Company Reports

There was little in narrow-moat Cohen & Steers' first-quarter results that would alter our long-term view of the firm. We expect to leave our $63 per share fair value estimate in place. We view the shares as being slightly overvalued right now.

A combination of rising interest rates, equity and credit market headwinds, and increased competition from private real estate investment vehicles offered by alternative asset managers and other traditional asset managers has had (and is likely to continue to have) an adverse effect on Cohen & Steers' level of managed assets. The firm closed out the March quarter with $81.2 billion in managed assets, up 1.7% year over year, but still down 22.0% from a peak of $106.6 billion at the end of December 2021.

All the US-based asset managers we cover have reported their December-quarter earnings, and in some cases revealed assets under management, or AUM, data for January 2024. We now have a better sense of how recent market activity has been affecting results. In our third-quarter earnings wrap, we had assumed that the malaise that had crept into the markets during August-October 2023 might continue through the rest of the year.

We've increased our fair value estimate for narrow-moat rated Cohen & Steers to $62 per share from $53 to account for revised near-term expectations for assets under management, revenue, and profitability since our last update. With the U.S. and global REIT markets rising 17% in the fourth quarter of 2023, Cohen & Steers recorded an 11% increase in its AUM during the period. This left the firm in a better position than we had been expecting coming into 2024, allowing us to raise our fair value estimate as much as we did.

A combination of rising interest rates, equity and credit market headwinds, and increased competition from private real estate investment vehicles offered by alternative asset managers and other traditional asset managers has had (and is likely to continue to have) and adverse effect on Cohen & Steers' level of managed assets. The firm closed out the December quarter with $83.1 billion in managed assets, up 3.4% for the year but still down 22.0% from a peak of $106.6 billion at the end of December 2021.

While there was little in narrow-moat Cohen & Steers' fourth-quarter 2023 results that would alter our long-term view of the firm, we expect to increase our $53 per-share fair value estimate slightly once we've incorporated the results into our valuation. This would leave the company's shares slightly overvalued relative to its Jan. 25 trading price.

While the runup in the equity markets the past several weeks is likely to have a positive impact on assets under management for the U.S.-based asset managers, we don't expect it to have too significant an impact on our fair value estimates, which are based on 10-year forecasts for AUM growth, fee rates, revenue, and profitability. As of the Nov. 29 market close, the traditional U.S.-based asset managers we cover were trading at an average price/fair value multiple of 0.97, making them only slightly undervalued, while the alternative-asset managers we cover were trading at an average price/fair value multiple of 1.09. This is far from the margin of safety we would need to recommend these more volatile names to long-term investors.

With all the U.S.-based asset managers we cover having reported quarterly earnings, and in some cases revealing assets under management data for October, we have a better sense of how the ongoing equity and credit market volatility is affecting results. Due to their lack of organic AUM growth—a product of having large exposure to higher-cost, poorer-performing active equity products in a market where low-cost passive products are preferred—most of the traditional U.S.-based asset managers have become dependent on equity market gains to expand their AUM. In an environment where fees are under pressure and profit margins are being affected by a need to spend more to maintain (if not improve) performance and enhance distribution, a precipitous decline in managed assets, like we saw during 2022, has a large negative impact on revenue and profitability, given the amount of operating leverage inherent in the asset manager business model.

A combination of rising interest rates, equity and credit market headwinds, and increased competition from private real estate investment vehicles offered by alternative asset managers and other traditional asset managers has had (and is likely to continue to have) and adverse effect on Cohen & Steers' level of managed assets. The company closed out the September quarter with $75.2 billion in managed assets, down 6.5% year to date and 29.5% from a peak of $106.6 billion at the end of December 2021.

We have lowered our fair value estimate for narrow-moat Cohen & Steers to $53 per share from $64 to account for revised near- and long-term expectations about assets under management, revenue, and profitability since our last update. We view the shares as being fairly valued relative to our revised estimate.

We're likely to reduce our $64 per share fair value estimate for narrow-moat-rated Cohen & Steers slightly following third-quarter results that, while a bit more positive on the top line, saw a continuation of higher-core operating costs relative to historical levels (and contrary to our expectations for greater easing of some of these expenses).

We've lowered our fair value estimate for narrow-moat-rated Cohen & Steers to $64 per share from $67 to account for revised near-term expectations about assets under management, revenue, and profitability since our last update. We view the shares as being slightly undervalued.

