Cohen & Steers Inc (CNS) 2019 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Cohen & Steers Second Quarter 2019 Earnings Conference Call. (Operator Instructions) As a reminder, this conference is being recorded, Thursday, July 18, 2019.

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

Thank you, and welcome to the Cohen & Steers Second Quarter 2019 Earnings Conference Call. Joining me are our Chief Executive Officer, Bob Steers; our President, Joe Harvey; and our Chief Financial Officer, Matt Stadler.

I want to remind you that some of our comments and answers to your questions may include forward-looking statements. We believe these statements are reasonable based on information currently available to us, but actual outcomes could differ materially due to a number of factors, including those described in our most recent annual report on Form 10-K and other SEC filings. We assume no duty to update any forward-looking statement.

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 in the Investor Relations section of our website at www.cohenandsteers.com.

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

Thank you, Brian. Good morning, everyone. As per usual, my remarks this morning will focus on our as-adjusted results. As Brian mentioned, the reconciliation of GAAP to as-adjusted results can be found on Pages 18 and 19 of the earnings release or on Slides 16 and 17 of the earnings presentation.

Yesterday, we reported earnings of $0.62 per share compared with $0.59 in the prior year's quarter and $0.58 sequentially. Revenue was $101.8 million for the quarter compared with $94.2 million in the prior year's quarter and $93.9 million sequentially. The increase in revenue from the first quarter was primarily due to higher average assets under management and an additional day in the quarter. Average assets under management were $63 billion compared with $58.7 billion in the prior year's quarter and $59.5 billion sequentially.

Our as-adjusted effective fee rate for the second quarter was 58.2 basis points compared with 57.5 basis points last quarter. The increase was primarily due to a favorable shift in asset mix as average assets under management in U.S. open-end funds as a percentage of total average assets under management increased.

Operating income was $38.8 million for the quarter compared with $36.4 million in the prior year's quarter and $35.8 million sequentially. Our operating margin increased slightly to 38.2% from 38.1% last quarter. Expenses increased 8.2% on a sequential basis primarily due to higher compensation and benefits, distribution and service fees and G&A.

The compensation to revenue ratio was 35.75% for the quarter, consistent with the guidance we provided on our last call. The increase in distribution and service fee expense was primarily due to higher average assets under management in U.S. open-end funds, and the increase in G&A was primarily due to higher T&E. Our effective tax rate for the quarter was 25.25%, consistent with our previous guidance.

Page 15 of the earnings presentation displays our cash, corporate investments in U.S. treasury securities and seed investments for the current and trailing 4 quarters. Our firm liquidity totaled $218 million compared with $183 million last quarter, and stockholders' equity was $256 million compared with $235 million at March 31. We remain debt free.

Assets under management totaled $62.4 billion at June 30, a decrease of $248 million from March 31. The decrease was due to net outflows of $13 million, distributions of $1.3 million and a $753 million conversion of certain institutional accounts to model-based portfolios. These were partially offset by market appreciation of $1.8 billion.

Subadvised portfolios in Japan had net outflows of $224 million during the quarter compared with $260 million during the first quarter. Distributions from these portfolios totaled $333 million compared with $361 million last quarter. Subadvised accounts, excluding Japan, had net outflows of $1 billion, primarily due to the $906 million termination of a nonstrategic relationship that we spoke about on our last call.

In addition, subadvised accounts included the previously mentioned conversion of $753 million to model-based portfolios, which are currently excluded from assets under management. The conversion, which had no effect on revenue, increased model-based portfolios to approximately $4.2 billion.

Advised accounts had net inflows of $65 million during the quarter, primarily from a $510 million funding of U.S. and international real estate portfolios from our second German client that was included in last quarter's pipeline, partially offset by a $375 million rebalancing of U.S. real estate and preferred portfolios by an existing client. Bob Steers will provide some color on the client rebalancing as well as an update on the institutional pipeline of awarded unfunded mandates.

