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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Ladies and gentlemen, thank you for standing by and welcome to the Cohen & Steers First Quarter 2021 Earnings Conference Call. During the presentation, all participants will be in listen-only mode. Afterwards, we will conduct a question-and-answer session. [Operator Instructions]. As a reminder, this conference is being recorded Thursday, April 22, 2021.
I would now like to turn the conference over to Brian Heller, Senior Vice President and Corporate Counsel of Cohen & Steers. Please go ahead.
Thank you and welcome to the Cohen & Steers first quarter 2021 earnings conference call. Joining me are our President and Acting Chief Executive Officer, Joe Harvey; our Chief Financial Officer, Matt Stadler; and our Chief Investment Officer, Jon Cheigh.
I want to remind you that some of our comments and answers to your questions may include forward-looking statements. We believe these statements are reasonable based on information currently available to us. But actual outcomes could differ materially due to a number of factors, including those described in our accompanying first quarter earnings release and presentation, our most recent annual report on Form 10-K and our other SEC filings. We assume no duty to update any forward-looking statement.
Further, none of our statements constitute an offer to sell or the solicitation of an offer to buy the securities of any fund. Our presentation also contains non-GAAP financial measures, referred to as, as adjusted financial measures that we believe are meaningful in evaluating our performance. These non-GAAP financial measures should be read in conjunction with our GAAP results. A reconciliation of these non-GAAP financial measures is included in the earnings release and presentation to the extent reasonably available.
The earnings release and presentation, as well as links to our SEC filings are available in the Investor Relations section of our website at www.cohen&steers.com. With that, I'll turn the call over to Joe.
Thank you, Brian. And good morning, everyone. Before we go through our regular agenda, I'd like to provide an update on Bob Steers, who, as we announced in February is currently on medical leave. Bob's recovery has been remarkable, and he is doing well. He is available to provide input on business decisions, and we expect him to resume active duties as CEO by the end of the second quarter.
We're obviously pleased with his progress, and wish Bob and his family all the best as he continues to prepare for his transition back. In the meantime, our executive committee and broader leadership group continue to perform at a high level. I'll return later to summarize the quarter after Matt and Jon provide the reports. Next up is Matt who will review our financial results for the quarter.
Thanks very much, Joe. And good morning everyone. As usual, my remarks this morning will focus on our as adjusted results. A reconciliation of GAAP to as adjusted results can be found on pages 13 and 14 of the earnings release or on slides 16 through 19 of the earnings presentation. Please note that Slide 19 of the earnings presentation, which has been newly added reconciles the adjustments to operating income by caption.
Yesterday, we reported record earnings and $0.79 per share, compared with $0.61 in the prior year's quarter and $0.76 sequentially. Revenue was a record $125.8 million for the quarter, compared with $105.8 million in the prior year’s quarter and $116.6 million sequentially. The increase in revenue from the fourth quarter was primarily attributable to higher average assets under management across all three investment vehicles partially offset by two fewer days in the quarter.
Our implied effective fee rate was 57.3 basis points in the first quarter, compared with 57 basis points in the fourth quarter. Excluding performance fees or fourth quarter implied effective fee rate would have been 56.3 basis points. No performance fees were recorded in the first quarter. Operating income was a record $53.2 million in the quarter, compared with $40.4 million in the prior year’s quarter and $49.4 million sequentially.
Our operating margin decreased slightly to 42.3% from 42.4% last quarter. The fourth quarter included a cumulative adjustment that reduced compensation and benefits to reflect actual incentive compensation that was paid, which increased our fourth quarter operating margin by 153 basis points. Expenses increased 8% compared with the fourth quarter, primarily due to higher compensation and benefits, distribution and service fees, and G&A.
The compensation-to-revenue ratio for the first quarter was 35.5% consistent with the guidance provided on our last call. The increase in distribution and service fee expense was primarily due to higher average assets under management in U.S. open-end funds. And the increase in G&A was primarily due to higher professional and recruiting fees.
Our effective tax rate was 27.25% for the first quarter, in line with the guidance provided on last quarter’s call. Page 15 of the earnings presentation sets forth our cash, corporate investment in U.S. treasury securities and seed investments for the current and trailing four quarters. Our firm liquidity totaled $118.8 million at quarter end, compared with $143 million last quarter.
Firm liquidity as of March 31st reflected the payment of bonuses, as well as the firm's customary funding of payroll tax obligations arising from divesting and delivery of restricted stock units on behalf of participating employees. We remain debt free. Total assets under management was a record $87 billion at March 31, an increase of $7.1 billion or 9% from December 31. The increase was due to net inflows of $3.8 billion and market appreciation of $4 billion partially offset by distributions of $690 million.
