Cohen & Steers Inc (CNS) 2020 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the Cohen & Steers Third Quarter 2020 Earnings Conference Call. (Operator Instructions) This conference is being recorded Thursday, October 22, 2020.

And now I'd like to turn the conference over to Brian Heller, Senior Vice President and Corporate Counsel of Cohen & Steers. Please go ahead.

Thank you, and welcome to the Cohen & Steers Third Quarter 2020 Earnings Conference Call. Joining me are our Chief Executive Officer, Bob Steers; our President, Joe Harvey; and our Chief Financial Officer, Matt Stadler.

I want to remind you that some of our comments and answers to your questions may include forward-looking statements. We believe these statements are reasonable based on information currently available to us, but actual outcomes could differ materially due to a number of factors, including those described in our accompanying third quarter earnings release and presentation, our most recent annual report on Form 10-K, our quarterly reports on Form 10-Q for the quarters ended March 31, 2020, and June 30, 2020, and our other SEC filings. We assume no duty to update any forward-looking statement. Furthermore, none of our statements constitute an offer to sell or the solicitation of an offer to buy the securities of any fund.

Our presentation also contains non-GAAP financial measures that we believe are meaningful in evaluating our performance. These non-GAAP financial measures should be read in conjunction with our GAAP results. A reconciliation of these non-GAAP financial measures is included in the earnings release and presentation to the extent reasonably available. The earnings release and presentation as well as links to our SEC filings are available in the Investor Relations section of our website at www.cohenandsteers.com.

With that, I'll turn the call over to Matt.

Thank you, Brian. Good morning, everyone. Thanks for joining us today. My remarks this morning will focus on our as adjusted results, a reconciliation of GAAP to as adjusted results can be found on Pages 18 and 19 of the earnings release and on Slides 16 and 17 of the earnings presentation.

Yesterday, we reported earnings of $0.67 per share compared with $0.65 in the prior year's quarter and $0.54 sequentially. Revenue was $111.4 million for the quarter compared with $104.9 million in the prior year's quarter and $94 million sequentially. The increase in revenue from the second quarter was primarily attributable to higher average assets under management, an additional day in the quarter, and the recognition of $5.2 million of performance fees from certain institutional accounts.

Our implied effective fee rate was 59 basis points in the third quarter compared with 56 basis points in the second quarter. Excluding performance fees, our third quarter implied effective fee rate would have been 55.8 basis points.

Operating income was $44.2 million in the third quarter compared with $40.7 million in the prior year's quarter and $35.5 million sequentially. Our operating margin increased to 39.6% from 37.7% last quarter.

Expenses increased 14.8% on a sequential basis, primarily due to higher compensation and benefits and distribution and service fees. The compensation to revenue ratio was 36.5% for the third quarter, consistent with the guidance provided on our last call. And the increase in distribution and service fees was primarily due to higher average assets under management in U.S. open-end funds.

Our effective tax rate for the quarter was 27% consistent with the guidance provided on our last call. Page 15 of the earnings presentation displays our cash, corporate investments in U.S. treasury securities and seed investments for the current and trailing 4 quarters. Our firm liquidity totaled $201.9 million at quarter end compared with $191.9 million last quarter, and we remain debt free.

Total assets under management was $70.5 billion at September 30, an increase of $4.2 billion or 6% from June 30. The increase was due to net inflows of $2.3 billion and market appreciation of $2.6 billion, partially offset by distributions of $724 million. For the second consecutive quarter, we have recorded net inflows into each of our vehicles: open-end funds, advisory, Japan subadvisory and subadvisory ex Japan.

Advisory accounts, which ended the quarter with a record $16.1 billion of assets under management, had net inflows of $106 million during the quarter, $323 million of which were included in last quarter's pipeline. We recorded $381 million of inflows from 6 new mandates and a record $689 million of inflows from existing accounts. Partially offsetting these inflows were $950 million of outflows from 5 terminated accounts. One of the terminations, which totaled $506 million and was mentioned on last quarter's call, was from a global listed infrastructure mandate that was performance related. It is noteworthy that the account that terminated is not representative of the performance of our global listed infrastructure assets under management because the combination of the benchmark and portfolio guidelines were different and unique.

