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Operator
Good morning, and welcome to the Cohen & Steers fourth-quarter 2006 financial results conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer period. (OPERATOR INSTRUCTIONS).
I would now like to turn the call over to Mr. Sal Rappa, Senior Vice President and Associate General Counsel. Please go ahead, sir.
Sal Rappa - SVP and Associate General Counsel
Thank you and welcome to the Cohen & Steers fourth-quarter and 2006 earnings conference call. Joining me are Co-Chairman and Co-Chief Executive Officers Marty Cohen and Bob Steers; our President, Joe Harvey, and our Chief Financial Officer, Matt Stadler. Before I turn the call over to Bob, I would like to make the following remarks.
Yesterday, we issued a press release announcing fourth-quarter and 2006 financial results. The press release, which is available on our website at cohenandsteers.com, contains information that we believe is useful in helping you evaluate our performance during the quarter and year.
I want to point out that during the course of this conference call, we may make a number of forward-looking statements. These forward-looking statements are subject to various risks and uncertainties and there are important factors that could cause actual outcomes to differ materially from those indicated in these statements. We believe that some of these factors are described in the Risk Factors section of our 2005 Form 10-K. I want to remind you that the Company assumes no duty to update any forward-looking statements.
Also, the presentation we make today will contain pro forma or non-GAAP financial measures, which we believe are meaningful in evaluating the Company's performance. For detailed disclosures on pro forma metrics and their GAAP reconciliations, you should refer to the financial data contained within the press release we issued yesterday, as well as the press release we issued on January 25, 2006, with respect to the fourth-quarter and 2005 financial results. Both of these press releases are available on our website at cohenandsteers.com.
Finally, this presentation will contain information with respect to investment performance of certain of our funds. I want to remind you that past performance is not a guarantee of future performance. For more complete information about the funds we will discuss today, including charges, expenses and risks, please call 1-800-330-7348 for a prospectus and see the press release we issued yesterday.
With that, I will turn the call over to Bob.
Bob Steers - Co-Chairman and Co-CEO
Thanks, Sal, and good morning, everyone. This morning, I'm going to start out by briefly discussing the headline numbers, which hopefully you have all seen by now, and then highlight a few of the major accomplishments during the quarter and year. I will hand it over to Matt at that point to expand on the headline numbers and then close out with some thoughts on goals and objectives for 2007.
For the fourth quarter, we reported earnings of $16.6 million or $0.40 a share compared to $8.3 million or $0.21 a share last year, which included a $0.03 nonrecurring charge. For the full year, net income was $3.2 million or $0.08 a share; however, this included the $1.25 per share expense associated with the second-quarter termination of trailer payments tied to some of our closed-end funds, also a $0.02 share gain from the sale of property and equipment.
Looking at 2006, it would certainly be an understatement to say that we were pleased with last year's bottom-line results. It was a great year across the board, including the ongoing implementation of our strategic plan, which is intended to keep us at the forefront of the current very strong trends favoring firms that can deliver consistently strong investment performance with income on a global basis.
Let me highlight a few of the many accomplishments of last year. First and most importantly, we had another year of strong investment performance, with our core U.S. total return, Europe total return, international and global REIT strategies all performing well above their respective benchmarks and peer groups. In addition, our large cap value team ranked in the top 13th percentile of its peer group for the year.
With regard to the buildout of our infrastructure, the bulk of the heavy lifting is over. We completed the purchase of Houlihan Rovers and have successfully integrated their investment team into Cohen & Steers. This was a major process that began over two years ago and has been a resounding success.
In addition, we added during the year experienced analysts and traders in New York, Brussels, Hong Kong and in our newly opened office in London, and now for the first time in our history, we have more REIT investment professionals located outside the U.S. than within.
We successfully completed the expansion of each of our retail sales and institutional sales and client service teams. This was also a major undertaking, which has roughly doubled our headcount for each of these areas. And importantly, 2007 will be the first year in which our sales teams will begin the year fully staffed, and the initial results looking at the fourth quarter have already exceeded our expectations.