Open-end funds, which had a record $25.7 billion in assets under management, recorded net inflows of $1.2 billion during the quarter, primarily into U.S. real estate and preferred funds. Distributions totaled $810 million, $632 million of which was reinvested.

Let me briefly discuss a few items to consider for the second half of the year. With respect to compensation and benefits, we expect to maintain a 35.75% compensation to revenue ratio. We project that G&A for 2019 will be in line with the $46 million we recorded in 2018. We expect that our effective tax rate will remain at approximately 25.25%. And notably, effective July 1, Cohen & Steers Realty Shares, our flagship mutual fund, reduced its expense ratio by approximately 10% and introduced multiple share classes designed to enhance our ability to market within key wealth management channels.

Based on June 30 assets under management, the lower expense ratio is estimated to reduce second half investment advisory fees by approximately $2 million. However, incremental net flows into the new share classes would represent higher margin business as there is a lower revenue share component associated with them.

And now I would like to turn it over to Joe Harvey who will discuss our investment performance.

Thank you, Matt, and good morning. Our investment performance, both absolute and relative, is very strong, reflecting favorable macroeconomic conditions, ongoing returns from the investments we have made in our teams and processes and positive results from performance improvement efforts when they are needed.

In the second quarter and for the past year, 7 of our 9 core strategies outperformed their benchmarks. Measured by AUM, 95% of our portfolios are outperforming on a 1-year basis, 97% are outperforming over 3 years and 98% are outperforming over 5 years. The recovery in our 1-year batting average from 71% last quarter was half due to our core preferred strategy and 40% attributable to U.S. real estate. Our 3- and 5-year batting averages have been consistent and high, and 88% of our open-end fund AUM are rated 4 or 5 star by Morningstar.

Absolute performance for our asset classes in the second quarter was strong but decelerated from the extraordinary pace in the first quarter. The macro shift towards a Goldilocks environment that began powerfully in the first quarter continued, with expectations for slowing the positive economic growth and benign inflation supporting a dovish Fed. The progression in the quarter was a jump forward to anticipation of rate cuts in the U.S. and the potential for another round of quantitative easing in Europe. It could be that without inflation, the lower amplitude of the economic cycle will prevent hard turns by the Fed and enable small tweaks to extend the cycle.

The specter of additional monetary stimulus by central banks unleashed a scramble for yield globally. To illustrate, the average yield for 10-year sovereign bonds in the U.S., U.K., Japan, France and Australia is just 0.6%. Nearly $13 trillion or 12% of the global bond market has negative yields. Not surprisingly, considering the yield squeeze, preferreds and infrastructure were our best-performing asset classes in the quarter. Core preferreds returned 4.1%, lifting year-to-date returns to 11.8%. We outperformed in the quarter.

To share an investment perspective, as credit profiles in the corporate bond market deteriorate, as measured by credit ratings and covenants, the credit profiles for preferreds, which are predominantly issued by banks and insurance companies, remain strong in part due to regulatory guidelines. This should distinguish preferreds as investors put money to work in a low-yield environment. Consistent with the scarcity of yield, asset consultants are increasingly recommending preferreds to their clients, which is expanding the market for what historically was a retail market.

Our low-duration preferreds strategy returned 2.7%, and we underperformed slightly versus our primary benchmark. Low duration represents 1 of the 2 core strategies that underperformed. I'd add, however, that this strategy is meeting its income and capital stability objectives in the context of low-rate duration. While precisely benchmarking the unique strategies that we manage may be challenging at times, we are pleased with our low-duration preferred performance.

Global listed infrastructure returned 4.3% in the quarter and we outperformed. For the past 3 quarters, infrastructure has performed well in various economic and market conditions, which reflects in our view the attractiveness of dividend-paying equities in a low-return environment and the fact that more investors are adding infrastructure to their portfolios.

