Cohen & Steers Inc (CNS) 2018 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the Cohen & Steers Second Quarter 2018 Earnings Conference Call. (Operator Instructions) As a reminder, this conference is being recorded Thursday, July 19, 2018.

I would now like to turn the conference over to Danielle Brown, Vice President and Associate Counsel of Cohen & Steers. Please go ahead.

Thank you, and welcome to the Cohen & Steers Second Quarter 2018 Earnings Conference Call. Joining me are Chief Executive Officer, Bob Steers; our President, Joseph Harvey; and our Chief Financial Officer, Matt Stadler.

I want to remind you that some of our comments and answers to your questions may include forward-looking statements. We believe these statements are reasonable based on information currently available to us. But actual outcomes could differ materially due to a number of factors including those described in our SEC filings. We assume no duty to update any forward-looking statements.

Also, our presentation contains non-GAAP financial measures that we believe are meaningful in evaluating our performance. These non-GAAP financial measures should be read in conjunction with our GAAP results. A reconciliation of these non-GAAP financial measures is included in the earnings release and presentation.

The earnings release and presentation as well as links to our SEC filings are available on our website. With that, I'll turn the call over to Matt.

Thanks, Danielle, and good morning, everyone. Thanks for joining us today. My remarks this morning will focus on our as-adjusted results. A reconciliation of GAAP to as-adjusted results can be found on Pages 17 and 18 of the earnings release or on Slide 16 and 17 of the earnings presentation.

Yesterday, we reported earnings of $0.59 per share compared with $0.50 in the prior year's quarter and $0.62 sequentially. This quarter's results included a $0.02 per share cumulative adjustment to increase the year-to-date compensation to revenue ratio to 33.75%.

Revenue was $94.2 million for the quarter compared with $92.6 million in the prior year's quarter, and $94.4 million sequentially. The decrease in revenue from the first quarter was primarily due to a lower effective fee rate, resulting from a change in asset mix as lower average assets under management were basically offset by 1 more day in the quarter.

Average assets under management for the quarter were $58.7 billion compared with $59.7 billion in the prior year's quarter, and $59.2 billion sequentially.

Operating income was $36.4 million for the quarter compared with $37.4 million in the prior year's quarter, and $38.3 million sequentially.

Our operating margin decreased to 38.7% from 40.6% last quarter, primarily due to higher compensation and benefits and G&A compared to revenue.

Expenses increased 2.9% on a sequential basis, primarily due to higher compensation and benefits in G&A, partially offset by a decrease in distribution and service fees.

The compensation to revenue ratio, which included a cumulative adjustment to increase incentive compensation was 34.5% for the quarter. Previous guidance was 33%.

We have managed to an annual 33% compensation to revenue ratio since 2014, and have been at or below that target since 2012. The decision to raise the guidance to 33.75% was based upon strategic, not tactical considerations.

As in the past, it is important to us that this ratio remains stable and is not variable period-to-period. The principal factors that influenced our thinking on this included not just AUM and headcount growth, but also the integration of our firm-wide compensation framework that has been used over the past 2 years and was designed to attract and retain the key talent needed to sustain strong investment performance and long-term growth.

We believe that this new target is sustainable for the foreseeable future, and should position us to recognize meaningful operating leverage as our growth plans come to fruition.

The increase in G&A was primarily due to hosted and sponsored conferences in the second quarter, combined with higher business travel expenses. In response to evolving fiduciary standards, one of our intermediaries has expanded revenue sharing and sub-TA fees to include retirement accounts across all their mutual fund offerings.

The decrease in distribution and service fee expense was primarily due to the deferral of these recently imposed fees into the second half of the year, and to a lesser extent, a continued shift into lower-cost share classes.

Our effective tax rate for the quarter was 25.25%, consistent with the guidance we provided on the last call.