Net outflows from advisory accounts were primarily into global and U.S. real estate portfolios. Bob Steers will provide an update on our institutional pipeline of awarded unfunded mandates.

Japan subadvisory had net inflows of $294 million during the quarter compared with net inflows of $318 million during the second quarter. This marked the fifth consecutive quarter of net inflows from Japan subadvisory after 8 previous quarters of net outflows. Distributions from these portfolios totaled $359 million compared with $334 million last quarter. Subadvisory excluding Japan had net inflows from existing relationships of $199 million, primarily into global real estate portfolios.

Open-end funds, which ended the quarter with a record $31.4 billion of assets under management, had net inflows of $1.6 billion during the quarter, primarily to U.S. real estate and preferred funds. Distributions totaled $239 million, $186 million of which was reinvested.

Let me briefly discuss a few items to consider for the fourth quarter. As has been the case throughout most of this year, we continue to perform at a very high level with respect to those matters within our control, such as investment performance and organic growth. In fact, through September 30, we have already broken our previous records for full year gross inflows, open-end fund assets under management and advisory assets under management, and we recorded a 13% annualized organic growth rate.

That said, our financial results continue to be affected by factors we cannot control, such as overall market volatility and the economic uncertainty resulting from the COVID-19 pandemic. On a year-to-date basis, our assets under management have declined by $6.1 billion, resulting from market depreciation during the first quarter drawdown. Therefore, we expect our compensation to revenue ratio for the fourth quarter to remain at 36.5%.

On our last earnings call, I mentioned that as a result of a large open-end fund inflow into a legacy share class with a higher revenue share component, we expect that our third quarter distribution expenses to increase by 1.5 to 2 basis points. Although we did see the expected increase associated with the large second quarter flow because of a sequential shift in the third quarter into lower cost share classes, distribution expenses increased by a little less than 0.5 basis point. All things being equal, we expect that our fourth quarter distribution cost will remain consistent with the third quarter rate.

As a result of the continued impact of the COVID-19 pandemic on travel and entertainment and hosted and sponsored conferences, we now project that our G&A will decline by about 4% to 5% from the $46 million we recorded in 2019, with the fourth quarter approximating the amount we recorded this quarter. And finally, we expect that our effective tax rate will remain at approximately 27%.

Now I'd like to turn the call over to Joe Harvey, who will discuss our investment performance.

Thank you, Matt, and good morning, everyone. Today, I will review our investment performance, then provide some perspective on how our largest asset classes are performing as the pandemic and recession progress. Notwithstanding expectations for this fall's resurgence in the virus and sustained economic challenges, markets were strong in the third quarter due to ongoing monetary status, hope for additional fiscal stimulus, both pre and post presidential election and progress made with potential protocols to protect against and prevent the virus.

The high-level summary of our asset class performance is that preferreds performed well versus fixed income, U.S. and global REITs and infrastructure notably trailed throughout the technology-led rally in stocks and certain of our strategies with energy allocations unperformed on concerns about the secular decline in the demand for oil, considering the growing focus on renewables.

Turning to our performance scorecard. In the third quarter, 7 of our 9 core strategies outperformed their benchmarks, while midstream energy and resource equities underperformed. For the last 12 months, 5 of 9 core strategies outperformed benchmarks and 1 performed in line.

As measured by AUM, 20% of our portfolios are outperforming on a 1-year basis, 83% are outperforming over 3 years and 99% are outperforming over 5 years. The 1-year figure declined from 75% last quarter while the 3- and 5-year figures were consistent. Last year, our 1-year outperformance was 96%, and the decline to 70% was primarily due to preferred strategies. For the 1-year period, 21% of preferred strategies were outperforming. If all preferred strategies outperformed, our firm-wide AUM outperformance would be 92%. Separately, 92% of our open-end fund AUM is rated 4- or 5-star by Morningstar compared with 98% last quarter.

Preferreds returned 4.4% in the quarter. We outperformed in both our core and low-duration preferred strategies. While we've outperformed for 2 consecutive quarters, we haven't yet turned the latest 12-month figures to the positive. However, our performance versus peers continues to be strong. Treasury yields and returns were basically flat in the quarter, while credit performed well. As the recession has continued, the early concerns about fundamentals for banks and insurance companies, which account for 78% of the preferred market have receded. Meantime, preferred credit spreads have compressed due to the scarcity of yield and investor demand.