On past calls, we have discussed the $150 billion of dry powder in private equity infrastructure funds. We expect some of that capital to work its way into the public markets, considering the challenges in buying private infrastructure assets. That dry powder has now grown to $200 billion and with leverage provides buying power of $500 billion.

This quarter, several public companies announced privatizations by infrastructure funds. We expect several variations on this theme from asset-level deals to privatizations to strategic corporate investments as well as IPOs, as the private sector, both private equity and the listed markets, increasingly provide the capital necessary to fix and build our nation's and our world's infrastructure.

Midstream energy performance was flat on an absolute basis after a strong rally in the first quarter and as the 2 factors that have been driving midstream moved in opposite directions. While oil was down slightly, improvement in high-yield credit helped offset oil. We underperformed in the quarter as market leadership within midstream has come from large-cap, high-quality companies that generalists have sought in the rotation into dividend-paying equities.

Our portfolios are positioned in midstream securities that we believe are statistically cheap, yet are less appealing to generalists due to their smaller market caps or partnership structures. We continue to see a secular transition to better structures and better business models, which should begin to reduce the influence of oil and credit on how midstream trades.

Two of our core strategies that outperformed but lagged the equity and fixed income rally on an absolute basis were resource equities and multi-strategy real assets, which includes real estate, infrastructure, resource equities and commodities. The sole factor that restrained these strategies' performance was commodity prices which declined 2% in the quarter, attributable to trade wars and reflective of slower global growth.

Resource equities returned 1% and we outperformed significantly. The multi-strategy real asset index also returned 1%. We outperformed in multi-strategy as each of the underlying portfolio sleeves outperformed.

Turning to our largest asset class, real estate, we're pleased with how it is performing on an absolute basis for our clients and with our relative performance. After a multiyear period of underperforming stocks and private real estate due to interest rate concerns, REITs began to outperform late last year. In the quarter, U.S. REITs returned 1.8%, lifting the year-to-date return to 19.7%. With this recent move, REITs have reestablished dominance versus private core real estate by providing a return premium with liquidity. This is contrary to the return premium found elsewhere in private equity. We're pleased with the positive, diversified returns we continue to provide our clients.

Global real estate performance was flat in the quarter, primarily due to a market pullback in Europe, reflecting economic concerns and some specific real estate issues, notably increasing Brexit angst and proposals for residential rent control in Germany. In the quarter, we outperformed in all 3 of our core real estate strategies: U.S., global and international. For the past year, 95% of our real estate AUM has outperformed and 100% of our global real estate AUM has outperformed.

We are observing, amidst the competitive pressures in our industry, whether from indexing or for active managers to provide greater access returns more consistently, that we are getting stronger as an investment organization. When it comes to real estate, we have a market position that is unparalleled, enabling us to deliver performance consistently across a wide range of strategies and at substantial levels of AUM.

We have done this over multiple portfolio manager regimes and our current team is among the best and deepest. Our outperformance spans the broadest range of strategies offered from global or regional or by portfolio concentration level or by income or risk profile. And importantly, we've executed throughout periods of AUM growth and varying levels of market share. Specifically, today, our AUM is 2.7% of the market cap of U.S. REITs, while over the long term, our market share has averaged 3.5%.

While some in the industry question our size, the data show there is 0 correlation between our share of the market and our alpha in our core REIT strategy. This positions us well as pension and sovereign wealth funds, who historically have invested exclusively in private real estate, are now beginning to allocate to listed real estate to enhance their portfolios.

In closing, we continue to invest in our investment department. We are adding quantitative capabilities to supplement our fundamental processes, developing our next-generation portfolio managers and adding to teams selectively to facilitate the progression of our succession plans.

We continue to allocate time and capital resources to develop new investment concepts and methods to deliver them. For example, in real estate, this includes an opportunistic approach that targets mid-teen returns, a risk-managed strategy and a completion portfolio for core real estate investors.

Our philosophy of continuous improvement and encouraging new ideas benefits our core strategies as alpha sources can be mined in our core portfolios, in addition to being packaged more discretely in highly differentiated strategies. It also helps us retain talent as our analysts and associates work on developing these strategies and our next-generation portfolio managers have greater career path opportunities.

