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Text: Joining me are our chief executive officer, Bob Steers; our president, Joe Harvey; and our chief financial officer, Matt Stadler.
Further, none of our statements constitute an offer to sell or the solicitation of an offer to buy the securities of any fund.
These non-GAAP financial measures should be read in conjunction with our GAAP results.
My remarks will focus on our as-adjusted results.
Yesterday, we reported record earnings of $1.24 per share compared with $0.76 in the prior year's quarter and $1.06 sequentially.
The fourth quarter of 2021 included cumulative adjustments to compensation and benefits and income taxes that lowered our compensation-to-revenue ratio and effective tax rate, respectively.
Revenue was a record $159.7 million for the quarter compared with $116.6 million in the prior year's quarter and $154.3 million sequentially.
The increase in revenue from the third quarter was primarily attributable to higher average assets under management and open-end funds and higher performance fees from certain institutional accounts when compared with the third quarter.
Our implied effective fee rate was 58.1 basis points in the fourth quarter compared with 57.5 basis points in the third quarter.
Excluding performance fees, our fourth quarter implied effective fee rate would have been 57 basis points, and our third quarter implied effective fee rate would have been 57.3 basis points.
Operating income was a record $82.6 million in the quarter compared with $49.4 million in the prior year's quarter and $70.4 million sequentially.
Our operating margin increased to a record 51.7% from 45.6% last quarter, primarily due to the cumulative adjustment mentioned a moment ago, which reduced compensation and benefits to reflect actual amounts to be paid.
Expenses decreased 8.1% when compared with the third quarter as lower compensation and benefits was partially offset by higher G&A.
The compensation-to-revenue ratio, which included the cumulative adjustment was 26.16% for the quarter.
For the year, the compensation-to-revenue ratio was 32.22%.
The increase in G&A was primarily due to higher travel and entertainment, increased hosted and sponsored conferences, and higher recruitment fees.
And the increase in distribution and service fee expense was primarily due to higher average assets under management in U.S. open-end funds.
Our effective tax rate, which was 25.36% for the quarter, included a cumulative adjustment to bring the rate to 26.15% for the year.
The reduction in the effective tax rate was primarily due to a decrease in a nondeductible portion of executive compensation on a higher than previously forecasted pre-tax base.
Our firm liquidity totaled $248.2 million at quarter-end, compared with $241 million last quarter.
Firm liquidity as of December 31 reflected the payment of a special cash dividend in December of $60.3 million or $1.25 per share.
Over the past 12 years, we have paid a total of $15.25 per share in special dividends, and we continue to be debt-free.
Assets under management totaled a record $106.6 billion at December 31, an increase of $9.4 billion or 10% from September 30.
The increase was due to net inflows of $1.8 billion and market appreciation of $9.1 billion, partially offset by distributions of $1.6 billion.
This marks the 10th consecutive quarter that we have recorded net inflows.
Bob Steers will be providing an update on our flows and institutional pipeline of awarded unfunded mandates.
And now, I'd like to briefly discuss a few items as we begin the new year.
First, regarding our expected compensation-to-revenue ratio.
We intend to balance anticipated revenue growth from year-end assets under management that exceeded our full-year assets under management by about 13%.
With a disciplined approach toward adding human capital, in addition to the full-year impact from the new hires we made last year, we plan on making controlled investments in order to broaden our product offerings, expand our public and private distribution efforts, and most importantly, to maintain our industry-leading investment performance.
As a result, we expect that our compensation-to-revenue ratio will increase to 33.75% and from the 32.22% recorded in 2021.
Continuing with the theme of investing in our business, we expect G&A to increase 10% to 15% from the $47.2 million we recorded in 2021.
We intend to make incremental investments this year in technology, including the implementation of new systems that will add efficiencies and expand our capabilities, cloud migration, and upgrades to our infrastructure and security.
We will also make investments in global marketing, focused on hosting virtual and in-person conferences, as well as expanding our digital footprint.
And we expect that travel and entertainment costs will increase as global conditions begin to return to normal.
We expect that our effective tax rate will remain at 26.15% in 2022.
And finally, you will recall that a year ago, we noted that we were anticipating the redemption of $1 billion global real estate institutional account in 2021.
I am pleased to inform you that not only do we continue to manage this account, but the client has also added assets to it, and therefore, we no longer consider this account to be at risk.
Today, I will review our investment performance, and discuss the macro environment and its impacts on our asset classes.
Four weeks into January, the fourth quarter of last year seems far away, but it was very strong for equities.
2021 closed with momentum and expectations for post-pandemic economic recovery, earnings growth, stimulus, and appetite for risk-taking.
Our largest asset class, U.S. REITs, was the best performing sector in the S&P, returning over 16% in the quarter.
For the full year, our asset classes performed well, with U.S. REITs up 41%, global real estate up 26%, listed infrastructure up 15%, resource equities up 24%, and preferred is up nearly 3%.
With the new year, however, the market has finally focused on rising inflation, which, as we shared our views with you last year, will likely persist.
