Cohen & Steers Q4 2008 Earnings Call Transcript

| About: Cohen & (CNS)

Cohen & Steers, Inc. (NYSE:CNS)

Q4 2008 Earnings Call

January 29, 2009 10:00 AM ET

Executives

Salvatore Rappa - Senior Vice President and Associate General Counsel

Martin Cohen - Co-Chairman of the Board and Co-Chief Executive Officer

Matthew S. Stadler - Chief Financial Officer and Executive Vice President

Robert H. Steers - Co-Chairman and Co-Chief Executive Officer

Joseph M. Harvey - President

Analysts

Mike Carrier - UBS

Marc Irizarry - Goldman Sachs

Jeffrey Hopson - Stifel Nicolaus & Company, Inc

Operator

Welcome to the Cohen & Steers Fourth Quarter and 2008 Financial Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. (Operator Instructions).

I would now like to turn the call over to Mr. Salvatore Rappa, Senior Vice President and Associate General Counsel. Please go ahead, sir.

Salvatore Rappa

Thank you. Thank you and welcome to the Cohen & Steers fourth quarter and full year 2008 earnings conference call. Joining me are Co-Chairman and Co-Chief Executive Officers, Marty Cohen and Bob Steers; our President, Joe Harvey and our Chief Financial Officer, Matt Stadler.

Before I turn the call over to Marty, I want to point out that during the course of this conference call, we may make a number of forward-looking statements. These forward-looking statements are subject to various risks and uncertainties and there are important factors that could cause actual outcomes to differ materially from those indicated in these statements.

We believe that some of these factors are described in the Risk Factors section of our 2007 Form 10-K which is available on our website at www.cohenandsteers.com.

I want to remind you that the company assumes no duty to update any forward-looking statements. Also the presentation we make today contains pro forma or non-GAAP financial measures which we believe are meaningful in evaluating the company's performance. For detailed disclosures on these pro forma metrics and their GAAP reconciliations, you should refer to the financial data contained within the press release we issued yesterday.

Finally, this presentation may contain information with respect to the investment performance of certain of our funds. I want to remind you that past performance is not a guarantee of future performance.

For more complete information about the funds we will discuss today including charges, expenses, and risks, please call 800-330-7348 for a prospectus. With that, I'll turn the call over to Marty.

Martin Cohen

Well, thank you, Sal. Good morning and welcome to our year-end or new year call.

First let me go through the numbers then I'll give you some commentary on the quarter and on the year. Last night we reported a fourth quarter loss per share of $0.05, which compares with $0.43 per share profit a year ago. After adjusting for certain items which Matt and Sal will discuss with you in a few minutes, we had a profit of $0.04 per share.

For the year, we reported earnings per share of $0.60, compared with $1.60 in 2007. Again, adjusting for certain items, in 2008 we would have earned $0.92 per share. At year-end 2008, our assets under management were $15.1 billion which compares with $24.6 billion at September 30 and $29.8 billion a year ago.

As Bob, mentioned in our call three months ago, clearly the elephant in the room, for the quarter, for that matter for most of the year was and continues to be the markets. And since we spoke to you last, I must say that elephant has been on steroids. And it pretty much trumps everything else in the year at least on a statistical basis but we have some interesting developments in the company that I'd like to share with you.

First, it is notable that the vast majority of our asset decline in both the quarter and year was due to market depreciation. In addition, $2.1 billion of our asset decline was due to the necessity of reducing leverage in several of our close end funds that were required in order to maintain certain leverage ratios. This was strictly due to market movement, not investor redemption.

Retail mid outflows for the year was $1.2 billion, again much lower than we would have expected in light of the very poor market conditions. I think it's gratifying that we've made a lot of inroads in a large number of platforms such as UMAs, 401(k) plans and others for most of our investment strategies.

Institutional flows were essentially flat for the year. Again encouragingly we added seven net new accounts during the year. We also added six new accounts that had just begun to fund in 2009 and therefore are not in our year-end AUM statistics. Based on the trends that we saw last year, institutional separate accounts account for 43% of our year-end assets and that compares to 35% at year end 2007.

