Cohen & Steers Earnings: Higher Yields on Less Risky Assets Continue to Affect Flows and Performance

We’re likely to reduce our $64 per share fair value estimate for narrow-moat-rated Cohen & Steers CNS 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).

Cohen & Steers closed out September 2023 with $75.2 billion in total assets under management, down 6.5% sequentially and 5.1% year over year. Net outflows (exclusive of distributions) of $47 million during the third quarter was an improvement on prior quarters—with the quarterly run rate over the prior four quarters being $672 million in outflows—it still left organic AUM growth in negative territory. While flows were positive during July and August, they returned to negative territory in September as both retail and institutional investors pulled money out of the company’s funds. We would expect that trend to continue during the fourth quarter.

With average AUM down 10.9% year over year, third-quarter revenue declined 11.6% when compared with the prior year’s period. Year-to-date revenue was down 16.1% when compared with 2022 levels. We continue to expect revenue to decline at a 14%-17% rate during 2023. Our five-year forecast (which includes an equity market correction nearer the end of our projection period) has revenue declining at low- to mid-single-digit rates on average annually during 2023-27.

As for profitability, the company’s adjusted GAAP operating margins of 36.7% during the first nine months of 2023 were 640 basis points lower than 2022 results, reflecting the negative side to the operating leverage in the asset manager’s business model. Even so, we are projecting profitability to recover over the next five years, with adjusted GAAP operating margins in a 38%-41% range, compared with 41.6% on average during 2018-22.