As you know, when we went public over two years, we laid out this plan to expand our headcount and infrastructure. And I think it is important to note that we have done so by carefully balancing the associated costs against the expected returns from these investments, and our results, I think, substantiate that we have been highly successful in this regard.
Getting back to the sales and marketing, last year, our strategy of partnering with leading global financial institutions brought us substantial net assets and, importantly, access in both Europe and Asia, and we expect this trend to continue.
Overall, assets under management at year end reached $29.9 billion. This 46% increase from last year was achieved through net inflows of $3.1 billion, market appreciation of $5.2 billion and $1 billion from the acquisition of Houlihan Rovers.
Importantly, virtually all channels contributed to the strong net inflows, and sales momentum grew steadily throughout the year, culminating in our record fourth quarter. Specifically, fourth-quarter net inflows were $1.7 billion, broken down as follows -- open-end funds, $910 million; institutional separate accounts, $307 million; and closed-end funds, $499 million.
For the year, our organic growth rate was 15% and the fourth-quarter annualized ended strongly at 27%. Substantial additional progress was also made toward our goal of growing and diversifying into non-U.S. REIT strategies. Today, 41% of our total assets are invested in strategies outside of U.S. REIT common stocks, up from 30% just one year ago.
This was achieved through a combination of substantial flows into our existing international and global strategies, along with new product launches. Specifically, our International Realty Fund had $1.6 billion of net inflows, and our two new fund launches, C&S Institutional Global and C&S Asia-Pacific, collectively added $199 million.
Institutionally, including existing and new client accounts, we added $1.9 billion of assets invested in a wide variety of international and global strategies. And as we have seen throughout the year, in addition to diversifying our asset base, this mix shift in the international and global strategies has also resulted in an increase in our fourth-quarter weighted average investment management fee to 65 basis points, up from 62 basis points a year ago. I would also note that we are beginning to win separate account mandates in both our preferred and large cap value strategies.
Lastly, our investment banking group had a strong fourth quarter, and by a wide margin, a record year. Their success last year was a result of the generally high level of merger and acquisition activity and our leading position in advising real estate-based companies, especially in the health care sector. And while the outlook for banking will always be unpredictable, we begin the year with an active market and a very full pipeline of possibilities.
I am going to stop there and ask Matt to go into a little more detail on the quarter, and then I will close by commenting on the outlook for this year.
Matt Stadler - CFO
Thanks, Bob. Good morning, everyone. Yesterday, we reported record earnings of $0.40 per share, a 94% increase from the $0.21 per share reported in the prior year's quarter and a 4% increase found the $0.39 per share recorded last quarter. Remember that last year's fourth quarter included a $0.03 per share relocation charge.
We reported record revenue for the quarter of $57.6 million, a 54% increase from the prior year's quarter and up 7% sequentially. Our net income for the quarter was a record $16.6 million, an increase of 99% from the prior year's quarter and up 5% sequentially.
For the year, our second full year as a public company, we reported net income of $3.2 million or $0.08 per share compared with net income of $31.9 million or $0.79 per share in 2005. Net income for 2006 included $1.25 per share after-tax expense associated with the prepayment of certain of our closed-end fund trailers and a $0.02 per share after-tax gain from the sale of property and equipment. Net income for 2005 included $0.08 per share of previously disclosed charges. After adjusting for these items, our 2006 EPS totaled $1.28 per share, up 49% from adjusted 2005 EPS of $0.86 per share.
As a result of net positive inflows across all three of our product offerings, we have now recorded net positive inflows in nine out of the 10 quarters we have been a public company. Combined with overall market appreciation and the inclusion of assets acquired from Houlihan Rovers, our assets under management reached a record $29.9 billion. This was achieved despite capital gain distributions of approximately $602 million from certain of our open-end and closed-end mutual funds. Our overall organic growth rate for 2006 was 15%.