With the last reading at 7%, CPI is currently at the largest gap to the federal funds rate in our professional lifetimes.
Reversion of that gap will come by way of both monetary tightening, as well as from inflation normalizing at a lower rate.
We believe inflation could stabilize in the high 2% ZIP code or 100 basis points higher than the pre-pandemic trend line.
The interest rate and adjustment process will reshuffle the deck of winning and losing asset classes and sectors while exposing vulnerabilities from risk-seeking borrowers.
We believe that the U.S. economy will continue to enjoy above-trend growth, supported by a prolonged and oscillating recovery as the pandemic ebbs and flows.
Earnings sensitivity to inflation should be a key differentiator in performance to counteract the impending interest rate adjustment.
Looking at our performance scorecard.
In the fourth quarter, eight of nine core strategies outperformed or equaled their benchmarks.
For the last 12 months, nine of nine core strategies outperformed.
Measured by AUM, 99% of our portfolios are outperforming benchmarks on a one-year basis compared with 79% last quarter.
The improvement was attributable primarily to global real estate, which improved from 25% outperforming in the third quarter to 95% outperforming as of year-end.
For both three and five years, 100% of AUM are outperforming.
Credit goes to our investment leaders, John Cheigh, our CIO; and Chris Parliman, chief administrative officer, in guiding our teams to these outstanding results.
In light of the inflation situation, I'll kick off our asset class review by highlighting our multi-strategy real assets portfolio, the benchmark for which returned 21% in 2021.
This portfolio is designed to provide equity-like returns, inflation sensitivity, and diversification.
We outperformed the benchmark by 340 basis points for the year, which included outperformance in all five asset class sleeves, as well as asset allocation alpha by our portfolio manager, Vince Childers.
This portfolio is designed to perform best in environments of rising or unexpected inflation.
Commodities and resource equities provided the most inflation sensitivity while real estate is driven more by economic growth and infrastructure tends to be an all-weather performer.
Valuations of these listed real assets are as cheap as they've been to equities in 20 years.
Meantime, the beta to equities is just 0.6 times.
We recently published a white paper on this strategy and its constituent asset classes and is available on our website.
Our three core real estate strategies: U.S., global and international outperformed in both the quarter and year.
As mentioned, global real estate returned 26% with significant dispersion by region.
The U.S. returned 41%, Europe returned 9% and Asia returned 4%.
To address the inflation and interest rate question on prospective performance, earnings sensitivity and replacement cost dynamics should help listed real estate.
Globally, these companies' cash flows should accelerate to an average of 12% over the next few years compared with their long-term growth rate of 5%.
U.S. REIT returns have averaged 10.8% during periods of rising bond yields accompanied by rising growth, while in periods of rising yields with declining growth, returns have been flat.
Comparatively, private real estate unleveraged returns have averaged 10.7% in high-inflation environments versus 6.5% in low-inflation environments.
The asset class returned 15% in 2021, compared with 22% for global equities lagging for the second year.
We outperformed our benchmark for the quarter and year.
Sector dispersion was wide with over 40 percentage points best to worst.
While certain pandemic-challenged sectors, namely passenger rails, toll roads, and airports, restrained performance, the ongoing economic recovery should provide tailwinds for these sectors going forward.
Reflecting the income and stable cash flow growth profile of infrastructure, I'd characterize infrastructure generally as steady Eddie.
That is -- it provides solid returns in most market regimes, while not at the top of the charts nor at the bottom.
In part due to President Biden's now passed infrastructure spending legislation, we are seeing broadening allocations in institutional portfolios and increased flows in wealth.
Preferred securities portfolios had modest negative returns in the fourth quarter but performed well versus fixed income for the full year.
For the quarter and the year, we outperformed benchmarks in both our core and low-duration strategies.
This year, likely we'll test fixed-income performance generally based on our review for rising bond yields.
Our portfolios are positioned defensively against increases in interest rates with duration of 2.4 years in our low-duration strategy and 4.0 years in our core preferred strategy.
After high yield, preferreds offer the second-highest yields in fixed income and offer meaningful tax advantages for the taxable investor due to the high percentage of qualified dividend income that they produce.
In terms of our private real estate initiative, we have commenced our investment process and have closed on several property acquisitions for both our income strategy and our opportunistic or capital appreciation strategy.
This year, we will look to add a real estate investment strategist as part of our expansion of multi-strategy capabilities to help our teams and clients allocate between listed and private real estate and execute thematic and strategic research.
We look forward to sharing our progress on this initiative in the future.
In closing, we are very positive about the allocation trends we are seeing for our asset classes.
In the institutional channel, we see a greater need to allocate to real assets.
By example, in the private market, dry powder and private equity funds is at $390 billion for real estate and $300 billion for infrastructure.
Investors are becoming more comfortable with listed allocations to complement private, despite greater measured volatility.
Some investors want real assets with liquidity, particularly in the endowment and foundation and Healthcare segments where some plans liquidity has been challenged.
In our early stage pipeline, we have some sovereign wealth opportunities where the plan sponsors are making initial allocations to listed real estate and infrastructure.