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

Great. Thank you, Joe. As Matt indicated, firm-wide AUM declined slightly in the quarter. And more importantly, we made significant progress towards our goal of improving growth rates in the products and segments which have historically been positive, while also shifting into growth mode in the subadvisory channels that have recently struggled to deliver net organic growth. As you know by now, we have designed new strategies and structures to promote inflows and address the sources of past outflows.

On offense, we are focused on capitalizing on the continued strong investment performance that Joe just spoke of and the currently favorable market environment for real assets and alternative income strategies. We're now in the market with a number of new products and delivery vehicles for both the wealth and advisory channels, which I'll expand upon in a minute. In addition, strategies aimed at takeaways or market share gains to capitalize on our investment performance and competitive fees are also bearing fruit.

On defense, we've eliminated several drags on growth by exiting the large-cap value effort and stepping away from nonstrategic subadvisory relationships. We believe that these actions aimed at improving AUM growth, in combination with our decision to scale back sources of organic decay, will enhance our firm-wide growth prospects today and in the future.

I'm pleased to say, as Matt indicated, that the wealth channel had another outstanding quarter. Net inflows totaled $1.2 billion, which included $632 million of reinvested dividends. As has been the recent trend, inflows were heavily skewed to U.S. REIT and preferred security strategies. Encouragingly, DCIO generated $164 million of net inflows, which represents the fourth consecutive quarter of positive flows and a 26% organic growth rate year-over-year. This is a good example of an important multiyear strategic investment that is now paying off.

With regard to our plans to go on offense, we're now in the market with multiple new product initiatives that should be additive to long-term growth. First, we've repositioned our flagship Cohen & Steers Realty Shares fund by adding multiple share classes and reducing the expense ratio. Adding share classes will make this top-quartile U.S. REIT fund more widely available in the wealth and high net worth channels. And our decision to reduce shareholder expenses is consistent with our goal of gaining market share across channels by offering our top-performing strategies at below-median fees.

Second, we have converted our former large-cap value open-end fund to the Cohen & Steers Alternative Income Fund, which will offer the best of Cohen & Steers income strategies and is designed to deliver a significant, tax-advantaged dividend yield.

Lastly, we are now able to offer 3 of our most popular investment strategies, midstream energy, preferred securities and US REITs to high net worth investors through separately managed accounts or SMAs. The combination of high-quality products, favorable market conditions and the introduction of new products that leverage our core capabilities should help to sustain our current momentum in wealth.

The advisory group turned in a solid quarter with $65 million of net inflows. During the quarter, $633 million of the beginning $903 million pipeline was funded. And we were awarded $425 million of new mandates, one of which, a $75 million global listed infrastructure strategy, was funded in the quarter. The end-of-quarter pipeline stood at $620 million, and we continued to experience strong finals and early-stage search activity in real estate, preferred securities and infrastructure.

I think it's instructive to highlight one significant outflow in the quarter, which depressed net inflows but that we view as a long-term positive. One of our longest-standing and largest pension fund relationships for whom we have strategic allocation discretion over their listed real estate and preferred securities portfolios made a tactical decision in December to take advantage of the significant market decline by allocating an additional $375 million to this mandate. Their aim was to capitalize on the discounts in listed real estate, and they realized nearly a 19% return year-to-date. Consequently, they elected to repatriate $379 million of the $446 million of appreciated value. In our view, this successful outcome is a long-term positive, and we anticipate that this relationship will continue to grow over time.

Lastly, advisory has also gone to market with new product offerings, including several highly concentrated portfolios and LP structures, a midstream portfolio within an annuity wrapper and an opportunistic listed real estate strategy in a drawdown LP format. We expect that these new products will appeal to a wide range of institutional clients and contribute to long-term organic asset growth.