We continued to broaden our product offerings with non-U.S. REIT common stocks now comprising 41% of total assets, up from 30% last year. This includes international securities, which now comprise 19% of total assets, up from 4% a year ago.
Now I will review the performance of our two business segments. In our asset management business, we recorded record quarterly revenue of $52.3 million, up 48% from the prior year's quarter and up 19% sequentially. Pretax income for the quarter was $22.9 million, up 64% from last year's quarter and up 34% sequentially.
Adjusting for the relocation charge in the fourth quarter of 2005, pretax income was up 43%. For the year, this segment had a pretax loss of $3.4 million compared with pretax income of $52 million in 2005. After adjusting for the prepayment of the trailers and the gain on sale of property and equipment in 2006 and the relocation expense and fund launch costs in 2005, pretax income was $71.2 million in 2006, a 28% increase from $55.9 million in 2005.
Asset management's pretax margin for the quarter was 45%. For the year, after adjusting for the prepayment of the trailers and the gain on sale of property and equipment, asset management had a pretax margin of 42%. Please remember that when we compute our pretax margin, we add back amortization of intangible assets, which are attributable to the noncompete agreements.
Now let's review the changes in assets under management. Total assets under management in our closed-end mutual funds totaled a record $11.4 billion at December 31, an increase of $705 million or 7% from the third quarter.
The increase in assets under management was the result of the launch of Cohen & Steers' Closed-End Opportunity Fund, which raised $499 million during the fourth quarter, $523 million if you include the January exercise of the overallotment, combined with $206 million of market appreciation. The $206 million of market appreciation has been reduced by $477 million of capital gain distributions. For the year, assets under management in our closed-end funds increased $1.7 billion or 18%.
Our open-end funds had assets under management of $9.6 billion at December 31, an increase of $1.8 billion or 23% from the third quarter. The increase in assets under management for the fourth quarter was attributable to net inflows of $910 million, led by $678 million of net inflows into our International Realty Fund, combined with market appreciation of $717 million and the inclusion of three non-U.S. open-end mutual funds totaling $163 million from our acquisition of Houlihan Rovers. The $717 million of market appreciation has been reduced by $125 million of nonreinvested capital gain distributions.
Gross subscriptions for the quarter totaled $1.5 billion, our highest level ever. For the year, assets under management increased $4 billion or 71%, led by $1.6 million of net inflows into our International Realty Fund. At December 31, IRF's total assets under management were $2.3 billion.
Our organic growth rate for open-end funds in 2006 was 32%. Assets under management in our institutional separate accounts reached a record $8.9 billion at December 31, an increase of $1.9 billion or 28% from the third quarter. The increase was comprised of net inflows of $307 million, market appreciation of $743 million and the inclusion of 10 new separate accounts totaling $884 million from our acquisition of Houlihan Rovers.
For the year, assets under management increased $3.7 billion or 71%. We added 13 net new separate accounts, and our organic growth rate for separate accounts in 2006 was 15%.
We have closed on the acquisition of Houlihan Rovers in December. Their assets under management, excluding subadvised assets, totaled $1 billion at December 31 and have been included in our assets under management. Later on, I will spend a few minutes going over the acquisition and how it will impact on our 2007 numbers.
Our investment banking segment had its second-best quarter, recording revenue of $5.6 billion, more than double the about recorded in last year's fourth quarter, but down from the third quarter, where we recorded record quarterly revenue of $10.4 million. For the year, the banking segment recorded revenue of $18.8 million, up 59% compared with 2005. Our investment banking revenue remains very unpredictable.
The banking segment recorded a record $7.4 million pretax profit for 2006 compared with $2.8 million for 2005. Fees generated during the year resulted from M&A and capital-raising transactions.
