Cohen & Steers Inc (CNS) 2013 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the Cohen & Steers fourth-quarter 2013 financial results conference call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. (Operator Instructions) As a reminder, this conference is being recorded Thursday, January 23, 2014.

And I would now like to turn the conference over to Mr. Adam Johnson, Senior Vice President and Associate General Counsel. Please go ahead, Sir.

Thank you. And welcome to the Cohen & Steers fourth-quarter 2013 earnings conference call. Joining me are Chief Executive Officer, Bob Steers; Executive Chairman, Marty Cohen; our President, Joe Harvey; and our Chief Financial Officer, Matt Stadler.

Before I turn the call over to Matt, 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 2012 Form 10-K, which is available on our website at cohenandsteers.com. I want to remind you that the Company assumes no duty to update any forward-looking statements.

Also, the presentation we make today contains pro forma or non-GAAP financial measures, which we believe are meaningful in evaluating the Company's performance. For detailed disclosures on these 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 in our previous earnings releases, each available on our website.

Finally, this presentation may contain information with respect to the investment performance of certain of our funds and strategies. I want to remind you that past performance is not a guarantee of future performance. This presentation may also contain information about funds that have been filed, that have filed registration statements with the SEC, that have not yet become effective. This communication shall not constitute an offer to sell or the solicitation of any offer to buy these securities. For more complete information about these funds, including charges, expenses and risks, please call 1-800-330-7348 for a prospectus.

And with that, I will turn the call over to Matt.

Thanks, Adam. And thank you, everyone, for joining us this morning. Yesterday, we reported net income of $0.43 per share compared with $0.49 in the prior-year and $0.41 sequentially. Revenue for the quarter was $73.4 million compared with $71.1 million in the prior-year and $74 million sequentially. The increase in revenue from the prior-year was attributable to higher average assets under management, resulting from market appreciation, net inflows into open end funds, and the launch of Cohen & Steers' MLP Income and Energy Opportunity Fund, partially offset by net outflows from institutional accounts. The institutional outflows were mainly from global and international real estate and large-cap value strategies.

Average assets for the quarter were $47 billion compared with $44.9 billion in the prior-year and $47 billion sequentially. Our effective fee rate for the quarter remained at 57.2 basis points, as the mix of our assets under management did not change. Operating income for the quarter was $29.4 million compared with $32.7 million in the prior-year and $27.7 million sequentially. Our operating margin increased to 40% from 37.4% last quarter. The 253 basis point increase was primarily due to a reduction in incentive compensation.

Pretax income net of noncontrolling interests was $31.3 million for the quarter compared with $33.9 million in the prior-year and $29.5 million sequentially. Noncontrolling interest represents third-party interests in the funds we have consolidated. For the year, we reported net income of $1.51 per share compared with $1.49 per share last year. The 2013 and 2012 results included after-tax expenses of $0.10 per share and $0.21 per share, respectively, of closed end fund offering costs. After adjusting for these items, earnings per share were $1.61 and $1.70 for 2013 and 2012, respectively.

Assets under management totaled $45.9 billion at December 31, a decrease of $429 million or 1% from September 30. The decrease in assets under management was attributable to net outflows of $927 million, partially offset by market appreciation of $498 million. For the year, assets under management increased $110 million. The increase was due to market appreciation of $2.1 billion, partially offset by net outflows of $2 billion.

At December 31, our US real estate strategy comprised 50% of the total assets we managed, followed by global and international real estate at 21%, preferred securities at 10%, global listed infrastructure at 10%, and large-cap value at 6%. Assets under management in institutional accounts totaled $22.9 billion at December 31, a decrease of $365 million or 2% from the third quarter. The decrease was due to net outflows of $683 million, as $870 million of net outflows from large-cap value portfolios were partially offset by inflows of $245 million into our first commodities mandate.