The second point I'd like to make is that our relative investment performance was outstanding last year albeit with a negative sign in front of it. UBS in a recent report stated that 96% of our fund assets are above their peer group mean and that is the best statistic in the industry, and it's one we hope to maintain.

Third point is that we made a decision to discontinue our banking segment. While this segment made very good profits for us in the past, as you know the revenues were very unpredictable and very volatile. We felt at this juncture that we wanted to direct a 100% of our resources to our asset management business and one of the items affecting our earnings was a charge related to this termination.

Fourth, we needed to address the dramatic decline in the market. We faced some very difficult decisions. We needed to, for example make sure that we could retain our talented investment teams. It's something that we would do no matter what our asset levels were.

We had to build, not dismantle our strong distribution client service and the infrastructure that supports them to ensure our client retention and future asset gathering. As evidence of our commitment to our people, our headcount in the Asset Management business was 202 at year-end 2008, versus 208 in year-end 2007. I hope that's clear, I'm sorry for smudging that. We'll do it over in the backroom after this is over to make it official.

Next thing we had to do is control all expenses that truly are controllable. While we can't control the market, we certainly can control many aspects of our business. It's not a bad thing to do in any circumstances and this will give us a lot more operating leverage when markets recover.

And finally, we remain dedicated to our diversification plans. Our large cap value effort is paying off as we had hoped. We added seven new institutional accounts and platforms through this strategy in 2008. With our five-star Morningstar rating, we are confident that retail flows will follow when markets begin regain confidence.

Very delighted with our infrastructure team, as you know this is an area of great interest in this country and the world for that matter, and they've also made some good headway, most recently landing a very large institutional separate account as well as inclusion on a very important investment platform.

In summary, we have to recognize that the investment landscape has dramatically changed in the past year. We think that our investment strategies are extremely well suited to today's ongoing investor needs. This evolution is not likely to be over soon and we continue to adapt as necessary and as we always have in the history of our company.

Fortunately, our fortress balance sheet with $167 million in liquidity and not a penny of long or short term debt gives us the financial capability, not just to participate in any recovery but to succeed far into the future.

Now, I'd like to turn it over to Matt Stadler for our summary of our financial picture.

Matthew S. Stadler

Thanks, Marty. Good morning everybody. On December 5th, we disclosed our plan to exit the investment banking business and as a result, we no longer have two business segments.

Until we finalize the planned sale of our investment banking broker dealer to an entity owned by the principles of the business which we expect will occur during the first quarter, any results associated with investment banking activity will be reflected in discontinued operations. The results I'll be speaking about today relates to our core Asset Management business which is reflected in continuing operations.

Yesterday, we reported a loss of $2.1 million or $0.05 per share compared with income of $18.1 million or $0.43 per share in the prior year and a loss of $754,000 or $0.02 per share sequentially.

The fourth quarter of 2008 includes a $0.06 per share after-tax expense related to impairment charges on previously acquired intangible assets and $0.03 per share after-tax expense attributable to severance and other employee related costs. After adjusting for these items, earnings per share were $0.04.

The third quarter of 2008 included $0.20 per share after tax expense associated with previously disclosed losses on available per sale securities and $0.04 per share increase to tax expense associated again primarily with available per sales security. After adjusting for these items earning per share for the third quarter of 2008 were $0.22.

We reported revenue for the quarter of $28.9 million, compared with $63.1 million in the prior year and $48.9 million sequentially. The decline in revenue is primarily attributable to lower average assets resulting from market depreciation. Average assets for the quarter were $15.7 billion compared with $33.1 billion in the prior year, and $26.2 billion sequentially.

Our effective fee rates for the quarter were $65.5 basis points, down from $66.5 basis points last quarter. The decrease was primarily due to lower fee rates in our institutional separate accounts.

Pre-tax loss for the quarter was $2.9 million compared with pre-tax income of $29.3 million in the prior year and pre-tax income of 4 million sequentially. The fourth quarter of 2008 includes impairment charges of $4 million and severance and other related employee costs of $1.9 million.

The third quarter of 2008 includes a charge of $10.5 million for losses on available-for-sales securities. After adjusting for these items, pre-tax income was $2.9 million and $14.5 million for the fourth and third quarters of 2008 respectively.