Moving to expenses, on a sequential basis, expenses were up about 8% in the fourth quarter. Employee compensation and distribution and service fee expense comprise the majority of this increase. We mentioned on our last call that our compensation to revenue ratio for the fourth quarter would remain at about 29.5%. In fact, it actually was down a bit at 29.2%. The sequential increase in compensation expense is in line with the increase in revenue, and remember that when we calculate this ratio, we include the equity and earnings of Houlihan Rovers in revenue.
Segueing off of Bob's comment about the buildout of the departments and the addition to headcounts, building our infrastructure, it is important to note that we held our comp ratio down below 30%.
Generally, distribution and service fee expense will vary based upon asset level in our open-end mutual funds and the sequential variance is in line with the average asset growth.
Now turning to the balance sheet, stockholders' equity, including the proceeds from our recently completed secondary offering, reached $243 million, up from $165 million last year. And our cash, cash equivalents and marketable investments totaled $179 million, up from $126 million last year.
Let me briefly discuss a few items to consider for 2007. Last quarter, we mentioned our effective tax rate would remain at 33.5% for the fourth quarter and full year 2006 and then normalize to about 40% in 2007. Based upon larger amounts of assets being managed outside the U.S., we now expect our 2007 effective tax rate to be between 38% and 39%.
In addition, we will derive a cash benefit of approximately $40 million resulting from a tax benefit we will receive on the current value of restricted stock units that will be delivered during 2007, the biggest component coming from the second tranche of vested restricted stock units that were granted at the time of our IPO. This tax benefit will not affect our GAAP tax rate, but will enhance our cash flow throughout the year. Note that we will have a similar cash benefit in 2008.
With respect to compensation, we expect our compensation to revenue ratio to remain below 30% for 2007.
Let's spend a few minutes on the consolidation of Houlihan Rovers. The acquisition closed on December 18. I have already discussed the impact on our assets under management. Other considerations include, for 2007, an increase in fee income; the elimination of subadvisory fees from our G&A line; and the elimination of the equity and earnings of affiliate caption on the income statement.
Finally, as a reminder, effective January 1 of this year, fee waivers expired on two of our closed-end funds. Based on December 31 asset values, this will generate $1.5 million of incremental revenue in 2007. In 2008, fee waivers on four closed-end funds will expire, generating $2.3 million of incremental revenue, also based upon December 31 asset values.
Now let me turn it back to Bob Steers.
Bob Steers - Co-Chairman and Co-CEO
Thanks, Matt. Let me finish up by summarizing some of our goals for the upcoming year and then open it up to Q&A.
First, as we always emphasize, our first and most important focus is on achieving top-tier performance across all of our strategies. It continues to be our view that a combination of factors, including the growing importance and convergence of retail and institutional gatekeepers, together with the oversupply of traditional long-only investment product, means superior performance really is essential for sustainable growth. And even with very strong distribution, that will no longer compensate for inferior returns. So performance, as always, ranks among our top objectives for the year.
We will have additional product launches, which will focus on filling out our global and international product offerings, as well as income-oriented strategies for the closed-end fund market, and notably, our first products in the alternative and hedged categories.
Next, with offices opened and staffed around the world, another important goal is to gain additional partners, platforms and distribution outside the United States and further penetrate our existing market here at home. To that end, we will be very highly focused on maintaining and improving our organic flows from our U.S.-based retail and institutional sales teams, who had a terrific fourth quarter, and we hope that continues into this year.
We want to continue to increase our non-U.S. REIT assets as a percent of total assets under management. In addition to global and international strategies, we hope and expect that after another year of truly outstanding performance, we can have a breakout year for our large cap value asset-gathering efforts, and that will certainly help further diversify our asset base.
Lastly, we are going to continue to position and support our investment banking group to remain at the forefront of the current very high level of M&A activity, especially in our strong suit, the health care sector.
With that, I would like the operator to open it up to Q&A.
Operator
(OPERATOR INSTRUCTIONS). Cynthia Mayer, Merrill Lynch.