Due largely to the previously announced termination of a $906 million European global real estate relationship, the subadvisory channel experienced $1 billion of net outflows in the quarter. Going forward, we're hopeful that by eliminating nonstrategic relationships, where our respective interest diverge or where the potential for a broader relationship is limited, and by adding new intermediary clients committed to our asset classes, our subadvisory business can return to positive growth. Consistent with this goal, we're pleased to have entered into a new strategic OCIO relationship, which funded a $43 million global listed infrastructure mandate in the quarter and we expect additional flows later this year.

Lastly, Japan subadvisory outflows were $224 million in the quarter, which, combined with distributions of $333 million, totaled a net $557 million. Both outflows and distributions have continued to decline, but it is still unclear when we will get back to equilibrium. We continue to work with our partner to market the outstanding investment performance of all of these funds, especially the U.S. REIT portfolios.

Looking ahead, I believe that our wealth and advisory businesses are especially well positioned to generate ongoing and significant organic growth. Market demand for our strategies, industry-leading performance and the launch of multiple new products in both channels are all supportive of sustained AUM growth. By addressing the 2 significant drags from subadvisory flows, large-cap value and nonstrategic partnerships, this channel is now poised to return to positive growth going forward. In combination, these market factors and new initiatives should support continued market share gains and firm-wide organic growth.

I'll stop there and ask the operator to open the floor to questions.

(Operator Instructions) Our first question comes from Mac Sykes with G. Research.

Congratulations on the solid quarter. I was wondering if we could just dig in to the RIA channel a little bit. Which products and vehicles are most in demand? And then just a follow-up on that, what are the important aspects to supporting and growing this channel?

Thanks for the question, Mac. In the RIA channel, it's not too dissimilar, frankly, from the traditional FA channel in terms of the flows into preferreds and to REITs. I would, however, just point out that we do segment the RIA market into RIA -- super RIA and multifamily office. And a number of our newer product launches, SMAs, et cetera, are designed for both RIAs, but also as we move up the size, scale to super RIAs and multifamily offices. Some of our concentrated LP portfolios are appropriate also for not just institutional clients, but some of these multifamily office and super RIA entities.

Great. And just one other follow-up. In the past, we've talked about real assets and their benefits in an inflationary environment. Now it seems that we may be in a kind of a lower inflationary environment, but demand still seems very healthy. Can you talk about sort of the messaging in terms of the benefits of real assets kind of in the different trend that we may be in?

Sure. Yes, you're right. But for real assets broadly, inflation protection is one benefit and we don't have inflation. So that has curtailed some of the interest in the broader real asset portfolios, which include the asset classes that are most sensitive to inflation, commodities and resource equities. But stepping away from that, because of the income profile of real estate and infrastructure, there is very significant demand for the characteristics of those strategies provide.

So we do have a lineup of strategies that enables us to be live, if you will, in a variety of macroeconomic environments. And right now, with low rates and benign inflation, the interest is channeled mostly into real estate infrastructure and preferreds.

Our next question comes from John Dunn with Evercore ISI.

A question on the closed-end fund side. We saw BlackRock launch a closed-end fund where it paid distributors upfront to get pretty high fee, 12-year money. I know, Bob, you said in the past the window was closed for that channel. But where we are now? Does it make sense for you and the industry to maybe look at launches again?

Great question. Yes, that's -- I think the window is open. And the new model does require sponsors to take care of all the upfront expenses, which still makes a lot of sense if you have the opportunity. So we've been in ongoing discussions with the major distributors on potential launches. We're also in discussions about potential rights issues because you may or may not have noticed, but a number of our closed-end funds are trading at premiums to their asset values. There's nothing I can tell you today that is going to happen. But the closed-end fund market is an important piece of our business. Market conditions as you observed have changed. And if there's an opportunity to capitalize on that, we'll be all over it.

Got you. And then just a little more on the SMA area, I mean, it's definitely a growth area. Do you have any idea, like what's your early innings expectations of where maybe growth rate or how big that piece that could be? And then the incremental margins of that business versus other vehicles?