The net outflows were partially offset by market appreciation of $318 million. For the year, assets under management decreased $1.9 billion or 8%. The decrease was due to net outflows of $3.4 billion, $1.9 billion of which came from global and international real estate strategies, and $1.4 billion from large-cap value accounts, partially offset by market appreciation of $1.5 billion. Institutional accounts had a 14% decay rate for 2013. Of the $650 million institutional pipeline of awarded but unfunded mandates we noted on our last call, approximately $400 million funded in the fourth quarter, and the balance being deferred into the first half of 2014. The level of activity in our real asset strategies remains high.

Our open end funds had assets under management of $14 billion at December 31, a decrease of $246 million or 2% from the third quarter. The decrease was due to net outflows of $270 million, partially offset by market appreciation of $24 million. For the year, assets under management increased $1.1 billion or 8%, due to net inflows of $702 million and market appreciation of $352 million. Our organic growth rate for open end funds was 5%.

Assets under management in our closed-end funds totaled $9 billion at December 31, an increase of $182 million or 2% from the third quarter. For the year, assets under management increased $980 million or 12%. The increase was primarily due to the launch of Cohen & Steers MLP Income and Energy Opportunity Fund, which raised $739 million, including the exercise of the underwriters' overallotment and leverage, as well as market appreciation. Assets under advisement decreased by $1.1 billion or 18% from the third quarter. The majority of the decrease was from model-based strategies attributable to our subadvisory business in Japan.

Moving to expenses, on a sequential basis, expenses decreased 5%, primarily due to lower employee compensation and benefits. Excluding the closed-end fund launch costs, both our operating margin and our earnings declined on a year-over-year basis. And as a result, incentive compensation was reduced for senior management. This reduction to incentive compensation brought our compensation-to-revenue ratio to 30.5% for the fourth quarter and 31.8% for the year, lower than the guidance we provided on our last call.

Now turning to the balance sheet, our firm liquidity totaled $182 million compared with $195 million last quarter. Stockholders' equity was $224 million compared with $251 million at September 30. The sequential decline in firm liquidity and stockholders equity reflect a special dividend payment in December of approximately $44 million. Over the past four years, we have paid $5.50 in special dividends. We remain debt-free.

Let me briefly discuss a few items to consider for 2014. We expect that compensation and benefits will increase to reflect higher deferred compensation expense, as 2014 will be the only year we will amortize five tranches of previously issued restricted stock awards. In addition, we will recognize a full year of compensation for the key hires made in 2013 to round out our capabilities in our core product offerings and distribution. As a result, we expect our compensation-to-revenue ratio to be approximately 33%.

G&A will include higher marketing expenses related to our real asset strategies. And as a result, we expect G&A to increase between 2% and 3% over 2013. Based on our preliminary projections, we expect that our effective tax rate will approximate 37.5% for 2014. As a reminder, when we calculate our effective tax rate, we adjust for noncontrolling interest. And finally, we expect our effective fee rate for 2014 will be between 57 and 58 basis points.

Now I would like to turn it over to Bob Steers.

Thanks, Matt. And good morning, everyone. Despite the market headwinds in many of our core investment strategies, 2013 was a strategically important and very successful year for Cohen & Steers. I believe that, because we executed well on all of our strategic goals for the year, which positions us for what could turn out to be the strongest period of growth in our Company's history.

Our key objectives last year were -- one, to return investment performance in all of our core strategies back to top quartile rankings; two, position Cohen & Steers as the leading manager of liquid real assets and real asset allocation portfolios; three, develop and execute plans to penetrate the DCIO market and capitalize on the integration of real asset strategies into target date funds; four, halt the net outflows from Japan and promote new growth by diversifying our client and product base; and lastly, to opportunistically launch closed-end funds.

With respect to investment performance, all six of our core real asset strategies -- US, international and global real estate, plus global infrastructure, commodities and real asset multi-strat -- outperformed their benchmarks and most peers by substantial margins. To solidify our position as a leader in multi-strategy real asset investing, we lifted out and integrated the commodity futures team from GES at management. In addition, we internally developed and grew our natural resource equity team from within our large-cap value group. Both teams are performing well.

