Cohen & Steers Inc (CNS) 2017 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Cohen & Steers Second Quarter 2017 Earnings Conference Call. (Operator Instructions) As a reminder, this conference is being recorded Thursday, July 20, 2017.

I would now like to turn the conference over to Adam Johnson, Senior Vice President and Associate General Counsel of Cohen & Steers. Please go ahead, sir.

Thank you, and welcome to the Cohen & Steers Second Quarter 2017 Earnings Conference Call. Joining me are Chief Executive Officer, Bob Steers; 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 2016 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 non-GAAP financial measures, which we believe are meaningful in evaluating the company's performance. For disclosures on these non-GAAP financial measures and their GAAP reconciliations, you should refer to the financial data contained in the earnings release and presentation, which are available on our website.

Finally, this presentation may contain information with respect to the investment performance of certain of our funds and strategies. And 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 filed registration statements with the SEC that have not yet become effective, and this communication does not constitute an offer to sell or the solicitation of an offer to buy these securities. For more complete information about these funds, including charges, expenses and risks, please visit our website.

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

Thank you, Adam, and good morning, everyone. My remarks this morning will focus on our as-adjusted results, which exclude the after-tax financial effect associated with our seed investments and discrete tax items. Yesterday, we reported earnings of $0.50 per share compared with $0.46 in the prior year's quarter and $0.47 sequentially. Revenue was $92.9 million for the quarter compared with $86.4 million in the prior year's quarter and $89.7 million sequentially. The increase in revenue from the first quarter was attributable to higher average assets under management and 1 more day in the quarter.

Average assets under management for the quarter were $59.7 billion compared with $55.9 billion in the prior year's quarter and $58.3 billion sequentially.

Operating income was $37.4 million for the quarter compared with $34.2 million in the prior year's quarter and $35.5 million sequentially. Our operating margin increased to 40.3% from 39.6% last quarter. Expenses increased 2.2% on a sequential basis, primarily due to higher compensation and benefits and distribution and service fees, partially offset by a decrease in depreciation and amortization.

The compensation-to-revenue ratio was 32.75% for the quarter, consistent with the guidance provided on our last call. And therefore, the increase in compensation and benefits expense is in line with the growth in revenue. The increase in distribution and service fee expense was consistent with the increase in average assets under management in our U.S. open-end mutual funds. And the decline in depreciation and amortization was attributable to certain assets being fully depreciated.

Our effective tax rate for the quarter was 38%, consistent with the guidance provided on the last call.

Page 12 of the earnings presentation displays our cash, cash equivalents and seed investments for the current and 4 trailing quarters and indicates that portion of cash and cash equivalents held outside the U.S. Our firm liquidity totaled $242 million compared with $215 million last quarter, and stockholders' equity was $290 million compared with $273 million at March 31. We remain debt-free.

Assets under management totaled $60.4 billion at June 30, an increase of $1.9 billion or 3% from March 31. Assets under management at June 30 were slightly below our record high of $60.5 billion set in last year's third quarter.

Assets under management in institutional accounts totaled $29.5 billion at June 30, an increase of $522 million or 2% from last quarter.

Open-end funds had record assets under management of $21.6 billion, an increase of $1.3 billion or 6% from last quarter. And assets under management in closed-end funds increased to $149 million or 2% from last quarter. We recorded total net inflows of $1.3 billion in the quarter, an annualized organic growth rate of 9%. This marks the 11th consecutive quarter of net inflows.

Institutional accounts had net inflows of $443 million in the second quarter, an annualized organic growth rate of 6%.

Sub-advised portfolios in Japan had net inflows of $329 million in the quarter compared with $306 million last quarter. Net inflows were primarily from U.S. real estate portfolios.

Distributions increased slightly to $849 million in the second quarter compared with $811 million last quarter. You may have heard that our largest Japanese distribution partner announced a rate cut this past Tuesday. I will elaborate on this in a moment. Sub-advised accounts, excluding Japan, had net outflows of $8 million.

Advised accounts had net inflows of $122 million during the quarter, as inflows into preferred portfolios were partially offset by outflows from U.S. and global real estate portfolios. Bob Steers will be providing some color on our institutional pipeline and level of activity.

Open-end funds had net inflows of $887 million during the quarter, an annualized organic growth rate of 17%. Distributions totaled $262 million of which $181 million were reinvested.

