Executive Summary / Key Takeaways

• Specialized Expertise Driving Alpha: Cohen & Steers (CNS) is a premier active asset manager specializing in real assets and alternative income, consistently delivering strong outperformance across its core strategies, which serves as its primary competitive moat.
• Strategic Product Innovation: The firm is actively expanding its product ecosystem with new active ETFs and integrated listed/private real estate solutions, aiming to capture growth in the fast-evolving RIA and institutional channels.
• Resilient Financials & Strategic Investment: Despite macroeconomic headwinds and some institutional outflows, CNS maintains robust profitability and a highly liquid balance sheet, strategically increasing G&A in 2025 to fund future growth initiatives.
• Favorable Macro Tailwinds: Management anticipates a market rotation towards real assets, driven by attractive valuations, persistent inflation, and a growing need for true portfolio diversification beyond traditional stocks and bonds.
• Disciplined Capital Allocation: CNS balances a predictable quarterly dividend with strategic co-investments in new vehicles and potential inorganic growth, leveraging its strong financial position to capitalize on market opportunities.

The Enduring Value of Real Asset Specialization

Cohen & Steers, Inc. (CNS), founded in 1986, has carved out a distinct and enduring niche as a global investment manager specializing in real assets and alternative income. From its roots in U.S. REITs, the firm has organically expanded its expertise to encompass listed and private real estate, preferred securities, infrastructure, resource equities, commodities, and multi-strategy solutions. This deep specialization, rather than broad diversification across all asset classes, forms the bedrock of CNS's strategy and its competitive advantage in a crowded asset management industry.

The firm's core differentiation lies in its active management approach, powered by specialist investment teams employing fundamental-driven research and rigorous portfolio management processes. This intellectual capital and systematic methodology are CNS's true "technology," enabling it to consistently generate alpha for clients. For instance, as of June 30, 2025, an impressive 94% of CNS's AUM had outperformed its benchmark over a one-year period, with outperformance rates exceeding 95% over three, five, and ten years. This consistent alpha generation is a critical draw for discerning investors and a key differentiator against passive strategies and less specialized competitors.

Strategic Evolution: Expanding the Ecosystem

In response to evolving investor preferences and market structures, CNS is strategically expanding its product offerings and distribution capabilities. This proactive evolution is designed to broaden its addressable market and reinforce its competitive standing.

The firm launched its first three active Exchange Traded Funds (ETFs) in February 2025, covering U.S. REITs, preferred stock, and natural resource equities. These ETFs are designed as core, non-thematic strategies, directly appealing to a growing segment of investors, particularly within the RIA market, who exclusively utilize ETFs. In their first full quarter (Q2 2025), these active ETFs recorded $54 million in net inflows, contributing to a total AUM of $133 million (including $55 million in original seed capital). Management plans to launch more active ETFs in its core strategies, recognizing the trend of advisors converting their business from open-end funds to ETFs.

CNS is also making significant strides in private real estate. Its Cohen & Steers Income Opportunities REIT (CNS REIT), launched in January 2024, has rapidly distinguished itself. For the year ended May 2025, CNS REIT was the best-performing non-traded REIT, delivering a 12.2% total return compared to a 5% average for non-traded REITs. This outperformance is attributed to its differentiated strategy of investing in open-air shopping centers, which management believes are currently mispriced, and its unique integration of an active listed REIT sleeve. Building on this, CNS partnered with IDR Investment Management in Q2 2025 to launch a tactical listed and private real estate strategy for institutional investors. This innovative solution aims to provide higher returns, reduced risk, and improved liquidity compared to standalone core private real estate, leveraging the lead-lag dynamic between listed and private markets. The firm is also exploring similar listed/private partnership arrangements for infrastructure, driven by a belief in constructing "better portfolios" through such combinations.

Global listed infrastructure is another area of strong focus and growth. The strategy saw robust net inflows of $607 million for the six months ended June 30, 2025. Management is highly bullish on this asset class, citing secular trends such as digitalization, decarbonization, and increasing power demand, which are accelerating infrastructure spending globally. Listed infrastructure is seen as a complementary allocation to private infrastructure, offering access to diverse sectors like digital infrastructure and utilities without sacrificing liquidity.

To support these initiatives, CNS is strategically investing in its distribution capabilities. This includes realigning its U.S. wealth distribution team to engage with advisors in a cross-channel capacity, with a dedicated focus on the fastest-growing RIA and multifamily office segments. The firm is also expanding its international sales resources and has completed foreign office upgrades, including a new Hong Kong office in Q2 2025.