Page 15 of the earnings presentation displays our cash, cash equivalents and seed investments for the current and trailing 4 quarters. Our firm liquidity totaled $263 million compared with $232 million last quarter, and stockholders' equity was $303 million compared with $284 million at March 31. We remain debt-free.

Assets under management totaled $60.2 billion at June 30, an increase of $1.7 billion or 3% from March 31. We recorded net inflows of $180 million in the quarter and annualized organic growth rate of 1%.

Net outflows from sub-advised portfolios in Japan continued to abate, totaling $152 million in the quarter, which is the lowest they have been since the first distribution cut last July.

Distributions declined as well, totaling $566 million in the quarter compared with $600 million last quarter. The decline in distributions was the result of lower AUM, combined with a stronger dollar.

Sub-advised accounts, excluding Japan, had net outflows of $260 million, primarily from commodities and global listed infrastructure portfolios. Advised accounts had net inflows of $450 million during the quarter, primarily from inflows into global real estate and preferred portfolios.

Bob Steers will be providing some color on our institutional pipeline and level of new business activity in a moment. Open-end funds, which include both U.S. and non-U. S. funds had net inflows of $130 million during the quarter.

Let me briefly discuss a few items to consider for the second half of the year. With respect to compensation and benefits and as noted earlier, we expect to maintain a 33.75% compensation to revenue ratio.

We expect G&A to increase 8% to 10% from 2017, lower than the range on our last call. As previously discussed, the majority of this increase is attributable to 3 items: Europe research costs, index redistribution fees, and strategic investments. Excluding these 3 items, we expect G&A for 2018 to increase between 3% and 5% from 2017.

Finally, we expect our effective tax rate will remain at approximately 25.25%.

Now I'd like to turn it over to Joe Harvey, who will provide commentary on investments.

Thanks, Matt, and good morning, everyone. We are enhancing our earnings call by adding a specific section on investments with a goal of sharing perspectives on asset class performance, our relative performance and initiatives in our investment department.

The second quarter was a good quarter for absolute performance but a tough quarter for our relative performance, with just 3 of our 10 core strategies outperforming.

For the latest 12 months, performance remains strong with 10 -- with 7 out of 10 strategies outperforming. Measured by AUM, 96% of our strategies are outperforming over the latest 12 months, and 93% are outperforming for the past 3 years. Looking at Morningstar ratings for open-end funds, 85% of our AUM is rated 4 or 5 star.

Macroeconomic trends shifted in the quarter, influencing our short-term performance as the rising interest rate cycle in the U.S. continued and investors began to discount its impact on economic growth. 10-year treasury yields rose from 2.7% to 3.1% intra-quarter, then settled out at 2.9%.

Bond markets with the exception of high yield had negative returns. Concerns about slowing global growth and now trade wars have made U.S. growth standout. While the Federal Reserve continues to tighten monetary policy, the European Central Bank continues to be dovish. Consequently, the dollar rose 5%. Another key market for several of our real asset strategies is oil, which rose 14% in the quarter.

To generalize about our performance, our portfolios have been positioned pro-cyclically. Moderating growth expectations have caused lagging sectors, primarily interest-rate sensitive sectors where we've been underweight, to have a nice bounce.

We are making some but not wholesale adjustments to our portfolios and are confident that our teams and processes will guide us to long-term outperformance. We continue to execute a performance enhancement plan for fundamental commodities, our one strategy which continues to underperform.

U.S. REITs, our largest asset class by AUM, rose 10%. As we have discussed in prior calls, concerns about rising interest rates have made REITs cheap relative to private real estate values. As a result, there are 6 REITs in various stages of sale to other REITs or private market buyers helping to narrow the valuation discounts.

With $250 billion of dry powder for acquisition in private buyers' hands, we expect more merger and acquisition activity because some of the best values can be found in the public market.

Dry powder continues to grow with capital being raised in the nontraded REIT market, which is seeing a resurgence based on lower fee structures led by Blackstone and others. Meanwhile, real estate fundamentals have strengthened at the margin.