Cynthia Mayer - Analyst
In terms of increasing your sales outside the U.S., can you just tell us a little bit about -- characterize the sales now, what percentage of your sales are from outside the U.S., and are those -- they are predominantly institutional, right? Would you be looking to expand mostly institutionally or to retail sales? And if retail, which countries?
Martin Cohen - Co-Chairman and Co-CEO
Cynthia, this is Marty. In our London office, we expect to add some institutional support people, consultant relations and the like. So we expect to increase our institutional penetration in both the UK and continental Europe. That will be in addition to the efforts that Houlihan Rovers have already had there. We think we can add to that.
On the retail side in Europe, we have three SICAVs that are essentially mutual funds available for sale there. And we are talking to some potential partners about partnering for distribution -- nothing to report yet, but that is an effort that will be underway in 2007.
Turning to Asia, we have not had an e-marketing effort in Asia, although that is something that we will probably consider at some time during the year. In Australia, we do have an effort, and it is primarily -- almost exclusively institutional, where we have made a little bit of headway and we expect to make more headway in 2007.
Bob Steers - Co-Chairman and Co-CEO
I would just add to that as well, Cynthia, that, whether it is the SICAV in Europe, we do have two funds domiciled in Australia. And the idea is institutionally, we are going to go direct to consultants and institutional investors. But with respect to retail asset gathering outside the United States, that will be done exclusively through partnerships with large financial service companies.
Martin Cohen - Co-Chairman and Co-CEO
I just have to mention that really our largest distribution partner is Daiwa Securities in Japan. And the Japanese market is really very, very -- is opening up to a much greater extent than ever before. And it looks like global real estate is one of the most -- one of the fastest growing areas of investment for Japanese investors -- institutional and individual.
Cynthia Mayer - Analyst
Is there any difference in fees, selling in the U.S., selling outside the U.S.?
Martin Cohen - Co-Chairman and Co-CEO
Every country, every region has a different model. In some areas, it's very consultant oriented, institutionally. I think that is true in most places around the world. And in retail, it is typically through distribution partners -- that, too, is not unlike it is in the U.S.
Cynthia Mayer - Analyst
And what kind of market appreciation assumptions are you making when you talk about comp to revenues ratio guidance and fee waiver dollars?
Martin Cohen - Co-Chairman and Co-CEO
We basically start with a low-single-digit type of -- 0% to 3% appreciation, because what we want to model is if nothing changes market-wise, how do we run our business?
Cynthia Mayer - Analyst
And last thing, if you could just -- I appreciate the banking revenues are lumpy quarter to quarter, but over time they are growing too. Should they just be growing basically in line with the industry overall? Or is there some market share gain going on there? How are you thinking about those for next year, aside from the lumpiness quarter to quarter?
Bob Steers - Co-Chairman and Co-CEO
I don't think it's a business that you can think about in terms of having a growth rate. What is happening right now is a cyclical dynamic, where M&A has increased in their area of specialty, and that is primarily health care businesses that have a significant real estate component to them, primarily the assisted living sector.
So it's hard to give you guidance on how to think about what that business can do. But I would urge you to look at M&A trends and specifically what is happening in the assisted living and nursing home businesses to think about what they potentially could do.
Cynthia Mayer - Analyst
And just one more question, if I can -- it seems like I'm seeing introduction of some new ETFs devoted to international REIT and realty products. And it looked like your portfolio consulting fees were up. Would you expect more flows proportionally to go to ETFs and indexes in this area?
Sal Rappa - SVP and Associate General Counsel
Cynthia, could you repeat the question? Because it skipped out right at the critical point.
Cynthia Mayer - Analyst
It seems as though -- I have seen some ETFs devoted to international REIT products. And your portfolio consulting fees are up, too. And I'm just wondering, as you look out a year or two, whether you expect more of the flows in the industry proportionally to start moving to passive versions of these investments?