Our pre-tax operating margin was 12% for the quarter and 32% for the year. In computing our pre-tax operating margin, we added back the impairment and severance charges.

For the year, we reported income of $25.1 million or $0.60 per share compared with income of $68.1 million or $1.60 per share last year. The 2008 results include $0.09 per share of adjustments related to the impairment of severance charges and $0.24 per share for adjustments made in the third quarter associated with losses on available-for-sale securities.

The 2007 results include $0.09 per share expense associated with the payment of additional compensation agreement entered into in connection with the offering of a closed end mutual fund. After adjusting for these items, earnings per share were $0.92 and $1.68 for 2008 and 2007 respectively.

Moving to assets under management. As a result of the worst market conditions we have seen in a generation, our assets under management decreased to $15.1 billion from $24.6 billion at September 30th. Market depreciation and de-levering in our closed end mutual funds accounted for most of the asset declines.

At year end, U.S. REIT common stocks comprised 45% of the total assets that we managed followed by international REIT common stocks at 25%, preferred at 10%, utilities and listed infrastructure at 7%, and large-cap value at 6%.

Assets under management in our closed end mutual funds totaled $4.3 billion at December 31st, a decrease of $4.3 billion or 50% from the third quarter. The decrease in assets under management was the result of market depreciation and the redemption of auction market preferred securities from certain of our closed end mutual funds. For the year, assets under management on our closed end funds decreased $6 billion or 58%.

Our open end funds had assets under management of $4.3 billion at December 31st, a decrease of $2.7 billion or 38% from the third quarter. The decrease was due to market depreciation of $2.2 billion combined with net outflows of $473 million, the majority of which from our international reality fund. There was a deceleration in outflows in the quarter with most of the net outflows occurring in October.

So far in January, we've recorded net inflows into our open end mutual funds. For the year, assets under management decreased $4.6 billion or 52%. The decrease was due to market depreciation of $3.4 billion and net outflows of $1.2 billion, almost all of which were from international realty fund.

With respect to flows, we are encouraged by the recent trends that we are seeing. Assets under management in our institutional separate accounts totaled $6.5 billion at December 31st, a decrease of $2.6 billion or 28% from the third quarter. The decrease was comprised of market depreciation of $2.8 billion, partially offset by net inflows of $210 million. It was a very positive trend in the flows throughout the fourth quarter. We had net outflows of $204 million in October followed by net inflows of $181 million and $233 million in November and December respectively. So far in January, we have recorded net inflows into our institutional separate accounts, including funding from mandates Bob mentioned on our last call.

For the year, assets under management decreased $4.1 billion or 38%. The decrease was due to market depreciation of $4 billion and net outflows of only $59 million. Net inflows of $464 million from large-cap value portfolios were offset by outflows from global, international, and domestic reality portfolio. As Marty mentioned, we added seven net new separate accounts during the year, three of which are global and we received five new sub advisory mandates.

Moving to expenses. On a sequential basis, excluding the restructuring and impairment charges in the fourth quarter, expenses were down about 27%. The decline was attributable to lower employee compensation, distribution in service fees, and G&A.

On our last call, we mentioned the compensation to revenue ratio was estimated to be 34.5% for both the fourth quarter and the year. That estimate included investment banking. Excluding investment banking, our projected compensation to revenue ratio for the fourth quarter and the year would have been about 32%. The 42% ratio reported in the fourth quarter is the result of revenue compression and the modification of our mandatory equity deferral compensation plan in order to generate more net cash for our employees.

On a same-store basis, total bonuses were down by approximately 65%. Our full year compensation to revenue ratio was 33.7%. Generally, distribution and service fee expense will vary based upon the asset levels in our open end mutual funds. The sequential variance is inline with the decrease in the average assets of our open end load mutual funds.

We are focused on cost controls and are continuing our campaign to reduce controllable expenses. Many of the cost controls we have implemented did not take full effect in the fourth quarter. Although G&A is down about 6% sequentially, we expect to see a further decline in 2009.

Now turning to the balance sheet. Our cash, cash equivalents, marketable securities, and seed capital investments, excluding amounts attributable to the consolidation of our global real estate long short fund, totaled $167 million compared with the $164 million last quarter.