As we've highlighted over the past several quarters, banks entered this recession with very high capital ratios and strong liquidity. So despite higher provisions for loan losses and a flat yield curve, we believe preferred dividends from banks are solid and preferred yields offer good value. Preferred yield spreads versus corporates are 248 basis points compared with their historical average of 192 basis points.

The performance of real estate and infrastructure in the quarter deserves discussion. These asset classes lagged the U.S. and global stock markets, which returned 8.9% for the S&P 500 and 8.2% for the global market. U.S. REITs returned 1.2%, global REITs returned 2% and infrastructure returned 2%. Yes, technology continues to lead markets and is the biggest beneficiary of pandemic conditions, yet consumer discretionary, materials and industrials beat the performance of tech in the third quarter.

In the quarter, just 2 of the 16 subsectors of real estate outperformed the S&P and in infrastructure, just 1 of 10 sectors outperformed. Furthermore, REITs and infrastructure underperformed value. With 2 consecutive quarters of underperformance, the market may be signaling that it could take longer for certain segments of real estate and infrastructure to recover.

Over the past 2 quarters, we have shared our thinking about which segments of these asset classes are directly affected by the pandemic and recession and what percentage is less affected or benefits. Looking at the 5 worst-performing REIT sectors in the third quarter provide some context for the range of recovery profiles and what market is discounting. Shopping centers and regional malls faced secular decline due to e-commerce and cyclical challenges from businesses that are partially or fully closed. Office buildings faced significant cyclical pressure and secular erosion due to a shift to the work-from-home environment. Apartments have cyclical pressure in urban locations but much less so in suburban locations. And cell towers are clear winners, gave back some outperformance in the quarter.

To update our thinking on the pandemic impact and recovery profile for each asset class, in real estate, we estimate that 45% of the universe benefits from the pandemic and structural changes that should come of it; 14% faces cyclical or temporary challenges but could recover within 2 to 3 years; and for 27%, the recovery will depend on a vaccine; and finally, 13% could suffer more permanent impairment, namely retail and office.

Looking at infrastructure, we believe 11% of the universe is a long-term beneficiary of the pandemic, 71% is cyclically impacted, 1% is dependent on a vaccine, and 17% has longer term structural challenges, specifically airports and pipelines. This landscape appears to be counted into valuations with real estate trading at 16.6x earnings or a 13-point PE multiple discount to stocks versus a historical discount of 2 multiple points.

Less dramatic but similar, infrastructure is trading at a 0.5 point discount to the market, whereas historically, it is traded at a premium price to earnings ratio. The upshot of this is that active management is more important as ever as there will be windows of opportunity in all of these fundamental and recovery profiles. And the price declines that have occurred this year have created an attractive entry point for both real estate and infrastructure investors.

Furthermore, the opportunity to help clients navigate the cycles between private and public markets is significant. Keep in mind that most private real estate allocations are highly weighted, often 50% or more in retail and office, which are seeing both cyclical and secular challenges. This will help push more real estate allocations to the public market, which contains more new economy property types and greater liquidity to capitalize on dislocations and mispricing.

Looking at our relative performance, we had an outstanding quarter in real estate. We outperformed in U.S. REITs, global REITs, and in every regional strategy, and in every style of strategy by income or risk profile. Over the past 12 months, our real estate performance is as strong as I can remember. In infrastructure, we outperformed in the quarter and over the past 12 months, exceeding our excess return bogeys.

Turning to investment department priorities. We continue to develop our next generation of portfolio managers, to integrate ESG into our decision-making and to incorporate quantitative research into our fundamental investment processes. New strategy development is a priority and is showing good initial results. We have 9 track record accounts for strategies that have been developed over the past 3 years. All are outperforming benchmarks and 7 of 9 are outperforming our excess return targets. We expect to add this stable of offerings as we find great ideas and continue to innovate.

We continue to engage with clients at a high level. In addition to providing us when and how to establish or enhance allocations and how to optimize public and private real assets, recently, we have been responding to inquiries about potential portfolio strategies to provide inflation protection. We will continue to add capabilities to help clients solve those types of asset allocation questions.