Now let me briefly discuss a few items to consider for the second half of the year. As noted earlier, our largest Japanese distribution partner reduced the distribution rate on one of the funds that we sub-advised by 30%. Applying the reduction to the second quarter's distribution payments for this fund implies that payouts in the second half of 2017 will decline by approximately $250 million. Changes in net flows, market performance and currency rates could affect the amount of the implied decline. As a result of the lower distribution rate, we expect that this fund may experience net outflows in the short term, which Bob will address.

With respect to compensation and benefits, we expect to maintain a 32.75% compensation-to-revenue ratio. We expect 2017 G&A to increase between 3% and 4% from 2016, lower than the range we provided on our last call. The decline is in line -- is the result of run rate savings derived from work performed by our global expense task force. As a reminder, the majority of the year-over-year increase in G&A is attributable to investments we made to strategically add to our distribution capabilities in the DCIO channel and in Europe as well as higher mutual fund reimbursement costs and increased costs for administering our collective investment trusts, both of which are generally associated with asset growth. And finally, we expect that our full year effective tax rate will remain at approximately 38%.

With that, I'd like to turn it over to Bob.

Thank you, Matt, and good morning. As Matt already cited, $1.3 billion of net inflows represented our 11th consecutive quarter of firm-wide positive organic growth. Many factors have combined to explain the success, but it's mainly attributable to unique and in-demand strategies, leading investment performance, new and innovative product launches and expanded domestic and global distribution strategies.

Virtually, every channel and geographic region is experiencing a meaningful increase in investor interest, especially for U.S. and global real estate, preferred securities and global-listed infrastructure. Only 2 out of our 10 core strategies are seeing any outflows. And this year we are, for the first time, enjoying a surge in institutional demand for preferred security strategies.

As you know, organic growth in the wealth channel has been consistently strong and this quarter was no exception. Net inflows into our open-end funds were $887 million for a 17% annualized organic growth rate. As has been the case, preferred securities and U.S. REIT sales accounted for the majority of the net flows. However, it's worth noting that inflows into our relatively new low-duration preferred fund were $193 million in the quarter, bringing its total assets to nearly $500 million.

Flows have been accelerating into this fund because of our dominant preferred securities brand, interest rate concerns and the funds availability on several new platforms.

The advisory channel had an exceptionally strong quarter as well, which is not fully reflected in the $122 million of net inflows. Our 1, but unfunded pipeline of mandates is now $903 million, up from $317 million in the first quarter. Of the 11 pending finals I referenced to -- I referred to last quarter, we have won 3, lost 1 and 7 remain pending. In addition, RFP activity is diverse and running substantially ahead of the last several years. We're also now beginning to benefit from our recent investments in new usage launches in Europe as well as our multiyear effort to penetrate the Japanese institutional market.

During the quarter, we gained regulatory approval for our global preferred SICAV, which also received funding of $45 million from a Japanese institutional investor to go along with our initial seed capital.

We're optimistic about perspective flows into our growing array of usage vehicles, which includes share classes for institutional investors in Europe and in Asia. Strategically important is that for the first time we're seeing significant demand for preferred security strategies from a variety of domestic and international institutions. We expect that this will continue.

Advisory net inflows in the preferred security strategies in the quarter were $191 million and also account for $258 million of our unfunded pipeline.

Flows in the sub-advisory channel were again muted with $8 million of net outflows. However, 2 new model delivery sub-advisory mandates, that I spoke of last quarter and whose assets are assets under administration, have begun to fund. These assets are not included in our AUM.

The Taiwanese preferred securities fund is $203 million of AUA and the Korean midstream energy fund is currently $30 million of AUA. Both represent strategically important entrees into their respective wealth markets.

Japan sub-advisory flows of $329 million ex-distributions were again solid. However as Matt mentioned, this week a large distribution partner disclosed that they're reducing the distribution rate on one of their U.S. REIT funds. Future flows into this fund are likely to decline or go negative for a period of time. Partially offsetting any decline of flows will be the 30% reduction in the funds distribution rate or approximately $250 million over the remainder of the year. As always, strong investment performance is essential to achieving positive organic growth and this was another good quarter in that regard. All of our real estate, preferred securities, MLP, global listed infrastructure strategies are ahead of their respective benchmarks year-to-date. That represents 7 out of 10 of our core strategies; 6 of 10 were ahead in the quarter.

Today, over 92% of our AUM are in outperforming strategies for both the last 1 and 3-year time periods, and 91% of our U.S. open-end fund assets are in funds ranked 4 or 5 stars by MorningStar. On an absolute basis, most of our strategies by AUM have performed well year-to-date due to the combination of solid global growth and a stable yield regime.