Global real estate returns were solid at 5.1%, but lagged U.S. REITs due to foreign currency translation into the US dollar. While global real estate has been outperforming, trade war concerns could weigh on growth expectations.

Merger and acquisitions is occurring offshore as well but at a slower pace than in the U.S. Within our global real estate strategy footprint, our European regional strategy continues to have exceptional relative performance.

Overall, our global real estate performance is strong at a time when search activity has ticked up. Preferreds experienced headwinds due to rising bond yields and widening credit spreads from very low levels, resulting in a very slight negative return of 11 basis points.

We underperformed due to our focus on credit and income and overweights in contingent capital securities, also known as CoCos, and overweights in Europe, where the Italian elections pressured the market. Plus, we've been underweight exchange traded preferreds, which are benefiting from issuer calls and the recycling of that capital through ETFs into a shrinking universe of exchange traded preferreds.

Our low-duration preferred strategy defended well as expected in a rising rate environment. We outperformed in low duration and we raised the distribution rate on our open-end fund as floating rates rose with short rates.

We continue to add investment talent to our preferred team as we prefer -- as we pursue strategy extension in areas such as real asset, REIT and infrastructure debt.

Global listed infrastructure returns were solid at 2.7%, despite being restrained by the strong U.S. dollar. As with real estate, we believe the dry powder for private infrastructure investing, which totals $160 billion and is growing, exceeds the private opportunities set and will find its way into public companies or assets held by public companies. This should provide support for asset values and returns.

Our relative performance continues to improve, which is important considering rising institutional interest in infrastructure.

Midstream energy was our best-performing asset class in the quarter, up 11.8%. This performance was driven by the progression in a cyclical recovery, after bottoming on company restructuring events and a negative regulatory proposal in the first quarter. We have a high conviction investment case for midstream as it recovers from a cyclical downturn and undergoes positive structural change.

Our team is delivering outstanding performance and we have added analysts to make it a more significant part of our global infrastructure effort.

Strategically, the investment department is focused on implementing the shift in our research models to substantially reduce third-party research and bring more capabilities in-house. This year, we are adding 5 analysts, primarily for our infrastructure and preferred teams.

In addition, we continue to build our capabilities in quantitative research, thematic strategy investment, multi-strategy portfolio management and through the development of unique, more targeted and alpha-oriented strategies for the multifamily office and super RA markets.

I look forward to updating you on our performance next quarter, and will turn the call over to Bob.

Thanks, Joe. With Joe's market commentary as a backdrop, I'd like to comment on the recent results and outlook for our key strategies and markets.

In a nutshell, extreme uncertainty and sentiment shifts beginning in the first quarter caused a major change in the mix of fund flows, which, in turn, highlighted the importance of having complementary strategies and diverse markets.

As Joe said, earlier this year, U.S. real estate and preferred securities strategies saw market declines that resulted in net outflows in the wealth channel. In addition, these U.S. REIT share price declines were compounded by a weak dollar, making it difficult to reverse the outflows from our Japanese subadvisory relationships.

At the outset of the second quarter, retail market sentiment remained negative towards U.S. REIT and preferred securities strategies and outflows stayed elevated.

Concurrently, inflows into our non-U. S. strategies such as global real estate made up for a portion of these outflows. In addition, as investors who were concerned about rising interest rates sold out of long-duration strategies, we benefited from record inflows into our low-duration preferred fund, which we launched less than 3 years ago.

The point here is that early in the year as market preferences abruptly shifted away from U.S. REITs and preferred securities, we were positioned to successfully offer investors the right alternative solutions.

Turning from individual strategies to markets and channels, here too we're seeing positive momentum and the benefits of expanded breadth. The green shoots in Europe, which we spoke about in the first quarter, have grown into meaningful flows in the second quarter, further diversifying our sources of asset growth for both the advisory and wealth management businesses.

