Cohen & Steers Inc. 2026 Q3 Earnings Call

Please go ahead. Thank you, and welcome to the Cohen & Steers third quarter 2026 conference call.

Joining me are Joe Harvey, our Chief Executive Officer, Amit Muni, our Chief Financial Officer, and Jon Cheigh, our President and Chief Investment Officer. Before we begin, I want to remind you that statements made during today's call may include forward-looking statements. Actual results may differ materially because of risks and uncertainties, including those described in today's earnings release and presentation, our most recent annual report on Form 10-K, and in our other SEC filings. We assume no obligation to update any forward-looking statement. Nothing on this call constitutes an offer or solicitation with respect to any fund or other investment vehicles. We will also refer to non-GAAP financial measures, also referred to as adjusted financial measures.

Reconciliations to the comparable GAAP financial measures are included in today's earnings release and presentation to the extent reasonably available on the investor relations section of our website at www.cohenandsteers.com. Before I turn the call over to Amit, I want to note that we've made several enhancements to how we categorize our funds this quarter and have posted our historical results in the same format to the investor relations section of our website. With that, I'll turn the call over to Amit.

Thank you, Brian, and good morning, everyone. On today's call, I'll begin with the review of our operating and financial highlights for the quarter. Jon will then discuss investment performance and the market environment, followed by Joe, who will close with our strategic growth priorities and the momentum we are seeing across the business. We will then open the call for your questions. I will focus my remarks on our adjusted results. Turning to the highlights for the quarter. We reported adjusted earnings per share of $0.89, up from $0.85 in the second quarter. We ended the quarter with assets under management of $95.9 billion, down from $100 billion last quarter as negative market movement offset the strong flows generated during the period. Nevertheless, our average AUM increased to $101 billion in the quarter.

We generated $1.6 billion of net inflows, representing our fifth consecutive quarter of organic growth and our strongest flow period since the fourth quarter of 2021. Our institutional pipeline also increased to $1.9 billion from $1.6 billion last quarter. We also continued to make advancements in our strategic growth initiatives while maintaining consistent long-term investment performance across our platform. Turning to flows on the next slide, our organic growth momentum continued to strengthen with more than 6% annualized organic growth in the quarter. Importantly, the breadth of the growth is encouraging. Wealth continued to lead with strong flows across mutual funds, SICAVs, and ETFs, while institutional flows also turned modestly positive. At the strategy level, every investment strategy generated positive net inflows led by real estate, multi-strategy real assets, and preferred securities. Taken together, these results demonstrate increasingly broad-based growth across strategies, vehicles, and distribution channels.

Turning to the next slide, I will review our financial performance. Net income was $46.5 million for the quarter, an increase of 6% from the second quarter and 11% from the third quarter of last year. Our operating margin expanded to 37.2%, reflecting the benefit of higher revenues and controlled expenses, demonstrating the operating leverage inherent in our business model. Turning to the next slide, I will review the quarter-over-quarter changes in revenues and expenses. Revenues increased 3% to $156 million, driven by higher average AUM, reflecting the continued strength in the business despite the negative market movement experienced mostly in September. Total operating expenses increased 2% to $98 million, primarily due to higher incentive compensation accruals associated with increased revenues and lower G&A related costs. Looking ahead, we are maintaining our expense guidance.

We continue to expect compensation and benefits expenses of approximately 40% of revenues, mid-single-digit growth in G&A expenses relative to 2025, and a pro forma effective tax rate of 25%-26%. We remain focused on translating the momentum we are experiencing in the business into operating leverage over time. Thank you, and I will turn the call over to Jon.

Thank you, Amit, and good morning. Today, I would like to cover three topics: our performance scorecard and the improving trend, the impact of higher interest rates, and the positioning of our asset classes in the current environment. Beginning with our performance scorecard, 74% of our AUM outperformed in the third quarter, up from 40% in the second quarter. Over the last one, three, and five years, 57%, 97%, and 98% of our AUM, respectively, has outperformed. Last quarter, I addressed our one-year result as an outlier driven by U.S. REITs, and noted that we expected a reversion to our historical norm of 200 basis points of alpha. While one quarter does not make a trend, we are encouraged by the early evidence. 86% of our U.S. real estate AUM outperformed this quarter, up from 15% last quarter. Global real estate saw a similar turnaround, from 2% outperforming to 67%.

While it is early, fourth quarter momentum is encouraging, and we believe our REIT performance is back on trend. Notably, our infrastructure and preferred securities teams continue to deliver, with 100% and 97% of AUM respectively outperforming over the last year. Turning to the market, higher interest rates have weighed on our asset classes. REITs, listed infrastructure, and preferred securities have declined from their summer highs. The primary driver has been the sharp rise in long-term Treasury yields, now above 5%. Despite all the attention being given to oil, this has not been an inflation story. It has been a real yield story. Nearly all of the roughly 100-basis-point rise in the 10-year this year has come from real yields, while inflation expectations have changed very marginally.

In our view, roughly half the most recent move in yields reflects resilient economic growth, and the other half reflects higher term premium associated with fiscal issues, debt supply, and global factors. That distinction matters. Stronger growth supports the higher earnings of the companies we invest in, while higher term premium affects the valuation of essentially all asset classes, not just ours. So while higher rates have created near-term pressure, we do not believe they have changed the relative attractiveness of our asset classes. It is also important to put the current rate environment in historical perspective. Higher rates do not mean poor returns for real assets. For example, REITs have generated positive returns in four of the last five Fed hiking cycles. The 2022-23 hiking cycle was clearly different, with REITs returning -11% annualized. But in the 2004 and 2016 hiking cycles, annualized returns were a positive 24% and 8% respectively.

The lesson is that the level of interest rates alone does not determine returns. What matters is the pace of change relative to market expectations, along with the underlying fundamental trajectory and valuations. That leads to what I think is the most important point about today's environment. Unlike 2022-23, we are entering this period with improving fundamentals. In listed real estate, we see an early to mid-cycle recovery. Reduced new supply and growing demand should support growth above historical norms. This is not just a real estate story. Real assets broadly are benefiting from significant secular investment needs, which are driving earnings growth. We expect 9% EBITDA growth for global listed infrastructure versus a historical average of 6%-7%, and 20% earnings growth for natural resource equities versus a historical average of 6%-8%. Rates matter, but valuations and fundamentals matter more.

Today, we believe both are increasingly supportive of our asset classes. So how should investors think about this environment and positioning their portfolios? We believe the investment regime has changed from the one that prevailed for much of the past 15 years. Investors we speak with are increasingly seeking diversifiers. Investors now have attractive opportunities in fixed income, but they also face greater inflation risk, greater equity market concentration, and an acute need for diversification. That, in turn, makes the case for a barbelled approach. On the one side, preferred securities can provide attractive income and real returns. On the other side, real estate, infrastructure, and natural resource equities can provide growth, diversification, and inflation protection. So we see distinct opportunities across our strategies. For investors seeking income, preferred securities. For investors looking to participate in the real estate recovery, our REIT strategies offer accelerating fundamentals.

For investors seeking secular growth and diversification, listed infrastructure and natural resource companies are benefiting from powerful global tailwinds such as commodity undersupply, reindustrialization, and AI infrastructure. For investors seeking a broad real asset solution, our multi-strategy real assets portfolio brings these exposures together in a diversified allocation. We believe our asset classes offer compelling solutions for delivering income, inflation protection, diversification, and liquidity, all while allowing investors to reduce exposure to the more concentrated and more expensively valued segments of the market. With that, let me turn the call over to Joe.