Our smaller AUM energy strategies have declined on an absolute basis. Recent new product launches such as our low-duration preferred fund have provided a major boost to our growth prospects. And we see a number of similarly exciting prospective opportunities in the listed infrastructure space. Investors, especially institutions, are eager to allocate to infrastructure, given the sizable and well-publicized opportunities in the space. We believe that, as has been the case in the U.S. for many years, private infrastructure investment opportunities will be few difficult and far between. Conversely, opportunities in the listed space are significant, easily accessible and are already performing very well. This is being recognized in the market as stocks of companies which own infrastructure assets have been strong performers this year.

Finally, logistics companies and companies that are positioned to benefit from spending on roads, bridges, railways and tunnels are mainly public. And we're busy creating targeted global portfolios and strategies, both equity and debt, to capitalize on these opportunities.

Lastly, rising to the moment of truth is the theme of our latest Annual Report. In it, we made the case that while it will be challenging to be an active asset manager in the current environment, a small number of managers will emerge as major beneficiaries of consolidation in the industry. These managers will have unique, in-demand and scalable active strategies that consistently achieve industry-leading performance. Distribution prowess alone will no longer be able to overcome poor performance or products that have become commoditized. The bottom line is that to succeed, we must deliver more for less. That means top-performing and more relevant products, more support for customized solutions and competitive fees and expenses over time.

We're working hard every day to improve productivity and to manage costs. The expense task force that Matt referred to, this year is projecting annual savings of $2.8 million of run rate G&A from identified reductions. These efforts will be ongoing and will in affect contribute to funding of our strategic growth initiatives.

With that, I'd like to stop and open the floor to questions.

(Operator Instructions) Our first question is coming from the line of Ari Ghosh with Crédit Suisse.

I just wanted to touch on the distribution cut in Japan. Could you elaborate a little on how you view the cycle different from 2012? I know that the company performance across most periods is a lot stronger this time around. And I think also some of your larger competitors already cut distributions. But is there anything else that you're doing proactively, either with your colleagues or investors in Japan, that gives you some comfort that either the magnitude of outflows or the duration this time might be less severe?

That's a great question. There are some differences this time, some of which you already noted. First -- the last time around, we were the first to cut, not the last. And as you noted, most of these funds have cut in a similar time period. So our partner is the last of the majors to cut. And so we think that some of that has already been factored into flows over the past 6 months or so. Secondly, what's different this time is that because the others had cut, and we were able to have these discussions with our partner, we have, along with our partner put together a very aggressive plan and program to have seminars starting immediately throughout Japan to explain that the fundamental outlook for U.S. REITs is still very strong, valuations are strong, the dividends for U.S. REITs are going up not down, and really just having a much more time to prepare to explain the distribution cut to the marketplace and explain why the new level will be sustainable and be available to answer their questions. So I think we have scheduled over 40 seminars -- 50 seminars over the next few weeks actually.

Got it. And then just a quick one on the pending mandates. So of the 7 still in play, what is the total AUM, again? And then if there's any color that you can add by product makes or institutional for the 7 that are still in play?

So of the 7 that are still in play, the amount is well over $500 million. These totals can change between the time a search is announced and amounts are given, the amounts can go up or down. In addition, these are just final -- these are just mandates that are at the end of their process. So as I mentioned, we have an extremely robust RFP pipeline that's really at record levels. And also it's important to note that the breadth of the pipeline, that is, the range of strategies that investors are showing interest in is as broad as it's ever been. So we don't control the process but we would expect that -- we know that there will be more finals opportunities for us between now and year-end.

And the strategies that are in that bucket include global real estate, listed infrastructure, natural resource equities, U.S. real estate and preferred. So I can say it's -- and it's pretty consistent with our recently funded mandates as well. And over the past year, the strategies that have been active have expanded from about 2 to 4 to 5.

I would also add to that, that I know there were some comments about weakness and flows to global real estate. As you can see for yourself, our global real estate track record is actually just really terrific. And about $170 million of our unfunded pipeline is going into global real estate mandate. So there's absolutely no weakness there either in demand or frankly, investment performance we're among the leaders.

Our next question coming from the line of Michael Carrier with Bank of America Merrill Lynch.

Maybe first one just on the Japan business. You mentioned the cut on the 1 fund. Do you have any color around maybe how much the flows are being driven by that product? And then if any of the other products, I don't know if you can tell, but maybe if any of the other products could go through a dividend reduction? And then I guess, on the flip side, if you look on the distribution side in that market, they tend to kind of switch products or offer new products with some incoming yield. And so is there anything else that is in the pipeline that could kind of replace those funds?