As a testament to both our performance and distribution, our market share and our largest strategies continues to increase. Since 2016, our market share of AUM and domestic fund vehicles has increased every year for both U.S. and global real estate as well as for preferreds and infrastructure. Market share is measured against both active and the industry's passive AUM. This validates our belief in the specialist model, which has provided the foundation for us to achieve our excess return targets and compete effectively versus both active and passive strategies.

With that, I'll turn the call over to Bob Steers.

Thanks, Joe, and good morning, everyone. As Matt indicated, this was another strong quarter with $2.3 billion of net inflows. We've now achieved strong positive organic growth in 5 consecutive quarters and in 20 of the last 24 quarters. As has been the case all year, our inflows were broad based and diverse. All 4 distribution channels were net inflows again, and most geographic regions were as well.

An indicator of incremental drivers of demand beyond strong relative investment performance and improving distribution capabilities, our year-to-date gross inflows have already exceeded our prior full year sales record by over 20%. As has recently been the case, the wealth channel led the way in the quarter, with $1.6 billion of net inflows, representing a 22% organic growth rate.

Year-to-date gross inflows of $13.6 billion have already beaten the 2019 full year record of $12.5 billion. U.S. open-end net inflows of $1.3 billion were primarily derived from our preferred securities and U.S. real estate strategies.

Fund flows within wealth were strong in every intermediary channel. Net flows from RIAs were $752 million, representing a 34% organic growth rate. The bank trust and insurance segment delivered net inflows of $306 million, a 32% organic growth rate. And the wirehouse channel generated $299 million, an 18% organic growth rate.

As we've said in the past, we believe the new and vastly improved vintage of closed-end funds represents a large and dynamic new growth opportunity for CNS. The new fee structures, along with some limits on duration, have the potential to substantially expand the universe of potential buyers to include larger and more sophisticated investors, which in turn, will open up the range of investment strategies that can be successfully floated beyond traditional fixed income portfolios. We are currently in the market with a closed-end preferred securities offering. As I said, we believe this market will be an important new source of future growth, and we're developing new and innovative strategies for this space.

I'm also pleased to report that David Conway has joined Cohen & Steers to direct our EMEA Wholesale Distribution efforts. Although we've been generating modestly positive net inflows in our non-U.S. open-end funds, we anticipate a significant improvement over time under David's leadership. David was previously Director of Wholesale Distribution for Asia at Jupiter Asset Management.

The institutional advisory channel had net inflows of $106 million, which marked the sixth consecutive quarter of positive net flows. Similar to the wealth channel, year-to-date gross inflows of $3.7 billion have already substantially exceeded the prior full year record set in 2018 of $2.1 billion. As Matt mentioned, we also did experience 1 global listed infrastructure termination of $506 million, which we previously disclosed.

In the quarter, we were awarded 6 new mandates totaling $381 million, which were primarily targeted to U.S. REIT strategies. In addition, existing clients contributed another $689 million, also mainly directed to U.S. and global real estate portfolios. The pipeline of awarded but unfunded mandates remains at $1.25 billion. New mandates totaled $560 million, while $323 million was funded in the quarter. Partially offsetting this were $240 million of unfunded mandates that have been terminated.

Institutional investors continue to be attracted to the substantial valuation gap between public and private real estate markets. What's more, we are seeing a growing interest in real asset strategies that have the potential to hedge against unexpected inflation, as Joe already mentioned.

Subadvisory ex Japan had a second consecutive strong quarter with $199 million of net inflows. Prior to these 2 positive quarters, we had experienced net outflows in 10 out of the last 13 quarters. We're encouraged that our focus on intermediaries with the potential to develop multi-strategy relationships is beginning to pay off. Japan subadvisory produced another solid quarter with $294 million of net inflows before distributions and $65 million of net outflows after $359 million of distributions.

The next-gen REIT portfolio that we've sub-advised for MUKAM SMBT achieved positive net flows of $33 million, which is down from prior quarters due to COVID related limitations on marketing efforts in Japan. That said, year-to-date net inflows into this portfolio are $269 million.

