Cohen & Steers, Inc. ((CNS)) has held its Q2 earnings call. Read on for the main highlights of the call.
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Despite a strong investment performance and successful new product launches, Cohen & Steers, Inc. faced a challenging quarter marked by decreased earnings, a decline in operating margins, and overall net outflows. The company’s growing liquidity and positive fund ratings are significant positives, but these are counterbalanced by the financial and operational challenges faced this quarter.
Strong Investment Performance
Cohen & Steers reported that 89% of its assets under management (AUM) outperformed their benchmarks in the second quarter, with impressive performance metrics over longer periods. Specifically, 94% of AUM outperformed on a one-year basis, and over 95% outperformed over three, five, and ten years, with 99% outperforming over ten years. This highlights the company’s robust investment strategies and consistent long-term performance.
Positive Open-End Fund Flows
The company experienced net inflows of $285 million in its open-end funds during the second quarter, marking the fourth consecutive quarter of positive inflows. This trend underscores investor confidence in Cohen & Steers’ open-end fund offerings and their performance.
Successful ETF Launch
Cohen & Steers launched new active ETFs, which garnered $54 million in net inflows during their first full quarter on the market. This successful launch indicates a positive reception from the market and aligns with the company’s strategic expansion into the ETF space.
AUM Growth
The company’s ending AUM increased to $88.9 billion in the second quarter, up from $87.6 billion in the first quarter. This growth was primarily driven by market appreciation, reflecting favorable market conditions and effective asset management.
Liquidity Improvement
Liquidity improved significantly, reaching $323 million at the end of the second quarter, up from $295 million in the previous quarter. This improvement in liquidity provides the company with greater financial flexibility to pursue strategic initiatives.
High Rated Funds
A remarkable 90% of Cohen & Steers’ open-end fund AUM is rated 4 or 5 stars by Morningstar, indicating strong fund performance and enhancing the company’s reputation in the market.
Decreased Earnings
Earnings per share decreased to $0.73 from $0.75 in the prior quarter. This decline in earnings is a concern for investors, reflecting the financial challenges faced by the company.
Operating Margin Decline
The operating margin decreased to 33.6% from 34.7% in the prior quarter, indicating a slight erosion in operational efficiency, which the company will need to address moving forward.
Institutional Net Outflows
Institutional investments experienced net outflows, which partially offset the gains from open-end funds. This trend highlights the challenges in retaining institutional clients amid competitive market conditions.
Higher Expenses
Total expenses increased by 2.9% compared to the prior quarter, driven by higher compensation and business development costs. This rise in expenses underscores the company’s ongoing investments in talent and growth initiatives.
Net Outflows Overall
Overall, the company faced net outflows of $131 million in the second quarter after three consecutive quarters of inflows. This reversal in net flows presents a challenge that the company needs to address to maintain growth momentum.
Forward-Looking Guidance
Looking ahead, Cohen & Steers provided guidance for 2025, expecting the compensation ratio to remain at 40.5%. General and administrative expenses are anticipated to increase by 7% to 8% from the previous year, driven by talent acquisition and business development activities. The effective tax rate is projected to stay at 25.3% on an as-adjusted basis. After 2025, the company expects annual changes in G&A to moderate to mid-single-digit growth, emphasizing disciplined expense management while continuing to invest selectively in its business.
In summary, Cohen & Steers, Inc. demonstrated strong investment performance and successful product launches, yet faced financial challenges with decreased earnings and net outflows. The company’s forward-looking guidance reflects a focus on managing expenses while continuing strategic investments. Investors will be keenly watching how the company navigates these challenges and leverages its strengths in the coming quarters.