So on this particular fund, I believe, is not our largest U.S. REIT fund in Japan, it's the second largest. And as we've been observing the other U.S. REIT funds when they've cut. They typically experience for 2 months or so an increase in outflows and then it's tended to level off. Again, it's our hope. Obviously, we can't predict what investors will do, but this was probably the most well-telegraphed reduction that we've ever seen. And we've seen our flows up and through the second quarter, I think, already were affected, number one. Two, it's -- as everyone has noted, in total, we have over, I think, $3 billion of annual distributions coming out of Japan, which is a tough treadmill. And so I think what we're going -- what I hope to see is that, for example on this case, it's about $0.5 billion annual prior distribution rate now, between now and year-end there will be about $250 million less of distributions. And so I think net-net outflows -- net outflows would have to be greater than that for us to have any meaningful decline in assets. So it's hard to tell. I don't doubt that the other U.S. REIT funds -- as these funds were by competitors, will be affected by this distribution cut and we just don't know. As we've always said, we don't have any control over distribution policies. So I don't know about future distribution cuts in other funds. I would say on your question on Japanese new products, I think your observation used to be true. It really is very much not the case today, where you see distributors in affect turning or taking assets out of 1 fund to fund a new product launch. We're just not seeing that anymore. Regulators in Japan have been very vocal about their concerns about that practice. And frankly, new product launches have dropped off substantially because the market really just hasn't -- they haven't found products that frankly, are better than U.S. REIT funds which continue to be among their top sellers.

In the retail channel, our U.S. REIT funds are by far the largest. We also sub-advised global REIT funds and there haven't been flows into those funds. Interestingly, the performance for global strategies is now starting to be better on an absolute basis compared with U.S. So that's potentially an area where we can see more interest. But further to Japan and away from the retail channel, we're starting to see more activity institutionally. Last quarter we reported on our first institutional win for a global listed infrastructure mandate. But more recently and Bob referenced it, a win in preferreds that will go into our offshore SICAV. We also in our pipeline have a global real estate mandate for the institutional market. And we're working on other things with other distributors. So we're starting to see more activity outside of our primary partner in Japan.

Okay. And then just as a follow-up. I guess, just strategically, when I look at what you guys have been doing, you guys have the performance. It's a decent amount of differentiated products relative to the industry. And then you've been making a decent number of new hires on the distribution front over the past few years. So one is, where do you see some of the bigger opportunities relative to where you're already entrenched? And then second, any capacity constraints on any other funds? Or is it still a lot of white space, given that some of these funds are relatively newer versus the real estate side?

I can speak to the first part, Joe can speak to capacity. As you mentioned, we continue to make strategic investments in new product launches, new vehicles, new markets and also we view being competitive on fees and expenses as investments as well. So I think the Japan institutional market which we've been talking about for a couple of years and typically we find these strategic initiatives take 2 years before they start really generating material results. I think Japan institutional has entered that phase and we're hopeful that, that the initial success will actually build and gain momentum. The other 2 areas where we have been and continue to make meaningful investments for us are in the DCIO channel and in Europe for both the institutional but also the FIG marketplace. The results in DCIO have been, at least, based on asset flows, have been modest thus far. On the other hand, we have achieved many of our goals with respect to positioning our product, getting them on platforms, getting them on recommended lists. And we are beginning to see what I would say, green shoots that are not material enough to jump up and down about quite yet. In Europe we're seeing real traction particularly in the wealth marketplace and also sub-advisory and institutional. And so I would say Europe, we'll ought to see a tick-up in activity from here on in that we'll be reporting to you. So really, DCIO and Europe are I think the 2 big initiatives that we've been investing in that have not yet made a meaningful contribution to our organic growth rate, but we have high expectations for both along with Japanese institutional.

