Detailed narrative
Strong Organic Growth and AUM Trends
Cohen & Steers reported $1.6 billion in net inflows for Q3 FY26, marking its fifth consecutive quarter of organic growth and the strongest flow period since Q4 2021. This growth was broad-based across mutual funds, SICAVs, ETFs, and institutional channels.
Despite negative market movement, particularly in September, which caused AUM to decline to $95.9 billion from $100 billion, average AUM for the quarter increased to $101 billion.
Expanding Operating Margin and Expense Management
The firm's operating margin expanded to 37.2%, an increase driven by higher revenues and effective expense control. Revenues grew 3% to $156 million due to higher average AUM. Total operating expenses increased by a lower 2% to $98 million, primarily due to higher incentive compensation accruals linked to increased revenues, partially offset by lower G&A costs.
Management reiterated its guidance for compensation and benefits at approximately 40% of revenues, mid-single-digit G&A growth relative to 2025, and a pro forma effective tax rate of 25% to 26%.
Investment Performance Reversion to Trend
After a dip in Q2, investment performance showed significant improvement in Q3, with 74% of AUM outperforming, up from 40% in the prior quarter. Over the last 1, 3, and 5 years, 57%, 97%, and 98% of AUM, respectively, outperformed.
U.S. real estate AUM outperformance rebounded to 86% from 15%, and global real estate to 67% from 2%. Infrastructure and preferred securities continued their strong performance, with 100% and 97% of AUM outperforming over the last year.
Impact of Higher Interest Rates and Market Positioning
The market environment saw a sharp rise in long-term treasury yields above 5%, primarily driven by real yields and term premium rather than inflation. While higher rates created near-term pressure📎 on REITs, listed infrastructure, and preferred securities, management emphasized that improving fundamentals in real assets (e.g., reduced new supply in real estate, secular investment needs in infrastructure) and attractive valuations make these asset classes increasingly supportive.
They highlighted that REITs have generated positive returns in 4 of the last 5 Fed hiking cycles.
Growth in Active ETFs and SICAVs
Adoption of active ETFs is accelerating, with growth of 22% during the quarter to $1.3 billion. The firm launched its seventh active ETF, the Cohen & Steers Real Assets Active ETF (CSRA), in August. The SICAVs business also had a strong quarter, its second-best ever, with AUM reaching $2.1 billion, driven by activity in the U.K., South Africa, and Asia, as wealth markets develop in these regions.
Institutional Pipeline Strength and Strategic Allocations
The institutional pipeline grew to $1.9 billion, its second-largest ever, with $700 million of fundings reloaded by $1.1 billion of new mandates. The pipeline is diversified across real estate, listed infrastructure, and multi-strategy real assets, and geographically (56% North America, 22% EMEA, 16% APAC).
Allocator demand for listed infrastructure and multi-strategy real assets is broadening, with infrastructure increasingly recognized as a dedicated strategic allocation and multi-strategy real assets offering diversification and inflation protection.
Nontraded REIT (CNSREIT) Traction
The nontraded real estate vehicle, CNSREIT, continues to be a top performer in its peer group since inception, with a portfolio of about $900 million in total assets and equity value of $400 million. The firm is focused on gaining critical mass and platforming at larger distributors, particularly as it approaches its 3-year track record in January.
The investment thesis around open-air and grocery-anchored shopping centers has been successful.