Also in the quarter, Japan subadvisory showed good improvement and is potentially approaching an inflection point. As has been the recent trend, both our institutional advisory and open-end fund businesses are experiencing solid net inflows.

The investments that were made in strategically adding new products, such as low-duration preferreds and midstream energy, and new markets like EMEA have helped us to defend well in the face of an uncertain market environment and positions us for continued growth.

Before discussing asset flows in more detail, I also want to touch on why we report and discuss net flows both before and after distributions. Given that virtually all of our strategies have a material income component, we fully appreciate that, for us, distributions have a meaningful impact on our total net flows and financial results. However, to understand, manage and evaluate the outlook for our various products and markets, we believe that net flows before distribution are a better way to understand our current and future growth prospects.

Turning to our market segments. U.S. open-end funds had net inflows of $99 million in the quarter. Coincident with the strong demand in the performance of U.S. REITs, net inflows into our U.S. focus funds began to improve and ultimately turned positive.

Our preferred securities fund experienced its second consecutive quarter of outflows as investors remain concerned about duration risk. Importantly, almost all of the $264 million of net outflows were captured and offset by $259 million of net inflows into our low-duration preferred fund.

Lastly, we are optimistic about the growth prospects for our midstream energy fund, which was named by Alerian as the 2017 Midstream Energy Fund of the Year, and is among the best performers in its category since its inception almost 5 years ago. We see an outstanding opportunity to capitalize on the outlook for this industry-leading fund, which took in $27 million of net inflows in the quarter.

In Europe, our non-U. S. open-end funds flipped from $88 million of net outflows in the first quarter to $20 million of net inflows from third-party investors this quarter. This is attributable to the early progress being made by our business development team in London, focused on the wealth and intermediary channels, and we expect this positive momentum to continue.

With the launch of our multi-strategy real asset SICAV in the second quarter, we now have 5 offshore funds available for investors, and we continue to sign distribution agreements with leading intermediaries.

Our advisory group had $450 million of net inflows with $178 million of that amount attributable to our European institutional group, also a result of our recent commitment to the region.

The overwhelming majority of the advisory group's flows were focused on global real estate and preferred securities, and include first-time mandates from the Middle East and Germany.

The awarded but unfunded pipeline at quarter-end stood at $535 million, and we are finalists or awaiting the results on $460 million of undecided searches. RFP activity remains strong.

Notwithstanding the possibility of additional distribution cuts, the trends in our Japanese subadvisory business have been improving. Quarterly pre-distribution net outflows declined from $494 million in the fourth quarter of last year to $336 million in the first quarter, and were $152 million in this quarter.

In fact, of the two U.S. REIT funds that have been in outflows, the larger of the two had modest inflows in the quarter. In addition to the passage of time since the distributions were first cut, there were several additional factors which contributed to the improved flows.

First, a strong rebound in the performance of U.S. REITs and the U.S. dollar bolstered investor confidence in the sector. Second, several major distribution partners increased their sales and marketing activity in the quarter, and we are preparing to support higher levels of this client outreach.

Subadvisory ex-Japan had a difficult quarter with $260 million of net outflows. This was primarily the result of underperformance in our active commodity strategy, which Joe spoke about, and the consequent loss of a $183 million mandate. The remainder of the outflows were mainly attributable to rebalancing.

Looking out to the balance of the year. Our core strategies, which include real estate, infrastructure, midstream energy and preferred securities are performing well and enjoying positive investor demand. Our investments in new products and distribution opportunities are paying off and playing an increasingly important role.

In that vein, as we discussed last quarter, we are making progress in growing our business development and investment teams, focused on the multifamily office, endowment and OCIO markets. This includes developing an expanded product set tailored to this audience.

With that, I'll ask the operator to open the floor to questions.

(Operator Instructions) One moment please for our first question which comes from the line of John Dunn with Evercore ISI.

You haven't really been that active in the -- on the strategic fee cut front. But can you talk about what you're seeing out in the industry? And maybe some of the things that might enable you to hold the line on pricing?