Lastly, to lead our real asset strategic allocation investment and research efforts, we added Vince Childers, who formerly was the Portfolio Manager of Alliance Bernstein's Real Asset Allocation Fund. In the fourth quarter, after an extensive search, Matt Gannon joined Cohen & Steers to head up and grow our DCIO business. Matt has done this successfully at NFS, and was most recently with Fidelity.

Turning to the Japanese market, last year, we made great strides by adding new leadership, substantially reducing outflows, and worked to diversify our client base. As you know, Ken Itai joined us from Wellington as the Senior VP and lead representative in Japan. Ken has already made progress towards developing new products and relationships for both the retail and institutional markets.

REITs are still the most popular retail investment strategy in Japan. And with the rollout of the Nippon Individual Savings Account, or NISA, and the Abe government's encouragement of pension fund investing in real assets, we are optimistic about our long-term growth prospects there.

Before I move into our plans for 2014, I would like to summarize the trends that have given us the confidence to make these and other investments, in order to position us to capitalize on what we see as an historic growth opportunity to grow our assets under management. In a nutshell, the BD, RIA and DCIO markets are becoming institutionalized, and implementing meaningful allocations to liquid alternatives, especially liquid real asset strategies. Leading endowment funds, including Harvard, Yale and Princeton, already allocate from 15% to 30% to real assets. However, representation in DC plans and most retail accounts, particularly outside of REITs, is still negligible. This is changing as we speak.

Goldman Sachs recently published a report entitled Retail Liquid Alternatives, or RLAs, The Next Frontier. The report does an excellent job of describing the macro trends that have been the drivers behind our growth strategy and enthusiasm, including these three so-called takeaways. One, RLAs are a $2 trillion AUM opportunity for asset managers, which can drive 15% to 20% organic growth over the next 5 to 10 years. And we think that retail allocations can ultimately move towards institutional levels over time. Two, public alternative managers with brands, distribution and diverse offerings are in a favorable position. And, three, there is a knowledge gap between asset managers and distribution channels.

We agree that the opportunity for RLAs is huge and is already unfolding. For example, Merrill Lynch recommends that financial advisors allocate between 3% and 11% to real assets today. Financial advisors have yet to fully embrace this allocation, due mainly to market conditions, but also to the so-called knowledge gap, which we see as an important opportunity for us. The Golden Report estimates that 80% of fund sales are directed by advisors, but that intermediary education from asset managers regarding RLAs has been minimal thus far.

The DCIO market is now an equally large opportunity for us. DC assets total approximately $5 trillion. And that market, too, is becoming institutionalized through the rapid acceptance of target date funds, which are being created on a customized basis by consulting firms, insurance companies, and other institutional intermediaries. A 5% to 10% allocation to real assets, which is a typical institutional allocation, would translate into a $250 billion to $500 billion market opportunity. And we are already seeing allocations such as these being implemented.

For example, in the fourth quarter, two mandates totaling $271 million were funded -- one for global listed infrastructure, and one for commodity long/short. Both of these portfolios are sleeves of real asset allocations for customized target date funds and large DC plans created by institutional consulting firms. Winning market share in the DC market by being the market leader in a new and growing asset allocation, rather than displacing legacy managers, represents a low risk and potentially very high return opportunity for us.

So how are we positioned? And what are our plans going forward? Today, we manage a full range of real asset strategies and have achieved industry-leading performance. And we can deliver these strategies to retail and institutional markets globally through a unique array of strategies and product structures designed to achieve customized outcomes. And we aim to position ourselves as the multi-strategy real asset thought and investment leader by filling the knowledge gap.

As I have already discussed, our lineup is now complete, performing well, and includes global real estate securities, global listed infrastructure, MLPs, natural resource equities, long/short commodity futures and, importantly, a multi-strategy bundled real asset solution. The challenge is to deliver each of these capabilities to the full range of clients around the globe. To that end, we will be offering our core strategies, both individually and bundled, through separate accounts, traditional mutual funds, but now also through CITs and additional offshore fund structures.