Our record sales activity this year begs the question, why are real asset and alternative income flows so strong? As I said, we have a 9-month smashed all of our full year sales records despite weak absolute returns in the space. U.S. and global REIT indexes are actually down 12.3% and 19.7%, respectively, through September, and our global listed infrastructure benchmark index is likewise down 11.5%.

Many of our clients who are asset allocators have been looking beyond the market's current trends to address 3 major long-term challenges. First, although 60-40 portfolios have been largely unbeatable for over a decade, it appears unlikely that the 40% dedicated to traditional fixed income will perform as well going forward. As a result, the search for new sources of alternative income, which is not necessarily new, is gaining increasing momentum. Second, with traditional valuations for 60-40 portfolios at or near record highs, the search for undervalued nontraditional asset classes is approaching a frenzy. Real estate, both listed and private, fits that bill.

Lastly, clients are increasingly concerned not only about a reversal for 60-40 portfolios, but also future unexpected inflation, which could be the by-product of our unprecedented monetary and fiscal stimuli. These are all logical and well-grounded issues, which presents exciting investment and product development opportunities for CNS.

We are always intensely focused on developing innovative sources of alternative income. But we have also identified several new opportunities to address the challenges that our clients face, including inflation senses of real asset portfolios and expanding further into investments in non-traded real asset companies. We anticipate that these initiatives will begin to take shape in the coming months.

With that, I'm going to stop there, and I'm going to ask the operator to open the floor for questions.

(Operator Instructions) We have a question from John Dunn with Evercore ISI.

Maybe we could start with kind of a broader question. Just thinking -- looking back a few years, you guys had really invested a lot in real assets institutes to spur growth in the wealth management channel. So starting today, we're seeing the payoff of that. Maybe to frame it, maybe what's the real assets institutes of today? I mean by that's something where you're investing now that a few years from now, we're going to look back and see organic growth. Is it U.S. institutional, that comes to mind or are there others?

John, is the question related to distribution or product development?

Both because it really -- actually it institutes with getting a product into distribution results.

Yes. Well, we continue to emphasize and put a lot of resources behind our education initiatives, our thought leadership pieces, our white papers. And as you can probably guess from Joe's comments and my comments about a significant uptick in institutional interest in hedging strategies that hedge inflation, we're focusing quite a bit on that. So the real asset institute is really just broadly based our commitment to white papers thought leadership. And so yes, we are expanding, we have been expanding and going higher and deeper with our institutional distribution, number one.

Number two, we are continuing to invest in thought leadership and focusing it on the issues and challenges that are on our clients' minds. And three, we have established along with the institute and a significant institutional client advisory panel to both keep them informed, but also work with us to develop innovative new strategies.

Got it. And then maybe could you talk a little bit about the non-Japan subadvisory business, just -- you made some changes over the past year or so, and it's doing better these days. And also, how that -- the interplay between building out that business and trying to have more direct business in -- particularly in Europe?

Sure. Well, as you know, step one was deemphasizing or eliminating some relationships that weren't going to be strategic or long term. Two was to develop a strategic partners program where those relationships, pre-existing relationships and potentially new relationships, would get a package of benefits from preferential fees to access to research and, I think, significant benefits such as that.

We also, as part of that, as you know, the OCIO industry is growing quite rapidly, but it's not homogeneous. There are some OCIOs for whom we manage separate accounts. There are others that utilize our services as sub advisers, and that would manifest itself in this segment. And so I think our existing relationships are poised to grow. And I think we're hopeful that we're going to be adding some meaningful subadvisory relationships with this growing OCIO segment.

(Operator Instructions) We have a question from Robert Lee with KBW.

I just maybe want to focus a little bit on the closed-end fund market. I mean you mentioned in market now with, I think, a firm fund. And I guess 2 questions there. Is that expected? Any color on kind of what you're thinking in terms of size, expected close? And to extent there's no cost related to that, I'm assuming that was not part of the guidance?