Sure, John. It's hard to generalize. I think some competitors are being more active in rightsizing their fees and expense caps. And so I think from our standpoint, I think our fees are pretty much where we'd like them to be, which is at, or actually below the midpoint of the range from our most important direct competitors.

In fact, one of the most, as we alluded to, one of the most exciting asset gathering opportunities that we see is in the midstream energy space where the fundamentals in that area, as Joe said, are improving rapidly. And we have among, if not the best-performing fund in the sector, we also recently reduced our expense cap and fees there.

So having the best performance and the lowest-cost product is one of the reasons why we're very optimistic about asset gathering there. Obviously, we're most aggressive in managing our fees and strategies like this where we have a relatively low asset base but very exciting asset gathering prospects.

Got you. And then just a quickie. Specifically on the subadvisory ex-Japan channel, what do you think the main drivers are going to be for that channel, strategy-wise, client-type wise and geography-wise?

It's pretty diverse. Candidly, the subadvisory relationships, as I said, are U.S. and non-U. S.-based. They range across a number of strategies. I would say the commodity strategy is really the only strategy or product where we felt vulnerable and we were. So I think going forward, I would expect pretty nonvolatile flows from that sector.

We do see some opportunities in subadvisory in our core strategies, where competitive managers have underperformed and the advisors are looking to improve their lineups. And so we think there's some takeaway activity in subadvisory for things like our REIT strategies mostly, but both global and U.S.

Our next question comes from the line of Ari Ghosh with Crédit Suisse.

So despite the macro volatility in Europe, it sounds like you guys are seeing pretty strong flows from the region. So just curious if you could give us an update on your European business? Total AUM? Headcount? Net flow contribution? Are you continuing to add headcount in this region? Do you view it as like one of your growth sectors? And then just finally on the pipeline, the $535 million, how much of that is from Europe and U.K.?

I'll try to address a couple of the latter questions. The -- as you suggested, the activity in -- both in the wealth and the advisory channel in the U.K. and Europe and the Middle East is -- has grown significantly, mainly because we've committed significant resources to the region.

We don't currently plan to add any additional headcount to the business development team. And I would say, and I'll defer it to Matt on how much of the pipeline is derived from Europe. But I would say that in addition to the pipeline, there are at least $200 million of opportunities that are not in the pipeline that -- because they're not far enough along -- that we're pursuing.

So the opportunity is significant. And we fully expect that the combination of wealth and the advisory channels over there will play an increasingly important role in our total asset growth.

So Ari, in terms of our pipeline, there isn't anything from Europe. But in terms of what's after that, finals that we are involved with, there are several European mandates in that category. And our team tells us there's continued interest in places like the Middle East, which is something that we have not seen historically for the listed markets.

In the Middle East, there are big buyers of private assets in real estate and infrastructure. But -- so it's encouraging to see interest in the listed market. Another place that we've mentioned is Germany, which historically, we have not seen a lot of interest for listed because of the very strong preference for private real estate. But we're seeing more activity there. So primarily driven by the team that we have and our strong performance, we expect to be more active in Europe.

Got it. Appreciate all that color. And then just real quick. I think you mentioned on the core noncomp, longer-term guide, maybe a range of 3% to 5%. I think that is a bit wider than you previously mentioned. So just curious if -- what are the initiatives in there that can maybe swing that core noncomp rate from closer to 3% to the 4% to 5% range?

Yes. Well, that range is excluding the 3 items that I called out that there's really no wiggle room on. And I think the majority of what's left over is really just business-related. It's travel and it's conferences. And I'm not sure that there's really a lot of leverage in that between now or at the end of July almost. So for the bulk of the year, these conferences are committed to and invested in upfront. So we've got these commitments we have to see through.

Our next question comes from the line of Ann Dai with KBW.