We would expect those initial small allocations to grow meaningfully to make it worthwhile for those plan sponsors to research the asset classes and oversee additional managers.
In the wealth channel, we are seeing earlier-stage adoption of private real asset allocations.
As we've seen in other markets, this will help drive listed allocations over time.
We believe the inflation environment will help provide additional support for these trends.
Finally, manager consolidation and conversions from passive to active are trends also in our favor as our performance continues to be excellent.
2021 was a record-breaking year in myriad ways for Cohen & Steers.
It marked our 35th anniversary and 17 years as a public company.
For the quarter and year, we achieved a record number of records, driven by improving fundamentals, a rebounding economy, accompanied by the return of meaningful inflation.
And for the first time in over a decade, the prospect of sustained Fed tightening.
As Matt discussed, assets under management increased to a record $106 billion at year-end, driven by our 10th consecutive quarter of firmwide net inflows.
Both open-end fund and advisory channels ended the quarter with record assets under management.
For the full year, we also achieved record gross and net inflows.
Open-end fund and advisory gross sales increased 11% and 13% to $19.5 billion and $4.9 billion, respectively.
Most notably, open-end fund net inflows rose 62% year over year to a record $8.8 billion, while the advisory channel also registered a record $1.9 billion of net inflows.
Firmwide organic growth was 12% for the year.
The seemingly sudden rise of inflation and the expectation from multiple rounds of Fed tightening have put into stark relief the importance and value of portfolio allocations to actively managed real asset strategies across client portfolios to enhance returns and provide diversification.
The wealth channel was by far our strongest business segment and achieved multiple milestones in the quarter.
Net inflows in that channel were a record $2.5 billion for a 22% organic growth rate and represented our 12th consecutive quarter of positive net flows.
Importantly, net flows in the quarter were not just strong but also diverse, with meaningful contributions from each of the wirehouse, regional brokerage, and RIA segments.
In addition, DCIO open-end fund net inflows were a record $476 million and marked the 14th consecutive quarter of net inflows.
DCIO assets in our open-end funds ended the year at a record $6 billion.
Our non-U.S. open-end funds registered net inflows of $45 million in the quarter and a record $202 million for the full year.
We will continue to invest to support growth in this important channel, and we expect that flows will continue on an upward trajectory.
For the year, the powerful combination of strong absolute and relative performance derived from our unique and diversifying asset classes resulted in 25% organic growth in wealth and industry-leading market share as well.
Our U.S. global real estate and preferred securities funds achieved market share records of 33%, 12%, and 46%, respectively, against other comparable actively managed funds.
2021 was a record year for the institutional advisory channel as well with $1.9 billion of net inflows.
However, 2021 was also a year in which we reorganized our sales leadership and converted to a regional approach to our institutional sales coverage.
We enter 2022 fully staffed and prepared to go higher and deeper into the global institutional marketplace.
In the quarter, the advisory channel had net outflows of $456 million.
These outflows were driven by a single and unexpected client termination of $400 million.
However, not included in the headline advisory flow results was $564 million of net new mandates from institutional clients, which were invested into our open-end funds.
Other full-year achievements for the advisory channel include positive net flows from each of the U.S., EMEA, and Asian markets.
Additionally, all of our core strategies, U.S. real estate, global real estate, global listed infrastructure, and preferred securities registered net inflows.
The pipeline of awarded but unfunded mandates has increased dramatically $900 million in September to $2.1 billion, another new record.
New awards in the quarter totaled $1.3 billion and included our first relationship in Africa, a $300 million global listed infrastructure mandate.
Sub-advisory flows in the quarter were subdued.
Net outflows in Japan were $242 million and distributions totaled $276 million.
Sub-advisory net outflows ex Japan in the quarter were a modest $56 million.
At the risk of sounding overly optimistic, we believe our current momentum and growth prospects have never been brighter, driven as always, by our industry-leading investment results.
It bears repeating that virtually 100% of our AUMs are outperforming their benchmarks for the one-, three-, five- and 10-year time periods, a truly remarkable accomplishment.
Looking ahead, the combination of industry-leading investment performance, rising demand for real asset strategies and our plans for new product introductions designed to meet this demand has us poised for continued organic growth.
In addition to our open-end fund organic growth, next month, we plan to market the first new listed real estate securities closed-end fund in over nine years, supported by an exceptionally strong and deep syndicate.
And as I've discussed, the institutional advisory channel entered this year with a record pipeline, fully staffed, and the reorganization behind them.
Also under new leadership, our EMEA wholesale business is also poised to deliver meaningful organic growth.
To capitalize on all of this momentum, this year, we plan to launch multiple new initiatives which will seek to position Cohen & Steers at the intersection of public and private real estate markets through the introduction of vehicles tailored to the unique requirements of both the institutional and wealth marketplaces.
These initiatives are designed to take us higher and deeper into real assets and position us for continued future growth.

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cohen & steers inc - qtrly adjusted earnings per share $1.24.
cohen & steers inc- • ending aum of $106.6 billion for q4.

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