Martin Cohen - Co-Chairman and Co-CEO
I think it is a natural evolution that we're seeing in every sector of the market, where ETFs are getting a bigger and bigger share. We expect to have our name on an ETF that is global this year, just like we have the largest ETF for domestic, which, by the way, is almost $3 billion in size today. That is ICF. We make a very tiny basis point type of earnings on that, but on $3 billion it's meaningful. And that is one reason why you are seeing the consulting revenues go up.
Another reason you're seeing the consulting revenues go up is that we have a very strong relationship with Van Kamepen in the unit investment trust area. We are consultants to UITs in U.S. REITs, preferreds, global REITs as and closed-end funds. And that is over $1.5 billion in UITs that we have consulted to, and that is another very important reason for the consulting fees to go up. That continues to be a very strong relationship and one that we hope will grow.
Operator
Mike Carrier, UBS.
Mike Carrier - Analyst
Just another question on the distribution side. When you look at the platforms that you are on in the international markets, what are you on versus what is the opportunity?
Bob Steers - Co-Chairman and Co-CEO
I'm sorry, what are we on versus what?
Mike Carrier - Analyst
What is the number out there that you see as the opportunity?
Bob Steers - Co-Chairman and Co-CEO
How big is the opportunity outside the U.S.? I think it's unlimited. It is very large. It is, I think, larger than the U.S.-only opportunity, and as Marty mentioned, institutionally I think Asia is moving capital into our sector faster than Europe. But with the advent of the REIT structure in the UK and shortly in Germany, there's a substantial amount of press over there and consultants are now starting to understand that real estate securities need representation in portfolios.
So you haven't even seen real estate securities really find their way into products and platforms and distribution channels in Europe. And it is just starting in Asia. And those are extremely large markets where real estate securities start out with a zero market share.
So it's a very big opportunity. We would not have gone through all that we have in terms of creating a global enterprise if we didn't think the opportunity was significantly larger than the U.S. opportunity.
Mike Carrier - Analyst
I was getting more towards, like, how many platforms you are on versus what the target in terms of the number of partners that you think are out there.
Bob Steers - Co-Chairman and Co-CEO
It will depend a little bit on how successful we are initially. We have been fortunate in that the partners we have, in a sense we're starting out at the top and working our way down with terrific names like Daiwa. And we are on several global real estate securities platforms with the Frank Russell Company.
But in Europe, which is a complex market, it will depend on who our first real partners are and if they are very large and very substantial, it's possible that we'll only have a very few of those types of relationships. We don't have a number in mind; we are just taking this one step at a time.
Mike Carrier - Analyst
And then on the Closed-End Opportunity Fund, just wanted to get a sense -- it is a closed-end fund of other closed-end funds?
Matt Stadler - CFO
Yes.
Mike Carrier - Analyst
And what is the fee structure like on that?
Matt Stadler - CFO
It is an all-in fee of 90 basis points -- 95 basis points, excuse me. And from that, there are various expenses that have to be paid.
Bob Steers - Co-Chairman and Co-CEO
It was also -- it was a unique fund in that we created a very cost-effective fee structure overall, including the front-end load, which was 3% compared with other closed-end funds, which have a 4.5% load, and with the 95 basis point [unitary] expense ratio, a very efficient way for investors to participate in that opportunity.
Mike Carrier - Analyst
And then finally, probably not yet, but given the inflows into some of the international funds that you have, and it is way early in the process, but on some of those funds, what do you see as the capacity, especially, like, the international, say, realty fund?
Bob Steers - Co-Chairman and Co-CEO
International, we have a significant amount of capacity. And just to put some dimensions on it, the market capitalization outside of the U.S. is about $850 billion. And today, our global and international portfolios total about $6 billion. By comparison, the U.S. market capitalization is $350 billion, and our U.S. portfolios are about $17 billion.
So just thinking about potential share, just looking as percentages of market capitalization, there's a significant amount of growth potential outside the U.S. And as we sit here today, we don't see any constraints on that capacity.