I wanted to start with the open-end channel. So it does feel like overall, if we look at this year versus last year, retail sentiment is a bit more cautious, we're seeing some lower growth inflows, some slightly elevated outflows.

So I guess I'm curious as to your perspective on the second half of this year, are you seeing any change to some of that retail sentiment? Should we be expecting any, meaningfully different trends heading into the next quarter and into the second half?

That's a great question. We're actually not seeing a diminution of investor interest. Our gross flows are actually in the range of record highs as we spoke about in the first quarter, primarily as a result of the flight from duration and the strong negative returns from U.S. REITs. Offsetting those relatively high inflows was a very high level of outflows.

And what we were very pleased about as we traveled through the second quarter was that our outflows remain -- our inflows remained elevated but had dramatically shifted from our traditional sources of U.S. REITs and preferred securities to low duration and global real estate and a few others. In addition, as U.S. REITs rebounded strongly, outflows there diminished somewhat.

So going forward, obviously, flows will be influenced substantially about the sentiment in the wealth channel on interest rates, on continued strong performance of U.S. REITs. And so far this quarter, they've registered a solid 3% or so positive return.

To us, what's important is, I think, we demonstrated that even in a higher rate environment where retail shies away from REIT -- U.S. REITs and preferred securities, we have alternative solutions which have offset that.

So we really can't predict what sentiment is going to look like but we think we're well positioned for either the first quarter-type environment or the second quarter. In addition, I would just add, as I said we're pretty excited about the outlook for midstream energy, particularly, in the wealth channel.

Okay. Appreciate the color. Maybe moving on just to the Japan subadvisory channel. Bob mentioned in his remarks, the moderation in the growth outflows. And I guess I'm curious on the other side, we also did see growth inflows come down a bit further. So can you give us some color on what you're seeing there? Should we be expecting any change to those trends?

Sure. Well, gross inflows declined because the -- mainly because the distributors didn't see the merit in conducting seminars and actively promoting the funds immediately after the distribution cuts. In addition, as I mentioned in the first quarter with both significant absolute declines in U.S. REITs exacerbated by a weak dollar, again, they didn't see any merit in going out and promoting these funds.

That began to change in the second quarter. And so we're seeing an increase in marketing activity. We've been told that our key distributors intend to ramp that up further going forward for -- not only because REITs and the dollar have turned around, but also because they believe that the regulatory environment towards these types of funds is loosening and becoming more positive. So we anticipate that there'll be significantly more marketing activity focused on these funds for the balance of the year.

Okay, perfect. One last one from me actually. On the business transaction that you evaluated last quarter, I guess I'm just wondering if there's been any meaningful shift in your approach towards M&A? Whether you're still actively in the market looking or it really felt like this was the closest that you've got and there's not really anything else that's been interesting?

Probably somewhere in between. We've always had a very high bar for transactions, especially on cultural and social issues. And we're still very engaged with The Street and I think in the flow of what's going on. And if something comes along that would enhance our investment capabilities in a way that is related to our core focus and add assets in the process, we would absolutely do that.

I would emphasize that the transaction we evaluated, which I think we could've executed if we wanted to, would've been meaningful -- meaningfully accretive. That's not our first or only criteria.

Our next question comes from the line of Greggory Warren with Morningstar.

John sort of touched on my question a little bit earlier with regards to fees in the open-end channel. But I want to sort of step a little bit deeper there. If we think about what's happening within the industry and the impact of the DOL.

I mean, it seems like with that winding down some that there might not be as much pressure overall. And I think you noted that you're sort of in that median, below the median price point and more concerned about being where you're positioned relative to your peers.

But my question is, have you seen any sort of active pressure from these platforms as far as culling goes? I mean, are they talking to you about, maybe we don't have enough invested in these funds or any sort of pressure around that regard as far as what gets on the platforms and how you're positioned?