Advisory accounts which ended the quarter with a record $20.3 billion of assets under management had record net inflows of $1.7 billion during the quarter, $1.1 billion of which were included in last quarter’s pipeline. We recorded $968 million of inflows from five new mandates and $799 million of inflows into existing accounts. These inflows were evenly a portion between U.S. real estate, global real estate, preferred and global listed infrastructure portfolios.
Joe Harvey will provide an update on our institutional pipeline of awarded unfunded mandates. Japan sub advisory had net outflows of $204 million during the quarter, compared with net inflows of $83 million during the fourth quarter. We believe the outflows were largely attributable to a distribution rate cut made by the Japanese advisor to one of the funds we sub advised in January 2021.
The last time the Japanese advisor made a distribution rate cut to one of the funds we sub advised was in the second quarter of 2019, which coincided with the last time Japanese sub advisory had net outflows. Encouragingly, the annualized organic decay rate for the two months since January 2021 distribution rate cut was considerably less than what we experienced in 2019.
Sub advisory excluding Japan had net inflows of $97 million, primarily from the new Taiwanese mandate into a blended next gen REIT digital infrastructure portfolio. Open-end funds which ended the quarter with a record $38.6 billion of assets under management had record net inflows of $2.2 billion during the quarter, primarily into U.S. real estate and preferred funds. Distributions totaled $238 million, a $193 million of which was reinvested.
Let me briefly discuss a few items to consider for the second quarter and remainder of the year. With respect to compensation and benefits, which includes the cost of our newly formed private Real Estate Group that we announced earlier this week, we expect that our compensation-to-revenue ratio will remain at 35.5%.
We expect G&A to increase by about 9% from the $42.6 million we recorded in 2020, which is higher than where we guided to on our last call. In addition to incremental investments in technology and global marketing, we expect an increase in recruitment costs associated with the hiring of certain key investment and distribution personnel, in addition to the new private Real Estate Group.
We expect that our effective tax rate will remain at 27.25%. And finally, you will recall that on our last call, Bob Steers mentioned the termination of an institutional global real estate account of approximately $900 million that was expected to be withdrawn in the next quarter or two. This account, which has a lower-than-average fee is still being managed. And while we expect it to terminate this year, we have no visibility as to timing.
Now, I'd like to turn it over to our Chief Investment Officer, Jon Cheigh who will discuss our investment performance. Jon?
Thank you, Matt. And good morning, everyone. Today, I plan to review the investment environment, our performance, and then provide some deeper perspective on our larger asset classes and their outlook. So, markets continued their strength in the first quarter, as evidenced by U.S. and global equities being up 6.2% and 4.7%, respectively.
But beyond the noise, there were three noteworthy economic and market trends that stood out. First, strong, upward global growth revisions driven primarily by the U.S. Second, underneath the surface the market has increasingly taken on a reflationary tone, as reflected by repricing of medium term inflation prospects and the strong performance in our more inflation sensitive investment areas, such as commodities, which are up 6.9% for the quarter, and are now up 35% over the last 12 months.
Last, with higher growth and higher inflation as the context we saw a repricing of Fed policy expectations which partially drove the meaningful rise in the U.S. 10-year treasury yield, ending the quarter at around 1.7%. So, given those three dominant trends of higher growth, inflation and rates, the high-level summary of our asset class absolute performance, is that listed real assets generally outperformed U.S. and global equities. This was led by MLPs, natural resource equities and U.S. REITs.
This performance was consistent with our expectations given deeply depressed relative valuations, and that fundamentals for these asset classes were held disproportionately back in 2020 by the recession, but also some unique aspects from social distancing. On the other side of the ledger, preferred securities were very modestly negative in the quarter. Compression of preferred credit spreads could only partially offset the headwinds of the steep rise in yields.
That said, this flattish performance still far outpaced traditional fixed income in both income rate and total return with the Barclays Global Ag down 4.5%. So, turning to our performance scorecard, in the first quarter, six of nine core strategies outperformed their benchmark. And for the last 12 months, seven of nine core strategies outperformed. As measured by AUM, 93% of our portfolios are outperforming on a one year basis, an improvement from 84% last quarter, mostly due to our preferred portfolios.
On a three- and five-year basis, 99% and 100%, respectively, are outperforming which is marginally better than last quarter. And from a competitive perspective 88% of our open-end fund AUM is rated 4 or 5 stars by Morningstar compared with 90% last quarter. By most medium- and long-term measures, our investment performance continues to be strong and have high breadth.
That said, the regime has shifted, particularly since the November vaccine announcements. We expect the market which has been quite factor dominated to exhibit more idiosyncratic behavior over time, typically, a more bottom-up environment has allowed our specialist teams to achieve even higher performance batting averages.