Operator
Douglas Sipkin, Wachovia.
Douglas Sipkin - Analyst
I'd just like to get some more color around the alternative launch, if you can provide any more breadth or depth around that. I would imagine that includes some sort of performance fee element at some point as we move out -- maybe not '07, but in '08?
Joe Harvey - President
Sure. This is Joe Harvey. And what we're doing here is a little bit broader, and maybe I can take a couple of minutes to talk about it.
We are currently looking to create an investment capability, a mini-team that would give us quantitative research and hedging capabilities. This could be applied in several areas to take our existing long-only portfolio strategies and reconfigure them, so to speak, to create different investment characteristics relating to absolute return characteristics, portfolios with greater income potential and more defined risk profiles.
One obvious area would be a long/short strategy. And first one we're looking at is for the U.S. REIT area. So it's still early in its development, but to answer your question, yes, potentially we could have some portfolios with performance-based fees.
Operator
Marc Irizarry, Goldman Sachs.
Marc Irizarry - Analyst
My first question is on the closed-end fund business. If you can maybe look out a couple of years -- I know the market will be what it will be at that point in time -- but how should we think about the number of potential fund launches? I don't know if that is the way you look at the business, but is there any way for us to think about the number of closed-end funds per year you should launch?
Bob Steers - Co-Chairman and Co-CEO
We don't target any specific number. It is going to be a result of a number of factors. We do have a fair number of closed-end fund strategies teed up that we have given a great deal of thought to. But we balance both how open the window is, how accommodative the market will be to these strategies, also against the impact that launching a closed-end fund would have on our open-end fund sales.
So we would ideally like to launch several funds a year. But that is not a goal -- it's really we look at this as having to be a very opportunistic type strategy. But if we can launch several funds a year, that would be ideal.
Marc Irizarry - Analyst
And I presume that this is the type of market where you could launch several funds?
Bob Steers - Co-Chairman and Co-CEO
The window seems to be back open for the right strategies. So I would say yes.
Matt Stadler - CFO
If I could add, Mark, the performance of our closed-end funds, we have 10 of them, has been really exceptional. And I believe our names and our commitment to only doing funds that make a lot of sense from an investment standpoint and deliver high quality and the right fee structure have really served us well. So we are certainly positioned whereby the right strategy at the right time could be a very good raise for us.
Marc Irizarry - Analyst
Marty, I don't know if this is maybe too broad a question, but when you think about your outlook for REITs, how much of your performance or let's say your growth in flows this quarter is due to maybe more cyclical elements versus the secular elements?
Martin Cohen - Co-Chairman and Co-CEO
It is hard to say because we often know that money chases performance and REITs have performed very well. On the other hand, when we look at the quality of flows from various quarters, be it registered investment advisors or institutions, we believe there has been a secular change towards the securitized form of investing in real estate.
And that is something that I don't think there's any going back on. And I don't want to be overly optimistic about something, but I do believe that, from everything we hear from consultants and everyone else, this is a mainstay of portfolios in the real estate area, both for individuals and institutions. So I think that is probably as far as we can go. And our goal is to stay as a leader and on the forefront of this.
Marc Irizarry - Analyst
And then maybe just following on to that, there has been a lot of private equity activity in the real estate industry. Are you thinking at all about ways to participate in that in a similar fashion, given the kind of growth in the institutional interest in real estate?
Martin Cohen - Co-Chairman and Co-CEO
We don't have any plans to be in the private equity business. It might happen that our bankers could be involved in some of that. Clearly, some of the deal that they have been doing in the health care area has been with private equity money. But we don't want to be managers in that.
Operator
(OPERATOR INSTRUCTIONS).
Sal Rappa - SVP and Associate General Counsel
I guess there are no other questions. Well, we thank you all for joining us today. And we will talk to you again next quarter. Thank you all.
Operator
This concludes today's conference call. You may now disconnect, and have a great day.