Yes, that pressure is ongoing. We're fortunate in that we have few, if any funds that are poor performers, high fee or -- and/or don't have significant assets. The only place where we're seeing that still, at least as it affects us, is some of our noncore strategies, which is mainly large-cap value. Other than that, again, we are very close to the distributors. We know that they're not letting up in that regard. But it largely does not affect us.

So overall you guys are -- I mean, again, when you look at sort of your fund offerings relative to a lot of peers, you're not doing -- other than sort of the large value, you're not really in a lot of the areas where we're seeing a lot of the pressure. So I think from that perspective, you feel comfortable.

I also want to follow-up a little bit on the sort of M&A question, this is sort of tangential to that. As you look at product sets, I would imagine that you're looking for things that are either -- slide right into your core business or that are going to be differentiated, so that you're not again facing fee issues or problems, you're not going to go out and jump and by a large-cap growth or large-cap blend operation.

But I'm wondering if there's been any sort of discussion out there about potentially carving out pieces of businesses from other large shops where they've tried to run up REIT operations, they've tried to run up other stuff, and it doesn't necessarily fit and hasn't gotten the focus it's needed?

So if I understand your question as it relates to REITs, that's not something that would be on our target list. I mean, we feel like we can achieve our growth and the capacity that we can manage organically. So something like that or any other of our strategies where we have a very great market position and team and performance we would want to grow organically.

One of the situations of the past couple of years we looked at was a team within a broader asset management group. So in theory, I think that was the other part of the question, that that could be a match if there was something that fit our criteria that was not as wanted in a bigger shop.

So I think it's important to keep in mind on this topic that when you look at the strategies that we have and the potential extensions of those strategies in our smaller real asset classes which are not of scale, there are not a lot of players. That positions us really well but it means that there are not a long list of opportunities out there. So on the topic I think everybody should just risk-adjust for that -- those dynamics.

Bear in mind that the strategies where we already have a high market share, which would be REIT strategies, preferred strategies, that there's no real reason for us to consider M&A activity. It's just really on -- as we expand contiguously from our core strategies.

And our next question comes from the line of Michael Carrier with Bank of America.

This is [Jeff Ambrose] filling in for Mike. Just -- another one just kind of building on the fee rates, not necessarily in terms of price cuts but more like your outlook for market and flows across region, strategies and clients. Is there any sort of color or guidance you can give us on the likelihood of the trajectory of your fee rate going forward?

Not really. Unless you can tell me what markets are going to do over the next year or 2, and that'll dictate flows, at least in the wealth channel. We're not seeing -- I think that the institutional channels around the globe are very focused on real estate, infrastructure and income strategies like preferreds, but also fixed income strategies across the full range of real asset strategies.

So I guess I am disappointed you asked the question because the point of my comments were, we're not sure where rates are going to go, we're not sure where investor sentiment is going to go. I think we've demonstrated that wherever it goes, we're prepared and we're in a good position. And even in the first quarter where the market threw pretty much as much as they could against our best strategies, we did well. So we feel pretty good about our positioning.

Okay, got it. And then maybe just one -- just follow-up on the G&A, just curious of the 3 initiatives, I guess like which has slowed since last quarter that caused the lower guide there?

I think we had said on previous calls that year-over-year the research costs were about $1 million. We never really quantified our strategic investments or the redistribution, but the research cost is the biggest.

I think Ari asked earlier if there's any potential to move that around a little bit. And I think we are constantly revisiting our research providers and looking to take more of that in-house. Unlikely that between now and the end of this year, we're going to see a change in that, but perhaps going forward, we can get more efficiency. But you have the overhang of what's going on in the U.S. there. Not that that's a 2019 happening but we all believe it's kind of inevitable.

And there appear to be no further questions on the phone lines at this time. You may continue with your presentation or closing remarks.

Great. Well, thank you all for joining us this morning, and we look forward to speaking to you next quarter. Thank you.

Ladies and gentlemen, that does conclude our conference call for today. We thank you all for your participation, and ask that you please disconnect your lines. Have a great day, everyone.