Cohen & Steers Inc. Earnings Call Nuggets: Fee Rate Trend, China Outlook

On Thursday, Cohen & Steers Inc (NYSE:CNS) reported its first quarter earnings and discussed the following topics in its earnings conference call. Here’s what the C-suite revealed.

Fee Rate Trend

Adam Beatty – Bank of America Merrill Lynch: Just a question on the fee rate trend. It looks like maybe it ticked down a little bit overall and Matt mentioned at the outset, kind of a mixed shift within subadvice and some currency effects. Could you give us a little more detail on that?

Robert H. Steers – Co-chairman and Co-CEO: Sure. Well within the subadvice, what we’ve seen in this quarter is that our higher fee offering which is global, we had lower billable assets in the global, which is a higher fee paying strategy, because the net outflows, partially offset by a little bit of appreciation. U.S. REIT, which is lower fee paying, had higher average billable assets due to net inflows and market appreciation. So both the inflows and appreciation amplify the effect of higher billable assets in a lower fee paying strategy. So that gives some kind of drag on the institutional side, and then we all know that one of our – most important institutional clients being Daiwa, when we record our fees which are paid in yen, the spot rate of the yen versus the dollar devalued versus the average rates. So when we record the fee income at an average rate, which Generally Accepted Accounting Principles tells you have to do, it increases fee income, with an offsetting debit in non-operating. So although it’s EPS neutral it does tend to gross up the income statement. But I think essentially, it is a mix issue related to what I just articulated.

Adam Beatty – Bank of America Merrill Lynch: Then a question on the international realty subadvised flows. I mean performance has lagged as you mentioned, but definitely nothing like last summer when there were some significant challenges across the industry, but it seems like flows may be actually got a little bit worse and I might have expected better. Any commentary on that? Is this a question of retail maybe just lagging a little bit or what are you seeing there?

Matthew S. Stadler – EVP and CFO: That’s a good question. It’s hard to say. We’re not really seeing, we’re seeing more muted demand for global and international. U.S. as a market I think is – investors are more comfortable investing in U.S. real estate based on the lower risk of financial issues such as you see in Europe and the volatility you’re seeing in Asia. So on a risk return basis, investors seem to be opting more for U.S. than for non-U.S. real estate investing and the returns I think have been pretty solid there.

Martin Cohen – Co-Chairman and Co-CEO: This is Marty. This is the trend of the industry as well. It’s not just what we’re seeing across the industry that’s the case.

Adam Beatty – Bank of America Merrill Lynch: Lastly, just a clarification, earlier you mentioned in connection or maybe a connection the subadvisory outflows and then inflows to the model-based strategy is any of that sort of the same customers actually physically migrating or is it just two separate effects?

Robert H. Steers – Co-chairman and Co-CEO: It’s not the same customers.

Matthew S. Stadler – EVP and CFO: As I have mentioned before, lots of different accounts here.

China Outlook

Macrae Sykes – Gabelli & Company: I missed the fire drill alarms.

Robert H. Steers – Co-chairman and Co-CEO: We got one schedule for 11.30.

Macrae Sykes – Gabelli & Company: I think you just mentioned this, but some of the recent real estate data out of China has been discouraging, can you give us some general insight on our outlook for China and maybe some comment on the impact of maybe having on real estate investing in Asia region and also globally and I just have one follow-up?

Adam Beatty – Bank of America Merrill Lynch: Just a question on the fee rate trend. It looks like maybe it ticked down a little bit overall and Matt mentioned at the outset, kind of a mixed shift within subadvice and some currency effects. Could you give us a little more detail on that?

Robert H. Steers – Co-chairman and Co-CEO: Sure. Well within the subadvice, what we’ve seen in this quarter is that our higher fee offering which is global, we had lower billable assets in the global, which is a higher fee paying strategy, because the net outflows, partially offset by a little bit of appreciation. U.S. REIT, which is lower fee paying, had higher average billable assets due to net inflows and market appreciation. So both the inflows and appreciation amplify the effect of higher billable assets in a lower fee paying strategy. So that gives some kind of drag on the institutional side, and then we all know that one of our – most important institutional clients being Daiwa, when we record our fees which are paid in yen, the spot rate of the yen versus the dollar devalued versus the average rates. So when we record the fee income at an average rate, which Generally Accepted Accounting Principles tells you have to do, it increases fee income, with an offsetting debit in non-operating. So although it’s EPS neutral it does tend to gross up the income statement. But I think essentially, it is a mix issue related to what I just articulated.

Adam Beatty – Bank of America Merrill Lynch: Then a question on the international realty subadvised flows. I mean performance has lagged as you mentioned, but definitely nothing like last summer when there were some significant challenges across the industry, but it seems like flows may be actually got a little bit worse and I might have expected better. Any commentary on that? Is this a question of retail maybe just lagging a little bit or what are you seeing there?

Matthew S. Stadler – EVP and CFO: That’s a good question. It’s hard to say. We’re not really seeing, we’re seeing more muted demand for global and international. U.S. as a market I think is – investors are more comfortable investing in U.S. real estate based on the lower risk of financial issues such as you see in Europe and the volatility you’re seeing in Asia. So on a risk return basis, investors seem to be opting more for U.S. than for non-U.S. real estate investing and the returns I think have been pretty solid there.

Martin Cohen – Co-Chairman and Co-CEO: This is Marty. This is the trend of the industry as well. It’s not just what we’re seeing across the industry that’s the case.

Adam Beatty – Bank of America Merrill Lynch: Lastly, just a clarification, earlier you mentioned in connection or maybe a connection the subadvisory outflows and then inflows to the model-based strategy is any of that sort of the same customers actually physically migrating or is it just two separate effects?

Robert H. Steers – Co-chairman and Co-CEO: It’s not the same customers.

Matthew S. Stadler – EVP and CFO: As I have mentioned before, lots of different accounts here.