year, can you give us a sense of what the - how much lead time we should be expecting before a transaction actually is limited?

Well, the first step is you'll see a filing from us, which will start the clock ticking and we'll define the strategy. And as I said, because of the interest and at least one if not two of our new strategies, we'll be filing something fairly soon. And after that, it will be simply a matter of working with the various underwriters to identify a spot on the calendar, which - it could happen between now and year-end, most likely happen in the first quarter and obviously the potential size of the raise is unknowable until we get into the marketplace.

Mr. Steers, there are no further questions at this time. Please continue with your presentation or closing remarks.

Great. Well thank you all for joining us again this morning. And have a great day, be safe. And we look forward to speaking to you 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 line. Have a great day everyone.