So, digging deeper into some of our major asset classes, U.S. and global real estate returned 8.3% and 5.8% respectively in the first quarter, both outpacing the respective equity indices. Leadership has been in the retail, gaming, lodging and residential areas in anticipation of significant pent up demand, supported by high global savings rates, driving multiyear recoveries in those areas.
The early phase – the early cycle phase, excuse me of an economy tends to be the strongest phase for listed real estate. This is when economic recoveries are their strongest, and where tightening is still several years away. We continue to educate our clients by producing thought leadership demonstrating the historically higher growth and inflation expectations, trumps higher interest rates when it comes to REIT performance. Q1 absolute performance is a perfect reflection of that.
While we outperformed in our U.S. and European strategies, our performance was weaker in Asia. In general, while we have adopted a more value and reflationary positioning in the U.S. given stronger growth in vaccination success, we had been positioned more secularly in Asia, given different growth dynamics. Despite these different growth dynamics, Asia like the U.S. has seen the value versus growth momentum reversal.
Turning to preferred, preferred securities returned minus 0.6% in the first quarter, and we outperformed in both our core and low duration preferred strategies. After one quarter of underperformance last year, our highly experienced and accomplished team has now outperformed the last four quarters and 10 of the last 13 quarters.
We’ve announced – we've also been communicating to our clients for the last three to six months, that interest rates were more likely to move up over time, while the 10 year has trickled down since quarter end, our expectation is that the 10 year will move more towards 2% by the end of 2021 in 2.25% by the end of 2022.
Importantly, in contrast to the start of the year, most market participants have already socialized the idea that rates will likely be higher over time, which in our view reduces the odds of a tantrum or a disorderly unwind. Given our rate view, we continue to suggest that investors consider our low duration preferred strategy when building portfolios.
Credit fundamentals of preferred issuers continue to improve with the economic recovery. Take for instance, U.S. banks who are the largest issuers of preferreds. Banks have just come off an earnings season in the U.S. where they announced they're releasing nearly $10 billion in loan loss reserves, as the pandemic related losses they had accounted for have not been realized. In addition, their capital levels remain far in excess of their regulatory capital requirements.
Turning to infrastructure, the first quarter returns 3.5%, which slightly lagged global equities. Returns in the quarter were led by economically sensitive businesses such as marine ports and freight railways, and sustained higher energy prices provided a tailwind for midstream energy companies. An important catalyst for the asset class in the future will be infrastructure focused fiscal stimulus packages around the world.
President Biden recently proposed over $2 trillion in spending in tax credits, which we see as a clear positive for listed infrastructure, tying into key themes we've highlighted over the past year. Specifically, we see direct benefits for renewable energy developers in electric utilities, primarily through tax incentives. We see the potential for new revenue opportunities for cell tower in data center companies due to a larger addressable market for wireless carriers.
And last, we see broader support for the most economically sensitive segments of listed infrastructure, such as freight railways and marine ports. Related we continue to see increased adoption of infrastructure allocations with asset consultants and institutions, where we see growing interest from wealth advisors, as evidenced by record flows into our infrastructure open and mutual funds, and the NAV premium at which our infrastructure closed-end fund UTF continues to trade.
Disappointingly, we underperformed our benchmark during Q1 and while our three-year excess return is still attractive, we have underperformed over the last 12 months. So, improving our performance here is a key focus area. I also want to mention that our real assets multi strategy portfolio was up 6.6% in the quarter, outpacing U.S. and global equities.
We had very good relative performance of plus 100 basis points with strong alpha contribution from asset allocation and natural resource equities. We now have good relative performance over the last one, three and five years. Over a full cycle, this portfolio is designed to provide equity like returns with inflation protection, and with diversification versus stocks and bonds.
As a reminder, we launched this multi strategy offering now more than nine years ago. And in the last deflationary secular stagnation regime, it's fair to say there wasn't much interest in diversified real assets. Fast forward to today, it's clear that inflation is top of mind. Well, economic forecasts always have wide confidence intervals, we expect that there's a very reasonable probability that inflation isn't just a short-term story, but is more likely to be elevated for the long term.
As a result, we expect that there's very good nine-year track record, maybe a hidden asset, as we look out over the next three to five years. And it's something we will speak about more in future calls. Last, but not least, myself and the entire investment department are excited to welcome back Jim Corl and his team.
We know that there is a fantastic opportunity to leverage the performance DNA in intellectual capital of our listed real estate team. One with Jim's team, we're going to be able to create high performing standalone private strategies, as well as integrated listed and private strategies that dynamically allocate over time to optimize to the best investment opportunities.
With that, thank you for your time, and I'll turn the call over to Joe Harvey.
Thank you, Jon. The start to 2021 couldn't have been more different than the start to 2020 as we begin to see the pathway out of the pandemic and toward economic recovery, rather than face the sea of uncertainty that the pandemic unleashed one year ago. We're off to a good start in 2021, thanks to continued strong investment performance and organic growth, plus appreciation in most of our asset classes.