It's too early to share any early indications on any of these initiatives, including the repositioning of Realty Shares or now Alternative Income. But we do think that offering our key strategies in the SMA format will raise -- not only raise money directly in the SMAs, but will also enhance flows into the respective mutual funds as well, as financial advisers want to use just one manager in each asset class. And so in the past, what has worked against us is not having SMAs. And again, an adviser doesn't necessarily want, for example, a REIT manager for their mutual funds but a different manager for SMA. So there's going to be some synergy there.

There's a tremendous amount of excitement from our sales force on our new Alternative Income Fund. It is going to have a very significant yield and -- both absolute and relative in the marketplace. It represents the best of Cohen & Steers. And the performance numbers, as Joe alluded to earlier, in each sleeve of this best of portfolio delivers outstanding performance well above benchmark. So I think the repositioning of CSR, the conversion to alt income and SMAs, I can't tell you the timing, but we think all 3 have very substantial potential.

(Operator Instructions) Our next question comes from the line of Michael Carrier with Bank of America.

Maybe first one, just on the model portfolios, given that you had the conversion in the quarter. Maybe just a few things on that. Like one is, are you seeing increased demand that we are throughout the industry? How do you guys think about maybe the fee rate on those products?

And I guess that $4 billion, it seems like you have enough scale, so it looks like something that the incremental margin would be still very attractive, even if the fees are a little bit lower, but just any color on how that kind of impacts the business and what you're seeing in terms of the growth outlook.

Thanks for the question, Mike. Look, I think model-based is going to continue to grow. There are intermediaries such as the one we spoke of this quarter is converting most if not all of our relationship to it. There is no economic impact. And generally speaking, we view model-based both from a portfolio management standpoint but also an economic standpoint as really no different than a traditional separate account. So we are getting of scale there. And as you mentioned, it takes little or no additional effort to accommodate those additional assets.

Just related to that, on the subadvisory side where some of these model-based assets are going, we do anticipate adding OCIO relationships. As you know, the OCIO business or industry is growing quite rapidly. Some of those OCIOs utilize the subadvisor format, some the model-based and some just separate accounts, but we do expect significant growth from that channel and some of which will likely be model-based.

Okay, that's helpful. And then maybe just a second question. You laid out like a lot of initiatives in place that you guys have been working on, whether it's for the new products, the new share classes, the fees, the SMAs, and you guys had the performance and it seems like, at least from an asset class, the products are in demand given the rate -- the backdrop. Just from a distribution standpoint, like are you starting to see traction maybe -- I know on the SMAs, you said it's still early, but on some of the other products and initiatives that you have out there, whether it's in the U.S. on the wealth side, are you like getting into more portfolios? And then outside the U.S., in terms of the subadvisory, in terms of new relationships, just any update on how like the distribution traction is going, given you kind of repositioned some of these products and some of the growth initiatives.

Well, as I mentioned earlier, it's -- we've literally just hit the market with most of these new initiatives either in the last several months, some of which are actually still in just the rollout phase. So it's too soon to tell. But what isn't too soon to tell is again, we've reiterated that we think this is the time in the industry where market share gains or losses are going to occur. And we think that we are in just an incredibly strong position between our performance and our ability to deliver our strategies at fees that are at median or below median. And we're gaining market share in all of our core strategies, REITs, global REITs, preferreds, we're even starting to gain market share in midstream energy. And the formula is top decile or quartile performance with fair fees. And we are gaining a lot of traction utilizing that strategy.

Some of the newer strategies that we're talking about don't exactly fit into that mold because we're creating products that our institutional, super RIA, foundation and endowment clients are interested in which tend to be highly focused or concentrated, thematic, limited capacity. And in those strategies, we have different delivery vehicles and different fee structures, which are not oriented towards gaining market share. And so those are 2 distinct strategies that we're employing. And -- but in the process, we absolutely believe that we're going to be gaining market share in all of our key strategies.