Lastly, as I mentioned, we view the knowledge gap that exists between investors and asset managers in the real asset liquid alternatives space a unique opportunity for us. US REITs were probably the first true liquid alternative 25 years ago, and we spent many years effectively filling and capitalizing on that knowledge gap. Next month, we will launch the Cohen & Steers Real Assets Institute, which will be a major initiative for us. This will be an ongoing and comprehensive roadshow, showcasing our investment talent while educating the market as to the benefits of real asset investing. We are sponsoring these events on a regional basis, and meeting with financial advisors, RIAs, and institutional investors and their consultants throughout the year.

As you all know, there are numerous ways of change confronting the asset management industry. We believe that we are well-positioned to capitalize on the impending shift to liquid alternatives and real assets. And we are confident that this shift will occur because of the thirst for diversification away from stocks and bonds, and differentiated return streams from global investors. For us, these are opportunities which are large and scalable, and capable of driving our growth for years to come.

I'm going to stop there. And operator, we'd like to open up the line to questions.

(Operator Instructions) Adam Beatty, Bank of America Merrill Lynch.

Just first, a question about the liquid alternatives market. Just in terms of -- it sounds like investor education is a critical success factor, and obviously bringing some new products to market. Are there other sort of key changes that need to happen, either across the market or in certain channels, for the allocations to rise to the levels that you indicate?

Adam, let us interrupt. We couldn't hear the question because the technology wasn't good. Your (multiple speakers) --

Hi. Is this better?

Much.

Okay, that's great. Thank you. The question was about the liquid assets market and the liquid alternatives market. Just in terms of what you see are the critical success factors, either across the market or in certain channels? (multiple speakers) It sounds like --

Hey, Adam? Adam, let me interrupt again. You're still breaking up, so if the operator can hear us, could somebody do a line check? Because we're having difficulty hearing the question.

Absolutely, Sir. One moment. Mr. Beatty, please try again.

Hi. Is this sounding better now? Can you hear me?

A little -- and I don't think it's you. I think it's the telecom service. But go ahead and try it again, Adam.

Okay. Just a question on critical success factors in the liquid alternatives market. It sounds like investor education is one. Are there others that you are looking for, in terms of product supply or changes in certain channels that would enable allocations to rise to the levels you indicate?

I got about the first sentence, and it was success factors relating to the liquid alternatives marketplace, and I didn't get the rest. So, forgive me if I'm not answering your question exactly.

But we think there's a number of factors, some of which are in our control and some of which are not. We are seeing very material movement in the institutional marketplace to implement real asset strategies. And they are being driven largely by virtually all of the major consulting firms out there, who are creating either target date funds or customized allocations for DB plans for their clients. And in that channel, we are mainly being hired to manage sleeves of a broader real asset allocation. But that's, for example, the new accounts that I alluded to coming in, in the fourth quarter, and related accounts, where the large commodity sleeve and other mainly listed infrastructure and real estate sleeves that are part of broader real asset allocations.

On the retail side, as I mentioned, some of the large wire houses are already recommending allocations to real assets. However, in the absence of inflation, in the absence of strong absolute returns from REITs and commodities, there hasn't been a groundswell of asset flows into that marketplace. But we think that, given our view that the US economy and, hence, global economies, are gaining momentum, real estate fundamentals, commodity fundamentals, all the fundamentals of all of our strategies are improving. And, as I mentioned earlier, we plan to be in a major city every month starting in February, talking about real assets, real asset allocations.

And beyond that, the key, as always, is having top-tier performance. And we really did that last year virtually across the board. So, we actually believe that all of the variables that are in our control are in great shape right now. And we're really just waiting for the markets to come to us.

Thank you. If you could hear me for one more, just maybe an update on your newer retail distribution efforts -- or your newer distribution efforts, pardon me, in Japan.

Again, you're breaking up, but we got bits and pieces of that. And maybe, Joe Harvey, if you wouldn't mind talking about some of -- I mean, all of our strategies are in place; it's really new vehicles. And we have already launched an open end MLP fund this year.