No, there was no inclusion of any expected raise for the current fund in our guidance. Since we're in the market in registration on that fund, we can't really comment on the market reception. I will say, and I can't emphasize this more strongly, we see the capital markets, the closed-end funds and other vehicles as a very substantial incremental product and distribution opportunity for us starting now with this fund in the market. We think that you're going to see -- in the closed-end fund market, you're going to see raises that are significantly larger industry-wide than in the past, you're going to see investment strategies that combine public and private and give the public access to securities that they otherwise and investments that they otherwise could not access. So I will encourage you all to totally rethink and reevaluate any impressions you have on the closed-end fund industry because it's going to change substantially. We also see more and more opportunities to work with our clients to benefit from the arbitrage between public and private real assets, and we see that as an exciting new investment opportunity for us and prospectively an asset gathering opportunity.

Great. And maybe just 2 follow-up questions on this topic. You mentioned change in duration. You've seen more term structure type closed-end funds come to market. I'm not sure if that's what you're referring to? And also, one of the changes that I think I perceived in the marketplace is the -- in order to kind of nearly narrow that kind of offering cost of the advisers themselves are ponying up in a more upfront capital. So like if you look at BlackRock's recent $2 billion offering, I think they had about $83 million of cost expenses related to that. So is this -- at least in the short term, while this is obviously a good thing to raise these assets. Is that -- could that impact -- how we should be thinking as a special dividend or anything? If you have some outsized onetime offering costs?

Well, that's a great question. First of all, as you point out, the new structure is obviously a great deal for investors. There's virtually no frictional costs for investors. Sponsors such as ourselves, shoulder all the deal costs, which are not insignificant, as you point out.

I'll make 2 comments on that. One is that, that upfront capital cost create substantial barriers to entry to the closed-end fund market. So whereas in the past, you had closed-end fund offerings from all kinds of firms, big, small and everything in between. I don't believe you're going to see that anymore. And we as the seventh or eighth largest issuer historically in the industry and as you know, we have a fantastic balance sheet. There are no financial barriers for us to this market.

Our end modeling out this opportunity, even with those costs, the IRRs that we're looking at for that exceed 30% with very low risk. So it is, again, an exciting opportunity. Yes, it is a new use for our capital, which, as you know, we've generally paid out at significant special each year. I can't comment on the special this year, but we will go through the same process we go through every year, which is evaluating our cash reserves and alternative uses for that cash.

And we have a question from Mike Carrier with Bank of America.

Joe, you mentioned the 9 new strategies, but I think you mentioned something on a non-traded space at the end your comments. So can you provide some color on the types of new strategies? And maybe the process ramping up in the distribution channels and where you expect the most demand?

Yes. So in terms of new strategy development, which has been a project for the past 3 years, we've got a lot that are extensions of our core competencies. So for example, in the infrastructure area, one of the -- ones that we're most high on is digital infrastructure, which plays to the whole e-commerce ecosystem. And as you can imagine has performed extremely well throughout this environment. It ranges from that to small-cap infrastructure, which is a thematic play to ground in an investment thesis that all of the -- some of the capital that's being raised in the private market is going to find its way into the public markets by way of buying companies or buying parts of companies.

We also have other things like a lower risk approach to diversified real assets, which de-weight some of the more volatile parts of the real asset portfolio and inserts tips and other short term credit. So these records are very consistent with the things that we do, but they're grounded in either great investment ideas or trends that we see being sustained.

I think Bob mentioned the potential to develop some strategies to optimize how to invest in both the public and private market for real assets. I mean we're not ready to talk about some of the things we're working on there. But we're -- we think there's a terrific opportunity to take what some of our peers are doing in the private space for delivered and non-traded, for example, or through the closed-end fund market, which along with the features that Bob talked about is a need or a desire to have access to investments that are tougher to get. And many times, it has a private element to it. So for example, you may have -- if you've been following us, you may have seen a press release where we, on behalf of our clients, made an investment in a private real estate company called Lineage, a cold storage operator. So that's the type of investment that we think matches nicely with the closed-end fund market.

So we'll have more to talk about, but the -- we're excited about continuing to innovate and provide better ways for both institutions and wealth investors to invest in real estate.

All right. Great. And then maybe a second one, just a question on capital and M&A in sort of 2 parts. You guys have been doing special dividends as cash builds, but you've also looked at some M&A in the past. It looks like there's more activity in the industry. So as your priority on cash changed at all? And then given more industry M&A and the need for scale in certain areas, you had also many pitfalls. How do you think about the longer term outlook performance years, meaning continuing as a strong performing focused asset manager or needing to be part of a larger platform?