As it relates to capacity, there are several considerations I'd like to set the table with. And I think that this discussion really relates to our real estate strategies where -- which is our largest AUM area and our preferred strategies, which has been our most rapidly growing area. The first is that, the markets that we invest in over time have been growth markets. As in real estate, for example, there's been more what we call securitization of real estate or the transfer of ownership from the private market to the public market. And so our universe is always growing and this is a dynamic analysis. The same has been true for preferreds, which have grown rapidly because of the regulatory environment for increased capital levels for financial institutions. The second point, I'd like to set the table with is our philosophy around delivering conviction in our portfolios an active share. We're in a environment, and that what we call the moment of truth, where we have to deliver more and that's more excess returns and more consistently, and that means that we're owning fewer names in our portfolios and have a more conviction. So we're going to respect that because we need to deliver the performance that the market wants. If we lose our discipline on that, that's not going to play well in the moment-of-truth environment. So to get to your question and there is one more nuance, which is in real estate and let's focus on U.S. real estate for a minute, we run a lot of different strategies. We have a core strategy. We also have a focus strategy which is highly concentrated. And the amount of capital we can take across those strategies differs based on those objectives for those strategies. As it relates to our core real estate strategy, we've got plenty of capacity. As it relates to our focus strategy, for example, there are limitations. And interestingly, we're starting to see more interest in that strategy and I would expect that we'll fill up our capacity sometime over the next year or so. So we do have some strategies where there are limits. And while we're not there for any of them, you could see us close strategies from time to time.

Michael, if I could add just one another thing on making investments. So whereas DCIO, Europe and Japan, incrementally, I wouldn't see the need to be spending higher amounts in those initiatives. Where we will be spending more going forward is in building our investment capabilities, investment talent in the infrastructure space. As I mentioned in my comments, yes it's really eyeopening to us that there's tens of billions of dollars of institutional capital that is already committing to infrastructure without even knowing what the investments are or what the investment opportunities are. I've never seen such excitement about putting money out in an area in advance of the opportunity being clear. For us, it is -- in the listed space, it already is very clear infrastructure indices -- listed indices are up 15% to 17% this year. And we see tremendous opportunities right here today in logistics and public works, highly targeted strategies that we know already those are going to be beneficiaries of existing secular trends in place. And so we think that the listed market is going to be the first and potentially the best opportunity for deploying infrastructure capital for institutions and individuals.

Our next question coming from the line of John Dunn with Evercore ISI.

It's great that the interest in preferreds is getting more popular with institutions. Can you talk about how those sales conversations have evolved? And I know you said, you think it's going to be -- the demand is going to be sticky, but -- and what kind of gives you confidence that it's going to be?

Well -- this is Joe. I would say that we're confident in the opportunity because preferreds have some of the highest yields in the fixed income market. Now what's held back institutional demand is that they're a hybrid asset class, they're not really fixed income, they're not equity. They're somewhere -- somewhat in between. But because of the yields that they produce, which relates to credit in part, and because of the fact that it's a complex market and one where active management has proven to be very successful. We think that to provide solutions to institutions who are having a hard time meeting their return bogies, they're going to be pushed into preferred stocks. So we've been expecting it for 3 years. It's just finally starting to happen. We've had a couple of consultants, who have embraced the asset class and -- so they're writing about it and making the asset allocation case. We think that with just those 2 consultants, we're going to see more activity, but that will continue to broaden as investors discover the asset class.

John, I would add the demand is quite diverse and our product line is becoming more diverse. The institutions that are interested are domestic and international pension plans. Insurance companies are showing strong interest. As I mentioned, our low-duration strategy is generating tremendous interest. It's about a 2.5-year duration with a 3.5% type yield. It's generating returns that a lot of absolute return managers have promised but have been unable to deliver. So they are unique products filling important niches, whether it's on an insurance company's balance sheet or investors who want a low-duration product in an environment where rates might be rising.

Got you. And then can you talk about how the real asset institutions have evolved over the years? Like lessons learned, maybe what do you think has worked, what you think hasn't worked? And maybe where the process goes from here?

Geez, that's a tough question. I think what's worked is that it's helped to evolve how institutions and financial advisors think about Cohen & Steers as our product lineup has broadened out within the real asset and alternative income space. And I think it has absolutely generated stronger demand for individual strategies. We're still not seeing a breakout in demand for our multi-strat product. Perhaps one of the reasons is that it's -- it is a multi-strat portfolio, which has included resource equities and commodities, which has held back its absolute performance. But I think it has -- the institutes have done a great job of educating the market about the importance of having an allocation to real assets in all portfolios, just as the largest pension and dominant sovereign funds have, and educating them on the individual strategies as well.

Got you. Just one last one. Can you talk about how you think ETFs are going to complete versus active and preferred land now that it's an important area for you guys?

Sure. There are several very large preferred ETFs. So far they've focused on, what we call, the exchange-listed market, which is only a part, and the minority of the market -- and the rest of the market is over-the-counter preferreds. We are concerned about the size of some of those funds. When you look at the composition of the exchange traded market, it's liquidity and the ability of those ETFs to replicate their index and potentially handle any outflows in a shock-type scenario. So we have been evolving our strategy and in fact, we recently slightly modified the benchmark that we manage against to downweight the exchange-traded preferred market so that we can better risk manage around this topic. So we're going to be talking more and more about these types of issues as ETFs gain more market share, but this is something on the preferred market that we're very focused on and somewhat concerned about.

