Morningstar | Cohen & Steers Successfully Navigates Higher Costs and Investor Derisking During 3Q
There was little in narrow-moat-rated Cohen & Steers' third-quarter results that would alter our long-term view of the firm. We are leaving our $45 per share fair value estimate in place. The company closed out the September quarter with $60.1 billion in total AUM, down 0.2% sequentially and 2.3% on a year-over-year basis. Net outflows of $76 million 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. All of Cohen & Steers' outflows during the third quarter came from institutional clients ($501 million in outflows), with retail clients remaining in positive flow territory (generating $425 million in inflows during the third quarter). While we continue to expect flows to be constrained at times during 2018-19, we still envision organic growth in a 1%-3% range, better than most of Cohen & Steers' publicly traded peers.While average AUM was down 1.4% year over year, third-quarter revenue increased 1.6% when compared with the year-ago period, due primarily to an increase in the firm's realization rate to 0.584% (from 0.563%) driven by changes in product and channel mix. We continue to forecast full-year low-single-digit revenue growth this year, in line with the 2.9% top-line growth figure Cohen & Steers put up for the first nine months of 2018. As for profitability, the firm's year-to-date operating margins of 39.3% were a step down from 40.8% in the year-ago period (due primarily to an uptick in compensation costs), but we're still certain that Cohen & Steers will close out the year with margins between 39%-40% of revenue. That said, we believe that the scalability that has existed in asset manager models for years will be blunted somewhat as we move forward, as firms like Cohen & Steers need to spend more to enhance/maintain investment performance and secure access to institutional clients and retail-advised platforms.
Cohen & Steers is a holding company. Through its subsidiaries, the company is an investment manager focusing on liquid real assets, including real estate securities, listed infrastructure, commodities and natural resource equities, as well as preferred securities and other income solutions. The company manages three types of investment vehicles: institutional accounts, which represent portfolios of securities it manages for institutional clients; open-end funds, which provide and issue shares continuously as assets are invested and redeem shares when assets are withdrawn; and closed-end funds, which are registered investment companies that have issued a fixed number of shares through public offerings.
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.
Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.
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