While the combination of rising interest rates and an equity market selloff has had a negative impact on Cohen & Steers' level of managed assets, we remain cautiously optimistic about the firm. The company closed out the September quarter with $75.2 billion in managed assets, split among U.S. real estate (45% of total assets under management), global/international real estate (20%), global listed infrastructure (10%), preferred securities (23%), and other offerings. Market losses have had a bigger negative impact on AUM since the start of 2022, with Cohen & Steers experiencing a 21.7% decline in managed assets due to market losses the past seven calendar quarters. This was, however, better market-related performance than the FTSE Nareit All REITs TR Index (down 29.0%) and the Morningstar Global Markets REIT TR Index (down 29.1%).

While the combination of rising interest rates and an equity market selloff has had a negative impact on Cohen & Steers' level of managed assets, we remain cautiously optimistic about the firm. The company closed out the June quarter with $80.4 billion in managed assets, split among U.S. real estate (45% of total assets under management), global/international real estate (19%), global listed infrastructure (11%), preferred securities (23%), and other offerings. Market losses have had a bigger negative impact on AUM since the start of 2022, with Cohen & Steers experiencing a 17.3% decline in managed assets due to market losses the past six calendar quarters. This was, however, better market-related performance than the FTSE Nareit All Equity TR Index (down 22.7%) and the Morningstar Global Markets REIT TR Index (down 23.4%).

With the U.S.-based asset managers having reported their latest quarterly earnings, and in some cases revealing assets under management data for the end of July 2023, we have a better sense of the impact the recovery in the U.S. equity markets is having on results. As we've noted in the past, most of the traditional U.S.-based asset managers have become wholly dependent on equity market gains to grow their assets under management, given their lack of organic AUM growth, due to large exposure to higher-cost, poorer-performing active equity products relative to low-cost passive products. In an environment where fees are under pressure and profit margins are being affected by a need to spend more heavily to improve investment performance and enhance distribution, a precipitous decline in managed assets as we saw during 2022 has a large negative impact on revenue and profitability—especially considering the amount of operating leverage inherent in the asset manager business model.

There was little in narrow-moat Cohen & Steers' second-quarter results that would alter our long-term view of the firm. We are leaving our $70 per share fair value estimate in place. We view the shares as only being slightly undervalued right now.

While the combination of rising interest rates and an equity market selloff has had a negative impact on Cohen & Steers' level of managed assets, we remain cautiously optimistic about the firm over the near to medium term. The company closed the June quarter with $80.4 billion in managed assets, split among U.S. real estate (45% of total assets under management), global/international real estate (19%), global listed infrastructure (11%), preferred securities (23%), and other offerings. Market losses have had a bigger negative impact on AUM since the start of 2022, with Cohen & Steers experiencing a 17.3% decline in managed assets due to market losses the past six calendar quarters. This was, however, better market-related performance than the FTSE Nareit All Equity TR Index (down 22.7%) and the Morningstar Global Markets REIT TR Index (down 23.4%).

While the combination of rising interest rates and an equity market selloff has had a negative impact on Cohen & Steers' level of managed assets, we remain cautiously optimistic about the firm over the long run. The company closed out the first quarter of 2023 with $79.9 billion in managed assets, split among its U.S. real estate (45% of total AUM), global/international real estate (19%), global listed infrastructure (11%), and preferred securities (23%) and other offerings. Market losses have so far had a bigger negative impact on AUM than outflows, with Cohen & Steers experiencing a 19.0% market loss on its managed assets the past five calendar quarters. This was, however, better performance than both the FTSE NAREIT All Equity TR Index (down 24.0%) and the Morningstar Global Markets REIT TR Index (down 24.5%).

While the combination of rising interest rates and an equity market selloff has had a negative impact on Cohen & Steers' level of managed assets, we remain cautiously optimistic about the firm over the long run. The company closed out the first quarter of 2023 with $79.9 billion in managed assets, split among its U.S. real estate (45% of total AUM), global/international real estate (19%), global listed infrastructure (11%), and preferred securities (23%) and other offerings. Market losses have so far had a bigger negative impact on AUM than outflows, with Cohen & Steers experiencing a 19.0% market loss on its managed assets since the start of 2022. This was, however, better performance than both the FTSE NAREIT All Equity TR Index (down 24.0%) and the Morningstar Global Markets REIT TR Index (down 24.5%).

There was little in narrow-moat Cohen & Steers' first-quarter results that would alter our long-term view of the firm. We are leaving our $72 per share fair value estimate in place. We view the shares as being modestly undervalued right now.