Financial Performance: Resilience Amidst Change

For the second quarter ended June 30, 2025, total revenue increased 1.1% sequentially to $136.13 million, driven by higher average assets under management (AUM) and day count. The effective fee rate remained stable at 59 basis points. Operating margin for the quarter was 33.6%, a slight decrease from 34.7% in the prior quarter, primarily due to increased expenses.

AUM at June 30, 2025, stood at $88.9 billion, a notable 10.2% increase from $80.7 billion a year prior. While open-end funds continued their positive flow trend with $870 million in net inflows for the first half of 2025, institutional accounts experienced net outflows of $885 million over the same period, largely due to client rebalancing and strategic allocation adjustments. Despite these outflows, the firm's "won but unfunded pipeline" for institutional accounts rebounded significantly to $776 million as of Q2 2025, resulting in a net pipeline of $275 million after accounting for known redemptions.

The increase in expenses, particularly general and administrative (G&A) costs, is a direct result of the firm's strategic growth initiatives. G&A expenses rose due to higher talent acquisition costs (especially for sales and distribution), increased travel and business development activities, and expenses related to the active ETF launch. Management has guided for full-year 2025 G&A to increase in the 7% to 8% range compared to 2024, moderating to mid-single-digit percentage growth thereafter. The compensation ratio is expected to remain consistent at 40.5% for 2025, and the effective tax rate is projected at 25.3% on an as-adjusted basis. This upfront investment in G&A is a deliberate strategy to position the firm for future revenue growth and operating leverage.

The company maintains a highly liquid balance sheet, with $323 million in liquidity at the end of Q2 2025. This strong financial position is crucial for supporting growth initiatives, including seeding new strategies and co-investing in private real estate vehicles.

Competitive Landscape: Niche Strength in a Giant's World

In the asset management industry, CNS operates as a specialized player amidst larger, more diversified competitors such as BlackRock (BLK), State Street Corporation (STT), Invesco Ltd. (IVZ), and Franklin Resources, Inc. (BEN). While these giants offer a broader array of products and often possess greater technological scale (e.g., BlackRock's Aladdin platform), CNS differentiates itself through its deep expertise and consistent alpha generation in real assets.

CNS's competitive edge lies in its ability to deliver superior performance in niche sectors, which can translate into stronger customer loyalty and pricing power. For instance, its U.S. REIT and preferred securities strategies hold significant market share in actively managed open-end funds (mid-40% and 38% respectively), demonstrating its leadership in these specialized areas. The outperformance of CNS REIT against its non-traded REIT peers further underscores this specialized strength.

However, CNS faces competitive pressures. The resurgence of fixed income allocations and the popularity of private credit have created headwinds for its preferred securities strategies. Institutional clients are also rebalancing portfolios, sometimes away from listed allocations or into "old architecture" strategies, leading to outflows. CNS is strategically responding to these dynamics by expanding into active ETFs to compete with passive strategies (where REIT ETFs alone total $119 billion) and by developing integrated listed/private solutions that address the evolving needs of institutional investors for better liquidity and risk-adjusted returns in alternatives. The firm's focus on the fast-growing RIA channel, which often employs an endowment-like model, positions it to capture assets from advisors who value active management and persistent alpha.

Outlook: Tailwinds and Disciplined Growth

Management's outlook for CNS is characterized by a belief in favorable macro tailwinds for real assets. They contend that the era of ultra-low interest rates is over, inflation is stickier, and there is a growing need for true portfolio diversification. This environment is expected to drive a market rotation towards real assets, which are currently at more attractive valuations compared to broader equities. The perceived bottoming of private real estate prices and the normalization of rental growth in 2025 and beyond are key assumptions underpinning this positive outlook.

The strategic investments in new vehicles and distribution are expected to yield long-term benefits. The expansion into active ETFs and the development of integrated listed/private real estate and potentially infrastructure solutions are critical for capturing market share in evolving distribution channels. While these initiatives contribute to higher G&A in the near term, they are designed to enhance future revenue growth and operating leverage.

Conclusion

Cohen & Steers stands at a pivotal juncture, strategically transforming its business to capitalize on shifting market dynamics and investor preferences. By leveraging its deep-seated expertise in real assets and a proven track record of alpha generation, CNS is expanding its product suite with innovative vehicles like active ETFs and integrated listed/private real estate solutions. This disciplined evolution, supported by a strong balance sheet and targeted investments in distribution, positions the firm to capture long-term AUM growth and enhance profitability. While macroeconomic uncertainties and competitive pressures remain, CNS's specialized focus and commitment to innovation provide a compelling investment thesis for those seeking exposure to the enduring value of real assets in a dynamic global economy.