Cohen & Steers Inc

Ladies and gentlemen, thank you for standing by. Welcome to the Cohen and Steers fourth quarter and full year 2023 earnings conference call. During the presentation, all participants will be in a listen only mode. Afterwards, we will conduct a question and answer session. At that time, if you have a question, please press star followed by the number one on your telephone. If at any time during the conference you need to reach an operator, please press star zero. As a reminder, this conference is being recorded Thursday, January 25th, 2024. I would now like to turn the conference over to Brian Heller, Senior Vice President and Corporate Counsel of Cohen and Steers. Please go ahead.

Thank you and welcome to the Cohen and Steers fourth quarter and full year 2023 earnings conference call. Joining me are our Chief Executive Officer, Joe Harvey, our Chief Financial Officer, Matt Stadler, and our Chief Investment Officer, John Che. 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 fourth quarter and full year 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 vehicle. Our presentation also contains 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.cohenandsears.com. With that, I'll turn the call over to Matt.

Thank you, Brian. Good morning, everyone. Thanks for joining us today. As on previous calls, my remarks this morning will focus on our as-adjusted results. A reconciliation of GAAP to as-adjusted results can be found on pages 19 and 20 of the earnings release and on slides 17 through 20 of the earnings presentation. Yesterday, we reported earnings of 67 cents per share compared with 79 cents in the prior year's quarter and 70 cents sequentially. Revenue was $119 million for the quarter compared with $125.5 million in the prior year's quarter and $123.6 million sequentially. The decrease in revenue from the third quarter was primarily attributable to lower average assets under management across all three types of investment vehicles. Our effective fee rate was 57.7 basis points in the fourth quarter compared with 57.6 basis points in the third quarter. excluding fourth quarter performance fees of 1.3 million and third quarter performance fees of 1.2 million, our effective fee rate would have been 57 basis points for both quarters. Operating income was 41.3 million in the quarter, compared with 50.9 million in the prior year's quarter and 43.9 million sequentially. And our operating margin decreased to 34.7% from 35.5% last quarter. Expenses decreased 2.5% from the third quarter, primarily due to lower compensation and benefits and a decrease in distribution and service fees, partially offset by higher G&A and an increase in depreciation and amortization. Driven by the year-over-year decline in operating results, Employee compensation and benefits was $3.5 million lower in the fourth quarter when compared with the third quarter. This was primarily due to a reduction in incentive compensation to reflect actual amounts expected to be paid. We always take a deliberate approach to setting year-end compensation in order to balance employee retention with results to shareholders. For the year, our compensation to revenue ratio was 40.65%. 15 basis points higher than last quarter's guidance of 40.5%. The decrease in distribution and service fees was primarily due to lower average assets under management in U.S. open-end funds. With respect to G&A, you will recall that the third quarter included a one-time adjustment that reduced the estimated accrual for the costs associated with the completed implementation of our new trade order management system to reflect the actual amount paid. The sequential increase in G&A was primarily driven by this third quarter adjustment. For the year, G&A was 55 million compared with 52.6 million in 2022. The 4.6% year-over-year increase was lower than the 5% to 7% guidance we provided last quarter. And finally, as expected, we began depreciating and amortizing fixed assets and leasehold improvements in December when we moved into our new corporate headquarters. This accounts for the majority of the sequential increase in depreciation and amortization expense. Our effective tax rate, which was 25.88% for the quarter, included an adjustment to bring the full year rate to 25.4%. an increase of 15 basis points from last quarter's guidance of 25.25%. The higher effective rate was primarily due to increases in certain non-deductible items. Page 15 of the earnings presentation sets forth our cash and cash equivalents, corporate investments in U.S. Treasury securities, and liquid seed investments for the current and trailing four quarters. Our firm liquidity totaled 318.8 million at year end, compared with 279.9 million at the end of last quarter. And we have not drawn on our 100 million revolving credit facility. Assets under management were 83.1 billion at December 31st, an increase of 8 billion or 10.6% from September 30th. The increase was due to market appreciation of 9.6 billion partially offset by net outflows of $935 million and distributions of $717 million. For the full year, assets under management increased $2.7 billion, or 3.4% from December 2022. The increase was due to market appreciation of $7.5 billion, partially offset by net outflows of $2 billion and distributions of $2.8 billion, Joe Harvey will be providing an update on our flows and institutional pipeline of awarded unfunded mandates. Let me briefly discuss a few items to consider for 2024. As a result of the projected increase in revenue resulting from year-end assets under management being approximately 4% above 2023's average assets under management, combined with a disciplined approach towards managing both new and replacement hires, All things being equal, we expect that our compensation to revenue ratio in 2024 will decrease to 40.5% from the 40.65% recorded in 2023. We expect G&A to increase 5 to 7% from the 55 million recorded in 2023. Part of the projected increase stems from the previously mentioned third quarter adjustment to reduce the estimated accrual for the costs associated with the implementation of our trade order management system. Excluding that adjustment, we would expect G&A to increase 3 to 5%. The majority of the increase is due to costs associated with the relocation of our London and Tokyo offices, as well as higher technology costs and client-related travel and entertainment expenses. As noted earlier, the fourth quarter included one month of depreciation and amortization associated with the move into our new corporate headquarters this past December. For 2024, we expect depreciation and amortization expense to approximate $9 million. We expect that our effective tax rate will remain at 25.4%. And finally, in late December, a large institutional client informed us that as part of a revision to their strategic asset allocation program, they will be exiting several asset classes, listed REITs among them. The client's $1.5 billion global real estate account was terminated on January 3rd. Given its size, the account had a lower than average base fee with a performance fee component. Now I'd like to turn it over to our Chief Investment Officer, John Che, who will discuss our investment performance.