And Joe, maybe you would like to talk about some of the additional structures that we are creating -- mainly for the DC market, but not exclusively.

Sure. This is Joe Harvey. As we look at our opportunity, we want to make sure we have all the right vehicles to be able to deliver each of the core sleeve investment strategies, as well as the multi-strategy real assets solution that has the asset allocation overlay. We have a lot of these vehicles already in place, but we have just completed a process to assess the lineup and make sure that we have vehicles for the markets that we believe represent an opportunity.

So, one -- a category would be to have a lineup of CITs, or a Collective Investment Trust, that are very efficient and well-designed for the DC marketplace. We currently have one in infrastructure, but we expect to launch them for our global and US real estate strategies, our commodity strategy, and then the multi-strategy approach as well. Then, as it relates to the US market in terms of 40 Act open-end mutual funds, we have one missing piece of the puzzle, and that's a open-end fund for our commodities strategy.

And finally, turning to the international markets, these require different types of structures, such as [CCAFS]. And we are in discussions about launching offshore funds for both the infrastructure and commodity strategies. Our approach here will be to find a partner who wants to seed those funds, and so that would be a little bit of a different approach than we would have in the US with a 40 Act open-end mutual fund, where we would seed it ourselves. And we expect to do that this year in the case of the commodities fund.

Could you go to the next question?

John Dunn, Sidoti & Company.

Kind of related to Adam's second question -- on Japan, you mentioned how you're looking to diversify that client base. Can you give us an update on, one, what you're seeing at Daiwa, but your efforts to gain more clients and more diversity?

Sure. While we don't have any new -- specific new mandates to discuss, we have been collaborating with several distributors on non-REIT products. And we got to the finish line in at least one scenario, but their distributors deferred that. So, we have a number of irons in the fire. And so, whereas last year, we were talking about and adding resources to begin to execute that strategy, obviously, our goal for this year is to be able to win and disclose at least one, if not multiple, new mandates with strategies outside of REITs with new distributors.

Got you.

And we're optimistic about that.

Right. And then besides Japan, are there any other regions outside the US where you are gaining traction? You talked about the offshore funds, but where might they be the best?

If I heard you correctly, the question was, what other regions outside of Japan? We continue to make significant progress and raise significant assets in Taiwan. That's been a very fertile area for us. And the search activity there is extremely high. Similarly, but to a lesser extent, in Korea, where we are also making some good inroads. We don't have anything to disclose there yet, but that would be a goal for this year as well.

And then lastly, we have a signed agreement with China Universal to launch a US REIT mutual fund on the mainland there. And we are just collaborating on optimizing the timing of that launch.

Got you. And last one for me -- you characterized your positioning as set up for historic growth. And just trying to look out three to five years, and I know it's a hard question, but where do you think the trajectory of AUM could go?

That's really an impossible question to answer. As you know, it will depend on market conditions, when psychology shifts towards -- away from fixed income and towards real assets, and things like that. But as I mentioned, whether it's the institutionalization of retail allocations or the DC marketplace, the numbers are massive. The competition is limited. And, as you know, it's difficult -- when competitors start coming in, it's difficult to accelerate a three-year track record.

So the parallels to when we started the Company and focused on REITs are really very similar, except that the markets we're focused on today are already massive, and we are not dependent on having to unseat a legacy manager. We just are anticipating that the asset allocations are going to shift from zero to something significantly more than that. And so the numbers, the market opportunity all-in is -- could be a $1 trillion market.

And so the opportunity is huge. We just need to execute on performance. We need to make sure that we have all the right vehicles around the world. And I think, by the end of the first quarter, any gaps there will have been addressed. And we do think in the short-term, real estate fundamentals continue to improve. Looking at history, it would be extremely unlikely for REITs to underperform this year or in the foreseeable future, like last year. We think they're off to a strong start. Our flows there are encouraging. In fact, our flows in all of our real asset strategies are off to a very good start.