Our next question comes from Robert Lee with KBW.

I'm just kind of curious, and with all the new share classes, the SMAs, obviously, as you've talked at length about focus to better penetrate the wealth channel, but with all that, do you feel like you have -- are on enough platforms at this point? Or with all these changes, you first have to kind of get on more platforms, and this is obviously designed for that and get on more approved list? Just trying to get a sense of you make all these changes, but we really kind of see like the impact more like several quarters down the road as you first have to kind of get on more platforms and then more portfolios.

No, I don't think so. I think the only part of our business where we have -- still have work to do to get on platforms is in Europe with our SICAV vehicles. But candidly, here in the U.S., we have not had any issues with being deselected from platforms, which, as you know, has been going on. I think our national accounts team has done an outstanding job at getting us the appropriate ratings, which for the most part are strong buy ratings or inclusions in models where our asset classes are in those models.

And so no, I think that CSR or Cohen & Steers Realty Shares is really the only existing product that frankly it was never designed to be broadly distributed. It was a participant in Schwab's rollout of OneSource in 1991. So we're just bringing that fund up to date and getting its expense ratio in line with our corporate philosophy. So I think we're everywhere we need to be, and we're just going to continue to talk to our relationships about our outstanding performance and the role that our asset classes can play in their portfolios.

Okay. And then just maybe a follow-up question on the more advisory or institutional channel. Obviously, also, as you've talked about at length, made a lot of investments there, new product structures, strategies and whatnot. And your track record speaks for itself. So I mean is there -- are you happy with kind of the pace so far? I mean is there any sense that, gee, we have this compelling story for liquid real estate and institutional investors, not institutional investors, it's not resonating with enough of them? Do you have any concern about that? And if so, why do you think that may be?

Actually, and we've spoken about this, both Joe and I, in the past, we've never been more excited about the institutional opportunity. As we've spoken about, we're seeing some of the world's largest investors who previously had only invested in real assets privately and through private investments are shifting into listed, including infrastructure, and Joe spoke to that in his comments. I actually saw a headline from Blackstone's call that Jon Gray mentioned they're having trouble putting out their infrastructure capital. And it's very consistent with our thesis that one way or the other, that money is going to be put out and the public market offers a large and appropriate opportunity there.

So we're seeing benefits at several levels. One is asset gathering and level of activity. And while we don't share numbers, I would say that activity related to inquiries, searches, RFPs and so on remain extremely high. The level of finals activity is high. And we expect to win our fair share and gain market share both in real estate and in infrastructure.

And I would also point out, and again, Joe spoke to it and maybe can add to my comments, there has been tremendous internal benefits to this now almost 2-year-old project to respond to our clients' and our markets' interest in bespoke and unique strategies within our core strategies. And it's really invigorated our investment teams and just created tremendous enthusiasm and momentum internally, which I think has benefited performance.

Yes, absolutely. An example of that is, like Matt talked about this in the past, is we've seeded a strategy and a version of infrastructure, a small cap approach to it, and this plays to the theme of the private equity trying to find a home and looking to the public market. And as I mentioned on my comments earlier that we've seen a couple of privatizations announced earlier this year. These are smaller cap infrastructure companies that are in the seed account, but it's an investment thesis, right? And it's something that we're not just mining in the seed account, we're mining in our broader portfolios as well. So it's kind of represents the DNA of our investment department, trying to find new sources of alpha, great investment ideas and then putting them into our portfolios and potentially developing a new strategy.

So if I were a CIO of a sovereign wealth fund and wanted to allocate money to infrastructure, I'd put it into our small-cap infrastructure portfolio because it's a differentiated way to play a theme and investment thesis that everyone is talking about.

(Operator Instructions) Mr. Steers, there are no further questions at this time. I will now turn the call back to you. Please 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.

That does conclude the conference call for today. We thank you for your presentation -- your participation and ask that you please disconnect your lines.