Cohen & Steers is pushing beyond REITs

NEW YORK — One year after becoming a publicly traded company, real estate specialist Cohen & Steers Inc. is expanding outside of its comfort zone.

The firm, which manages $18.5 billion in worldwide assets, about $14 billion of which is largely in U.S. real estate investment trust-related strategies, has begun broadening its investment capabilities beyond real estate and beyond the United States.

The goals, said Robert Steers, co-chief executive officer, are to diversify its business and lure more institutional money to the 19-year old shop.

Within the past month, the firm has established its first traditional large-cap value equity investment team and started an aggressive effort to build an institutional marketing unit.

Cohen & Steers began to put the pieces in place to support its growth plan late last year. On Dec. 14, the firm bought a 50% stake in Houlihan Rovers SA, Brussels, a manager of non-U.S. real estate securities, with approximately $500 million in assets. Cohen & Steers then followed up on April 20 by hiring Derek Cheung from HSBC Securities (Asia) Ltd., Hong Kong, to open an office in the region for Asian real estate investments.

More recent moves, however, might prove to be the most significant in Cohen & Steers' bid to draw more institutional business.

Stephen Dunn, former director of marketing at Essex Investment Management Co. LLC, was hired on July 11 as Cohen & Steers' first director of institutional marketing. "What we want to do, and what Steve will lead for us, is create a team that will take our distribution to the next level, both in terms of our consultant relations and sales functions," Mr. Steers said.

Mr. Dunn said he and William J. Frischling, Cohen & Steers' director of institutional client service, are aggressively expanding the firm's institutional resources, with a specific focus on raising its profile in the investment consulting community. Mr. Dunn said the institutional distribution and client services team will soon have eight staffers.

Also, Sextant Search Partners LLC, New York, led by partner Paige Scott, was hired to help the firm fill a new senior consultant relations marketer position.

Also hired recently were Cara Crosetto, vice president of client services, from New York-based Cramer Rosenthal McGlynn LLC; and Scott Dwyer, client services associate, from JPMorgan Asset Management, New York. Cohen & Steers also plans to add two new institutional marketing associates and one more institutional client services associate to the team, Mr. Dunn said.

Both Messrs. Steers and Dunn pointed to Cohen & Steers' expanded investment capabilities, adding non-U.S. REIT strategies as well as the firm's first traditional equity strategy.

In late July, Cohen & Steers created a large-cap value team, led by Richard Helm, former vice president and lead portfolio manager of the WM Equity Income Fund at WM Advisors, Seattle. Analyst Anatoliy Cherevach also moved from WM Advisors, and Cohen & Steers plans to add two more analysts to the team, which will remain in Seattle.

Mr. Helm's fund has $2.2 billion in retail assets. Cohen & Steers will focus on drawing institutions to the strategy, but will allow retail investors as well.

At WM Advisors, Mr. Helm outperformed the Standard & Poor's 500 stock index by 6.26 percentage points, 4.61 percentage points and 6.22 percentage points over the last one, three- and five-year periods, respectively, according to data from Morningstar Inc., Chicago.

"Getting that track record is crucial…because now we can take it to the institutional marketplace immediately," said Mr. Steers. He noted the fund has received a five-star rating by Morningstar for its three- and five-year performance.

"Our plan has been to be a manufacturer. And along with the domestic REIT and non-U.S. strategies, we think we have a compelling value proposition for institutions," Mr. Steers said.

Rachel Barnard, a Morningstar analyst who covers Cohen & Steers, said that while she believes diversification is a good move for the firm, she's not certain that a large-cap value strategy will result in new institutional clients.

"It definitely gives them another anchor point, but does the institutional world really need one more large-cap value manager?" she said. Cohen & Steers might gain initial success by taking the large-cap value strategy to its existing institutional clients, she added.

Cohen & Steers also recently added utility funds and a dividend fund that invests in high-yielding stocks with qualified dividends, Ms. Barnard said. Such strategies are in line with the firm's focus on securities with large yields and it should help "cushion the blow" if REIT values decline, something Ms. Barnard said could occur soon.

The average REIT covered by Morningstar is trading at a greater value than what Ms. Barnard believes is its fair value estimate. If the value of REIT stocks falls to the levels that Morningstar estimates they are worth, she said Cohen & Steers would see its assets under management, and possibly its stock price, decline as well.

Since going public in August 2004, Cohen & Steers has seen its stock price skyrocket 71%, from $13 per share to $22.80 per share as of Aug. 4.

"That's a really nice bump in their stock price, but it may largely be a reflection of the real estate market overall," said Eric Fitzwater, a senior analyst who covers asset managers for Charlottesville, Va.-based SNL Financial LLC. "If prices in the real estate market are going up, then their shares are going to be up, too."

Total assets under management have grown by almost 25% since going public, and now roughly three-quarters is from retail investors, Mr. Steers said.

But Mr. Fitzwater said that for Cohen & Steers to keep its stock price up and grow its assets under management, it will have to diversify its offerings and attempt to lure long-term institutional relationships.

"Most of the institutional clients that we have just walked right in our door," said Mr. Steers. He said the firm has about $4.1 billion in assets from 40 institutional separate account clients. "But we see a substantial opportunity to grow the business in the institutional community, given the consistent investment results that we've posted over the years."

For example, the Cohen & Steers Realty Focus Composite has significantly outperformed its benchmarks over the last five years, according to performance numbers listed in the eVestment Alliance database.

The strategy has outperformed the S&P 500 by 13.51 percentage points, 22.76 percentage points and 24.33 percentage points over the last one, three and five-year periods, respectively.