And so, look, we are not going to time the market. We are going to position ourselves so we don't have to time the market. As I said, there are some markets that are already moving, like the DC market and some of the institutional market, and retail. You know, time will tell.

All right, got it. Let me just put it a slightly different way. You have -- in other words, you have plenty of capacity on the research and distribution side to handle a couple years' worth of AUM growth. Is that a fair (multiple speakers) --?

We do. The way we looked at 2012 and 2013 was years of positioning and repositioning and improving ourselves. Starting January 1 of this year, we think of 2014 as the year of executing. The resources are in place. And as Matt mentioned, we have made investments. Our G&A reflects that, and his projection for G&A into this year reflects that. We really don't see a need going forward to add meaningful resources, either on the investment side or the distribution side.

Great. Thank you very much.

Mac Sykes, Gabelli.

Good morning, gentlemen, and Marty, congrats on the new position. I'm also glad to see you are still on the conference calls. My question is about your conversations with REIT institutional investors right now. What are the hot points that they're coming up in the conversations? Is it relative performance of the funds? Is it protection against higher interest rates, expected returns to the asset class, maybe global growth outlook? I'm just getting a sense of what some of the REIT investors are thinking about in terms of allocations today.

This is Joe. I'll start. But clearly, with the performance of REITs last year, where, on an absolute basis, the US market was up about 2.5%, in the context of an equity market that did extraordinarily well, there are questions about what's going on. And the REIT performance started out very good last year. And then after the Fed's comments about monetary policy, the so-called tapering, they begin to underperform. So the view has been they're interest rate-sensitive, and there was an adjustment in pricing.

Our view is that we are in the middle of the cycle. And so, the cycle for REIT security performance is not over. And that's based on our view of the fundamentals, as Bob alluded to. It's based on our view of how REITs have performed historically in these types of interest rate environments. So I would say a lot of the discussion with all of our investors is being keyed to how have REITs performed.

Now, the other important point is our relative performance, which has improved dramatically over the past 18 months. And we've -- in terms of our US strategies, we are in the top decile. And so we are pleased with that. And we got a lot of things right last year. So we feel that, in a period that -- where we might start to see some reallocations to real estate, based on their relative performance versus equities, and considering the fact that investors are rotating out of fixed income, we are very well-positioned with the fact that we could see some reallocations there. We think there's still more performance to come. And our performance is back to where we are accustomed to having it.

And I would just add to what Joe said that it's our view that any institutional accounts that we lost over the last several years were performance -- mainly performance-related, and that's over. We lost no real estate accounts in the fourth quarter. And on the contrary, I think our relative performance is outstanding. REITs are off to a strong start this year. They are now under-allocated, after last year, in most portfolios.

So we're actually quite optimistic, given we're early in the year, about real estate flows. And we're also seeing a strong start for our commodities, listed infrastructure and MLP flows, and interest as well.

Great. Thank you very much.

(Operator Instructions) Marc Irizarry, Goldman Sachs.

Just a question on REITs and performance of the asset class. Can you give us your view on the IPO supply that maybe is out there or could be out there, and sort of how you guys view that as -- and the dynamic and impact that you think that's going to play on REIT performance? Thanks.

Well, we're at a point in time in the cycle where securitization or the transformation of real estate into the public market is in full swing. And it's happening in a lot of ways. And that's important because it means our universe is growing. It means that our opportunity set is broadening. And that's not just a US phenomenon but it's also global.

So just to give you some color around the world, in Europe, there are select IPOs. And more importantly, in the periphery, there are restructuring opportunities where we can come in, use our skills and capital to help companies fix their balance sheets. We were doing that in the US four years ago, but now Europe is finally positioned for that process. In Asia, there's been quite a lot of IPO activity in Japan, for the J REITs and the Singapore S REITs. And here, too, it's in keeping with the broad trend toward more public market investment in real estate. And it's good for us because it gives us more opportunities.