Since we are currently the sole investor in our global real estate long short fund, the balance sheet in our 10-K will reflect approximately $35 million of assets and $11 million of liabilities related to the consolidation of the fund on to our books and records. This investment will be deconsolidated after we accumulate sufficient outside investors into the fund. Our stockholders equity was $245 million compared with $254 million last quarter.

With respect to the available for sale portfolio, the majority of the portfolio continues to be comprised of investment grade preferred securities and seed investments in our mutual funds. Unrealized gains and losses are reflected in other comprehensive income and therefore the marks on these securities have been appropriately reflected in the liquidity position, and stockholders equity balance that we just mentioned.

Let me briefly review a few items to consider for 2009. Consistent with our 2009 business plan, a larger amount of assets are projected to be managed outside the U.S. in jurisdictions with lower effective tax rates. Therefore, we expect that our 2009 effective tax rate will be between 36% and 37%, slightly lower than the normalized tax rate of 38% that we recognized in 2008.

But as was the case this year, because our actual effective tax rate is higher than the 38%, given our capital loss carry forward position, the actual effective tax rate next year will vary depending on the level of capital gains or losses that are realized during the year.

With respect to compensation, we currently expect our comp to revenue ratio to be in the high 30% range for 2009. The 2009 ratio incorporates the results of the recent staff reductions, which did not affect our asset gathering or investment management capabilities, and a decline in our average assets caused by the current market conditions we are experiencing. As a result of the declining net asset values, in certain of our closed end mutual funds, we redeemed $2.1 billion of auction market preferred securities during the fourth quarter in order for us to maintain the required leverage ratio. These funds have significant unused lines of credit in place to manage leverage ratios in accordance with market conditions and requirements.

Although the results are not predictable, please keep in mind that realized gains and losses will continue to fluctuate as a result of transactions in our available for sale portfolios and our global real estate long-short fund. We are focused on cost controls and all our controllable expenses continue to be under review. We expect to recognize an additional reduction in our G&A of between 10% and 15% from the fourth quarter run rate.

And finally, during 2009 fee waivers will little expire on six of our closed end funds. Based on December 31st asset values, this will generate approximately $1.5 million of incremental revenue in 2009.

Now let's open it up for questions.

Question-and-Answer Session

Operator

(Operation Instructions). Your first question comes from the line of Mike Carrier with UBS.

Mike Carrier - UBS

Just one question on the institutional side of the business, I think across the industry alot institutions have kind of been sitting on their hands in terms of trying to figure out what they are going to do in terms of reallocating and re-weighting their asset mixed. It seems like your guys just picked up. I am just trying to get a sense versus the last six months when you are looking at new competition for new mandates and the amount of activity that you are seeing. Is that starting to pick up? And then I know you mentioned that there were a few wins that you have but they haven't been funded yet. Could you just go over what the amount was?

Robert Steers

Sure, Mike. It's Bob Steers. I think the activity on the institutional market for us has really being ramping up for three or four quarter now. It varies by investment strategy on the value side. As I think you're aware our team has top deciles performance one, three and five years. The mutual fund got its three year track record and five-star Morningstar rating at the end of the summer. And so institutional activity has been extremely strong there really for 6 or 9 or 12 months.

But as you know it can take that long for searches to be completed and then funded. So on the value side, this has all been brewing for a while. It continues to get stronger and stronger and we expect this year to be very strong and asset gathering for value.

Several other reasons besides our performance is the unusually bad performance of a number of value managers, a lot of value managers which here before dominated both performance and asset gathering and we're seeing a significant amount of manager firings and we are in some cases winning mandates without even competing.

We're also seeing the manager risk issue favoring us both, particularly in value but also in other mandates where managers whose platforms are or parent companies are being spun-out, sold, divested, what have you or managers with leverage issues who have to cut back investment staff more than they otherwise would like to, that's troubling institutional investors.