(Operator Instructions) Our next question coming from the line of Yian Dai with KBW.

Thanks for taking my question. I wanted to start on the deal of fiduciary role. So as we move closer to that applicability date, January 1 date, we are starting to see some more distributors come out with announcements on changes to their pricing and in some cases the number of fund sponsors that they continue to work with. So I was just hoping if you could give us some color on your conversations with your distributors? How they've changed as we get closer to that date? And whether you're anticipating any changes that might meaningfully impact the shelf space of your own products?

We've had ongoing conversations. Obviously, what we're hearing from our distribution partners has been changing as the implementation of DOL has been changing. I would say one, and I mentioned this in my comments, we're going to be a beneficiary of consolidation. Our funds are not being dropped from platforms. And so we think there'll be fewer choices, fewer competitors for what we do in the retail space, particularly where you have distributors who are winnowing in many cases very substantially their menu of fund choices. In addition, as distributors are offering ways to partner with them, whether it's frankly to work with them and helping them to create their asset allocation models, model delivery is going to be more important. Frankly, we're educating many of our partners on how to allocate to real assets, how much and how to do it. So those have been the conversations we've had thus far. Joe anything you want to add?

The only thing I would add is that we were prepared to launch new share classes for our funds, 2 new share classes. And based on the feedback from our distributors, we put that on hold. So looking at that, I would say that our partners have really taken a time out on progressing on some of the initiatives that we talked about -- a lot about earlier in the year.

Okay. Appreciate that. The other question I had was just a quick clarification on the partner, the sub-advisory partner dividend cuts. Did you say that was your second largest U.S. REIT fund? Or what was that comment made?

So we managed a number of strategies for that particular partner. And the fund where they announced a reduction in the distribution rate was their second largest U.S. REIT fund.

And can you give us a sense for the asset level in that fund?

It's actually 5 -- a little over $5 billion.

Our next question coming from Mac Sykes with Gabelli.

One of your larger competitors commented recently on the importance of technology spend as competitive differentiator. I was wondering if you could spend a little bit of time just talking about how you're incorporating technology initiatives into the platform and in around marketing and distribution?

Sure. That's a great question. It's another area where we have been and expect to continue to spend, certainly not in the magnitude of some of the giants in the industry. But we're spending in a number of ways. One, substantially upgrading our CRM or sales force systems. We are purchasing data from our partners and from third-party sources in the industry. And we have spent substantially, and we'll continue to, on digital marketing. So the net effect is to -- for our sales people whether it's institutional or in the wealth channel, the expectation is they will be much more productive. We'll be calling on advisors, who either through our data purchases or through our own digital data collection, that we know in advance they have an interest in one or more of our strategies. And so our sales people will not simply be blindly knocking on doors, and again, whether that's institutional, retail, what have you. And then we also are spending in addition to our expense task force, which has done a terrific job of helping us to find efficiencies where possible, but we're also investing in technology to improve our productivity, automate where we can. And that can apply to our legal department that has to process and review hundreds of, maybe thousands of agreements we can automate things like that. So it's just a whole host of investing that we can do in technology, data collection and processing digital marketing that is significant for us and we are seeing returns on those investments. So we'll continue to spend there.

Great. And then my second question is just, Rob, maybe if you've done any work in terms of your different regions of the world. Maybe some early thoughts on how that plays out for you guys in terms of cost or operations?

Could you repeat the question?

Sure. Around the changes from MiFID II going forward at the end of the year, just a bit some of your initial thoughts on how you may be adjusting operations or anticipate new surge going forward?

Sure. There are several fronts. One relates to reporting that we will have to provide to the regulators in Europe and that's just the cost of doing business and it's a matter of putting the right systems and process in place to deliver that data to the regulators. The second front relates to commission unbundling and budgeting and reporting to our clients in Europe. This has been a project that started 2 years ago, where we unbundled from a accounting perspective how we account for our commissions as it relates to the research component and the trade execution component. And we're -- we got a plan in place to be compliant with the reporting and disclosure regulations to our European clients by the end of the year.

Thank you. Mr. Steers, there are no further questions at this time. I will now turn the call back to you.

Great. Well, thank you all for dialing in this morning, and we look forward to speaking to you again in October. 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. Have a great day.