Well, look, as we've talked about, our focus continues to be adding exciting investment opportunities that seek to break new ground and develop and deliver great returns for our clients and to address our clients' issues. With respect to M&A, as you know, we've really not done anything in terms of us looking at potential targets. We're always looking to fill gaps and add capabilities. But historically, we've typically done that organically. And so both of those options are open to us.

Candidly, to be honest, and there's a great Greenwich Associates study recently that put, I think, the industry in perspective, which basically said there are 2 ways to be successful going forward. One is scale, and everybody knows the big names out there and so on. That gives you product breadth and distribution and so on. But it doesn't give you investment performance. And the other bucket is specialists, focused managers, who have something special, who dominate an asset class.

And as you can see from our margins and from our results, we don't need scale to deliver profitable growth. And frankly, scale is probably more of an obstacle to investment -- good investment performance rather than helping it. So I think your scale question, I think, pertains to traditional very large asset managers who are in organic decay whereas, I think, product specialists like ourselves and others, scale is not the issue, it's can we sustain outstanding performance.

(Operator Instructions) We have a follow-up question from John Dunn with Evercore ISI.

I looked at the infrastructure team's performance, and it remains good. And you mentioned the kind of emerging new types of infrastructure stuff. But is it just really a change in rates that's going to get this product really inflowing?

Well…

It depends on the channel, right? Institutionally, there's lots of interest and it's growing. I think the wealth channel has trouble understanding exactly what it is. And so my sense is, and Joe, you're probably closer to this than I, but my sense is the infrastructure portfolios that have had some success and the wealth channel are primarily yield driven as opposed to more fundamental.

Well, I would say a couple of things: one, as Bob said, institutionally, there's a lot of interest and because of the liquidity offered in listed infrastructure, you were seeing more interest from smaller institutions. So I don't know, maybe that's a precursor to wealth beginning to adopt it. But yes, the funds that have had the most success and the wealth channel have had a high-income component to them. But I'd say that when you look at all of the activity that's surrounding infrastructure, right? And the pandemic is a great advertisement for it. Not -- I don't mean to speak of it in the terms, but the -- had we not -- this country has not made an investment in 5G and e-commerce, think about where we'd be. So there's a tremendous investment opportunity and, ultimately, capital will follow that.

And another example will be renewables, right? It's likely that there's going to be a lot of focus and investment required in renewables. We're seeing it in Europe. Depending on who is elected as President, we could see more emphasis or less emphasis. But on the whole topic of infrastructure, there's significant investment needs across a variety of fronts on infrastructure. And I think, ultimately, that will help drive capital into our vehicles.

And we have a follow-up question from Robert Lee with KBW.

I apologize, I think I just missed it in your earlier comments, but could you repeat what kind of your current pipeline is? And then one but unfunded. And then -- just kind of any kind of near-term color on -- clearly, institutional activity is strong. But any kind of color on kind of RFP activity, search activity at least in on tactical place until the end of the year?

As we mentioned, the pipeline of awarded but unfunded mandates is about $1.25 billion. The -- and looking at that pipeline, it is -- as has been the case, mainly real estate related strategies, U.S. and global. With respect to RFP activity, the only -- I think the new momentum that we're seeing just in the last 6 months is both an interest in creating portfolios that can provide significant hedge against unexpected inflation. We're seeing in the wealth channel, as I said, but also elsewhere, just strong interest in alternative income strategies. And we're also seeing -- we keep talking about there's a significant arbitrage between public and private market valuations, particularly in real estate, and we have a number of existing clients and potentially new clients that want to rely on us to craft and implement strategies that can help them navigate their allocations between public and private. So I think there are 2 really or even 3 interesting new avenues of growth for us, inflation hedges, arbitrage between public and private and obviously, additional alternative income strategies.

And there are no further questions at this time. I'll turn the call back to Bob Steers.

Great. Well, thank you all for dialing in this morning. And we look forward to sharing our -- some of the exciting ideas that we're working on now on our next call. Thank you.

That concludes the call for today. We thank you for your participation and ask that you please disconnect your line.