So we are benefiting in value and also in real estate because of performance, because of stability of the platform, and there is lot of manager changes going on out there. That said we are also seeing new mandates. We are seeing them on a global basis. We are seeing mandates in Australia, Europe on the real estate side and we are also seeing a lot of platform activity with some of the larger financial institutions, the Fidelity, HSBC's and others are continuing to launch new programs but also eliminate managers who have been underperforming.

Mike Carrier - UBS

Okay. Thanks. And then I guess one other question and this kind of relates to a few areas in a more strategic but I guess when you look at the closed end funds business in the near term the answer has been replaced by just have a bank financing. Just longer term, what do you think can replace the closed end fund model, something that the industry kind of has to take a look at?

Then I guess the only other two things is just when I look at the cash level building, just comfortable continuing to already you have given the environment and then longer term, just what kind of your options are for that? And maybe from that just on the compensation and this is probably for the industry but there's a lot of pressure, just given how much pressure there is on asset levels and revenues. Anything else more like strategic that you guys can do and the industry could do or try to lower the compensation but maybe draw it out over a longer period of time or just something to try to offset some of the near-term pressures? Thanks.

Robert Steers

It's like a bundle of questions. Why don't we have Joe to talk about the apps issue? Marty can talk about cash and then Matt talk about compensation?

Mike Carrier - UBS

Okay.

Joseph Harvey

Well, with respect to our close end funds, levered close end funds specifically; I think we've talked in the past about our strategy to capitalize our leverage funds with the combination of AMP Securities and bank lines of credit. So that's the model we are using today, it's very effective from a portfolio management perspective. It gives us a lot of flexibility to as Matt mentioned earlier, tailor the leverage ratios to the investment environment and the guidelines for leveraged close end funds.

As the world looks today, we're very comfortable with the AMPS that we have. They give us a very low cost of borrowing. So I think we're at a pretty good steady state with our leveraged closed end funds today. As it relates to new issues of closed end funds, I think it's fair to say considering everything that has happened in the capital markets, everything that has taken place in the retail system, the issues that you had with leverage is going to be extremely difficult to issue a new closed end fund.

Even though the math of using leverage in a closed end fund looking at the spreads you can achieve on a variety asset classes relative to the cost of debt is quite attractive today. So in our planning, we are not factoring in new issues for closed end fund.

Martin Cohen

On the cash side, we're very, very happy with our balance sheet management. We are happy that we didn't use our cash to buyback stock at a much higher price. We didn't leverage off the company to use some positive spread scheme or also buy stock back.

Our assets fell by 40% in the third in the fourth quarter, in one quarter alone. And we were not wavering in our commitments because we knew we had a strong balance sheet that could carry us to any storm that we had included that was probably the worst storm that, we have ever experienced. And frankly we don't know what the future holds. We're very hopeful and we think that the markets will recover this year and the country is moving on the right track but you never know. So our belief is that having a lot of cash is the best thing to have.

And finally we do expect to see opportunities. We've been saying this for a while but now as always as Bob mentioned with managers having some financial difficulties, with probably personnel and other firms maybe having second thoughts about staying with those firms. There will be opportunities for us and we are vigilant and looking for them and having a strong cash position and a strong currency is paramount to us.

Matthew Stadler

Okay. I guess with the comps, it's driven a lot by the revenue and as I said in my prepared comments that the compression in the revenue that we experienced in the fourth quarter was a reason why the comp ratio, is one of the reasons why the comp ratio was higher relative to what we had forecasted.

And one of the things that we did to combat that, not that it would increase a bonus number but it increased the cash comp by modifying our mandatory plan and reducing the amount of compensation or bonus that was paid in equity. That does have a benefit of creating a lower overhang going into 2009 and 2010.

But the stock awards that we had issued in prior years, which were within the guidelines of what a lot of our peers had done, continued to get amortized. So you're right that there's an overhang there. We're constantly aware of that and working internally to think about ways of delivering compensation. There's nothing really out there that we can tell you right now, that is a magic cure for the current state.

The best thing is just for the markets to rebound and obviously to go back up. But we're dealing with the overhang, we did it now by reducing stock awards that were granted this month for the 2008 year and we'll continue to monitor it going forward.

Mike Carrier - UBS

Okay, thanks.

Operator

(Operator Instructions). Your next question comes from the line of Marc Irizarry with Goldman Sachs.