In the US, there have been select IPOs. And we don't see a huge backlog of IPOs, but there have been some very important ones, as Blackstone, for example, has been bringing public the companies that they took private in the last cycle. But there's another dynamic which is happening in the so-called nontraded REIT area, where there is a big push to -- for those portfolios to be acquired by existing public companies, or just taken public by themselves.

So, in terms of the supply-demand dynamic, it's not a big issue because there's ample capital to absorb this new supply. But we like it because it's good for an active manager because of the opportunity set.

Great. And then just following along on that last comment, can you give some view -- if you look back at 2013 flows, you mentioned you did lose maybe some assets because of performance, or flows because of performance. What are you seeing in terms of the insurgents of passive and threats from ETFs and passive on either retail, or maybe even the way institutions are maybe giving out mandates these days?

Well, as you know, and as the data is very compelling that ETFs are very strong competitors. BNQ has garnered probably the most assets of any fund out there. At the end of the day, flows are going to go to ETFs, and they're going to go to managers who beat the ETF in the REIT space. Frankly, in the preferred space, we view it as an opportunity, because we trounce the preferred ETFs by insane margins every year. So, it does vary by space. There are some areas where -- that are really not ETF-able. And that's one of the focuses of our real asset strategy.

REITs are probably our most mature or commoditized investment strategy. Everything else is either not ETF-able or we are delighted to have them ETF because it's so easy to beat them. And you really can't say -- and that would include MLPs, preferreds, things like that. So it's tough to generalize, but I would say, as you've seen in the broader market, traditional core style boxes are very ETF-able. And I wouldn't want to be an active manager in that space.

We have demonstrated from US REITs on down that we consistently beat the benchmarks. And so, we believe we will continue to get a large market share there. I think the losers are the players who are not committed to the space and are not consistently delivering the performance. And ultimately, they go out of business. So, I think you're either one of the few winners along with ETFs or you're in a bad place. (multiple speakers)

If you're interested in some of the details on our website, we just published a viewpoint that looks at the batting average of active REIT managers compared with other asset classes. And REIT managers have a much higher percentage of outperforming, so we think it's a place where active management does add more value. And it doesn't make us immune from that industry trends, but it puts us in a better position than the core style boxes.

And just to add, I mean, all these points apply in the DC marketplace, again, which is why we feel very comfortable competing in strategies, listed infrastructure, MLPs and commodities that are really not ETF-able. Because, as you know, there are fee pressures there. And creating target data or other products that are more passive and low fee are going to be tough competition. So again, we think we have a great strategy in being focused in areas that are really not as vulnerable to ETFs, and are areas where managers outperform by -- much more consistently than any other areas.

Great. And then if I could just ask one more quick one. Any P&L impact on a lot of the distribution changes that are happening? How should we think about expenses on the distribution side? Obviously, you have a lot going on, but what about sort of the P&L effect there?

Distribution expense on open-end funds? Or distribution expense personnel-wise?

Just personnel-wise and efforts -- obviously, you have a lot of new folks coming in. I don't know if there's plans to continue, so maybe more on the comp side.

Right. So as Bob mentioned in his points, we've spent the last couple of years building out our capabilities, not only in our core product offerings but also in distribution. And we added some key folks in 2013 that is part of the reason why our comp is going to tick up a little bit next year. So we alluded to that in my points. That's baked in.

I think we are where we need to be from a core perspective -- so, distribution, investments, most of the support areas. And anything that we might be doing on a go-forward basis would be marginally lower-cost individuals. But we're set where we need to be right now.

On the distribution costs, they seem to have stabilized over the last year. That doesn't mean that's going to stay that way, but (multiple speakers) on the retail side --.

Yes. I mean, you can get a good handle on distribution on the -- not the comp, but the distribution and service fee expense, by tracking where the average assets in our open-end funds are. As they go up, there will be a proportionate increase in those fees.

Okay, great. Thanks.

And we have no further questions on the telephone lines at this time.

Great. Well, thank you all for dialing in this morning, and we look forward to staying in touch with you over the next few quarters. Thank you.

Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines.