EUR 850.00 For Business Accounts Only

Morningstar | Cohen & Steers Hit by Both Derisking and Tax-Loss Selling in 4Q; No Change to FVE

There was little in narrow-moat-rated Cohen & Steers' fourth-quarter results that would alter our long-term view of the firm. We are leaving our $39 per share fair value estimate in place. The company closed out the December quarter with $54.8 billion in assets under management, down 8.8% sequentially and 11.7% year over year. Net outflows of $1.2 billion were indicative of the weaker flow environment we are seeing overall for the U.S.-based asset managers as investors have been derisking the past couple of quarters (and tax-loss selling picked up in December). Almost all of Cohen & Steers' outflows during the fourth quarter came from retail and institutional clients, with $1 billion and $189 million in outflows, respectively. While we continue to expect flows to be constrained at times during 2018-20, we still envision organic growth of 2%-3% over our five-year forecast, better than most of Cohen & Steers' publicly traded peers.

While average AUM was down 7.1% year over year, fourth-quarter revenue decreased just 5.6%, due primarily to an increase in the firm's realization rate to 0.585% (from 0.572% in the year-ago period) driven by changes in product and channel mix. Full-year top-line growth of 0.6% was in line with our forecast of low-single-digit revenue growth this year. As for profitability, the firm's full-year adjusted operating margins of 38.6% were a step down from 40.9% in the year-ago period (due primarily to an uptick in compensation costs) and just outside of our 2018 forecast for margins of 39%-40%. Going forward, we expect margins to be relatively flat, as the operating leverage that active asset managers like Cohen & Steers have traditionally enjoyed is blunted by higher operating expenses, with the industry expected to have to spend more to enhance/maintain investment performance and secure access to retail-advised platforms longer term.