Marc Irizarry - Goldman Sachs

Hello, great thanks. Can you just quantify again how much de-leveraging is potentially left, given sort of your baseline scenario for markets?

Martin Cohen

Well, as Matt mentioned, in the fourth quarter we de-leveraged by $2.1 billion and that takes the leverage in our funds to the low 40% range. And that's a level that we're comfortable with considering many factors of the investment environment, the spreads we can achieve, and the guidelines by the rating agencies.

The only thing that could affect those, the leverage levels that we have currently would be a significant change in investment environment or a change by the rating agencies for how they approach the AAA ratings on AMP Securities.

Marc Irizarry - Goldman Sachs

And can you just share a little bit more perspective maybe on the REIT market in terms of how you're positioned, what you're thinking, the sort of mile posts for recovery will look like over the next several months or quarters?

Martin Cohen

Sure. Well it's pretty well documented now, the factors that have caused the REIT Bear market, global recession and the credit crisis, both of which are extreme by historical standards. We have been in bear market now for almost two years which is very long by historical standards. The price declines that we've seen are also at record levels. All of that said, I think it's important to keep in mind that those price declines discounted a decent amount of the fundamentals issues that we see in the private market.

We're actually quite excited about the opportunities today, based on the fact that we're working through the credit crisis, evaluations are very attractive. The dislocations that we've had are creating opportunities for us to deploy capital in companies who have balance sheet issues to help them fix their balance sheets. And based on our experience, in the early 1990s when we had a similar decline in the real estate industry that turned out to be a very attractive investment environment.

The primary issue that the real estate industry faces today is the leverage issue. And there are going to be an escalating amount of debt maturities in the private market. Cleary the public companies also have them. We believe that public companies are much better situated to deal with their leverage maturities. They have more levers to pull so to speak.

The strongest public companies will be big beneficiaries of the environment. As we saw in early 1990s, they will access public capital. It maybe expensive today but that'll improve overtime but they'll have access to capital to take advantage of the distress in the private market.

As we look at the global world today, we don't see any huge mis-pricings by region. Every region in the world is now well into it's down cycle in the economy and its real estate cycle. If you look at our global portfolios, we're roughly 40% in the U.S., 42% in Asia, and 15% in Europe.

The conditions are similar worldwide; they just happen to be at a little bit different point in their own respective cycle. So in summary, we think we're a large part of the way through this bare market. We're getting very excited, our teams are mobilized to work with the companies to help them access capital and in turn take advantage of the opportunities in private market.

Marc Irizarry - Goldman Sachs

Great. And then just in terms of the distribution, product distribution, now we're seeing the channel narrow, the players get bigger on the retail side if you will. And obviously your P&L is under pressure, does that at all influence the way you think about standing alone and servicing the channel, I mean are you thinking outsourcing more administrative responsibilities or how should we think about a channel that's probably demanding more on a P&L that probably needs less?

Matthew Stadler

You're talking about the Wirehouse and RIA channels?

Marc Irizarry - Goldman Sachs

Yes. And then just retail broadly some of the bigger platforms as well.

Matthew Stadler

We don't really see a whole lot of change. We have really phenomenal relationships with the consolidated players, the Merrill Lynch and BofA. Merrill is our biggest, strongest relationship, historically but also Morgan Stanley, Smith Barney, Wachovia. We’ve penetrated well into most of their important platforms.

UMAs, the UMA business which as you know is evolving and growing together with SMAs, is probably our most rapidly growing source of asset growth. And so we're still completely committed to being a strong player in that channel. Understand that for the most part outside of the value space, we're... whether it's in real estate infrastructure preferred, we're sort of the go-to-guys in those niches. So, while some of the traditional styleboxes maybe crowded and costly to get good shelf space, we're really not having those problems in our core businesses where, which are both less crowded and where we really dominate.

Marc Irizarry - Goldman Sachs

And do you expect to be... to see an increase in the channel asking for more service and how are you thinking about managing the margin near term versus potentially balancing that need to service the channels?

Martin Cohen

Well, currently I think you're seeing a lot of uncertainty there. I don't think you can answer that question you've had without going into specific names, every major player, with the exception of the non-Wirehouse players are in a significant state of flux and they're reevaluating everything they do.

So we are in the short run seeing a bit of paralysis. I think the major Wirehouses are reevaluating programs, cost and expenses related to that. And so everything is up in the air right now.

But frankly in the short run, we've actually seen these channels substantially cutback on the cost and what they're asking their partners to put up in recognition of the fact that everybody, and this is an industry phenomenon, it's not like there are some winners and some losers here. As you've seen over the last couple of weeks, everyone's being affected by the trend... by the same trends and generally the same magnitude.

So it's not like there are some players out there who are very flush and cannot spend their way to more access, that's just not the case.

Matthew Stadler

If I could add, what we're finding is that decision making on investments is happening upstairs, not at the broker level. It's good at the broker level but the whole platform idea is something that we have spend a lot of time and increased our account with the relationship managers and they're making the sales to the asset allocator who is a senior investment person at the firm.

And that goes for all of them, including in Europe, we are on several platforms in Europe where they're making asset allocation decisions and then next filtering that into client accounts. So, in a sense, you need wholesalers and you need people out in this field, you really need professionals that can deal with consultants and with the decision makers on the asset side.

Marc Irizarry - Goldman Sachs

That's very helpful. Thank you.

Operator

Your next question comes from the line of Jeff Cozad with Stonerise Capital.

Martin Cohen

Jeff? Amanda, can we move to the next question?

Operator

Jeff, line is open.

Jeff Cozad - Stonerise Capital

Hello?

Martin Cohen

Jeff.

Robert Steers

Jeff.

Jeff Cozad - Stonerise Capital

Yes, can you hear me? Okay, great. Hi guys. I just wanted to get your perspective on REITs using stock to pay part of their dividends and as an investor, how do you guys view that?

Martin Cohen

If I might, Jeff, that's probably an investment call that is a different one which we're happy to talk about. But in general, our feeling is that paying stock instead of cash, if you don't have to it's not a great idea and company should just right size the dividend and pay cash and that's just basically it.

Jeff Cozad - Stonerise Capital

Okay, thanks guys.

Operator

Your next question comes from the line of Jeff Hopson, with Stifel Nicolaus.

Jeffrey Hopson - Stifel Nicolaus & Company, Inc

Okay, thank you. A couple of questions, in regard to REIT and the response that you are seeing from clients or potential clients, any concern that there is permanent damage to the asset class and how they're viewing REIT in the scheme of things given the underperformance?

And then in terms of competition, anybody that you see amongst managers of REITs that maybe falling by the way side or anything like that. Any developments that you think might be important?

Matthew Stadler

We haven't really seen any existing client's waver with respect to how they view REITs. That said, we're monitoring closely, not so much to the absolute performance or returns but the characteristics, the extreme volatility that we've seen as the financial crisis has unfolded is understandable. We are absolutely convinced that it's temporary and simply reflective of the fact that real estate does require support and capital from the financial system. So, the correlations and volatility statistics which in the near term have been uncharacteristic we think there is no rational explanation to support the notion that this is a permanent new state for these securities. And we don't really see any institutions or consultants concerned about that long term. No one is happy with the characteristics and the performance over the last year. But again, other than the financial crisis, there's no rational case to be made for this to be a secular change for the securities.

And yes, we are seeing competitors having some significant problems. If their assets are down as much or more as ours on a percentage basis, and if their one-three-five year performance is poor, their potential to rebound over the next several years is not good. And so whereas our relative performance has improved substantially in this difficult environment and our organization is intact and as deep as ever.

Our prospect for participating and being the leading beneficiary of a rebound are high. Whereas for others, that's not the case and so they may be reevaluating their prospects.

Jeffrey Hopson - Stifel Nicolaus & Company, Inc

Okay, thank you.

Operator

At this time, there are no further questions. Are there any closing remarks?

Martin Cohen

Well once again thank you for listening. Give us a call if you have any more questions and we look forward to giving you more progress over the next quarter.

Operator

Thank you. This does conclude today's Cohen & Steers Fourth Quarter and 2008 Financial Results Conference Call. You may now disconnect.

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