Record fiscal and monetary stimulus, combined with the continued rollout of vaccine distribution in the U.S. has set the stage for reopening of our society and economy. We expect this will be a gradual process and should result in a vigorous extended economic recovery. Last year, we achieve industry leading organic growth despite depreciation in share prices for REITs and infrastructure. This year today, we've had some catchup appreciation, which has provided momentum to our results on top of our continued organic growth.
To set the stage for discussion of our fundamental trends, I'd like to share some thoughts on the big picture for our business and strategy. Allocations to most of our asset classes are rising because of what I call the asset allocation dilemma. That is, fixed income yields cannot meet investors’ return targets, which places a significant ask on the equities portion of portfolios.
This creates a need for alternatives including real assets, which can provide equity like returns as well as diversification benefits. This allocation dynamic, combined with our strong investment performance, has helped fuel our organic growth. The current macro environment further supports the demand for our strategies.
Recently, Michael Hartnett, the Chief Investment Strategist at Bank of America, released the report citing five reasons to own real assets. Number one, they're cheap and at the lowest valuations versus financial assets since 1925. Number two, they're a hedge for inflation, infrastructure spending and the war against inequality. Number three, they diversify portfolios. Number four, they're under owned. And number five, they're scarce and more valuable in the coming digital currency era.
I believe that Hartnett’s case for real assets only adds to the demand for our asset classes. Turning to our fundamental results. As Jon reviewed, we had an okay quarter investment performance, with six of nine core strategies outperforming as some portfolio managers didn't rotate strongly enough to value and cyclicality as the reopening rally unfolded. We are confident in our investment team’s ongoing portfolio adjustments.
Importantly, with 93% and 99% of our AUM outperforming over one and three years, respectively, we are in a terrific position to retain assets and compete for new allocations, which continue at a good pace. Our AUM set a record $87 billion at quarter end with all three of our investment vehicles setting firm records. Starting from a record $7.5 billion of gross inflows in the first quarter, firm wide net inflows were $3.8 billion and annualized growth rate of 19%.
Open-end funds lead the way on net inflows with a record $2.2 billion driven primarily by U.S. REITs, and secondarily by preferreds. We were awarded $460 million asset allocation model placement in U.S. REITs from a wealth advisory firm. We also had multiple allocations from small to midsize institutions into our institutional U.S. REIT fund, in part driven by several new consultant recommendations.
Notwithstanding rising treasury yields, we had inflows into both our core and low duration preferred strategies, albeit with an anticipated shift in slow momentum to the low duration strategy. Another notable open-end fund trend was a pickup inflow into our infrastructure fund. We believe this increased interest has been driven in part by President Biden's infrastructure proposal as Jon mentioned.
In our major asset classes of global real estate, U.S. real estate, preferreds and infrastructure, we gained market share measured against both active and passive funds vehicles combined attribute to both our consistent performance and the strength of our distribution. Institutional advisory had record net inflows of $1.7 billion.
We believe that the record results are partially attributable to attractive relative valuations and allocation entry points for real estate and infrastructure, as well as to strong execution by our distribution team in the Middle East, where we've seen growing demand for real estate and infrastructure strategies.
Sub-advisory ex-Japan had net inflows of $97 million, relatively quiet, but importantly included a mandate combining two of our recently developed strategies. Japan sub-advisory was our only channel with net outflows, primarily due to one funds distribution reduction that Matt explained. For perspective, Japan sub-advisory peaked in the third quarter of 2011 at 33% of our AUM, but is now just 11% of our AUM as assets have declined by 34% in Japan, while the firm's AUM and other channels has grown by 69%.
Our current one unfunded pipeline stands at $1.4 billion. Working from last quarter’s $1.8 billion pipeline, we had $1.1 billion of funding’s in the quarter, and one $940 million in seven new mandates, and account top ups across global real estate, infrastructure and a multi strategy blend of U.S. REITs and preferred. Three of the seven news mandates were in our focus strategies, which have higher active share, and where performance has been very strong.
We continue to see growing interest for these differentiated high performing strategies. Turning to corporate strategy, we are confident and continuing to invest in the business. We believe the next several years will be good allocation entry points for both real estate and infrastructure, providing additional support for resource allocation. Priorities always start with alpha generation, so we will continue to invest in people, process, data and strategy development.
On that front, we continue to allocate resources to next generation strategies, focused portfolios, multi strategy allocation capabilities, ESG integration, and as we announced earlier this week, expanding our real estate capabilities. This past Monday, we issued a press release announcing the formation of a private Real Estate Group. Our strategic rationale is to create another growth driver through private investment in the $15 trillion universe of real estate in the U.S. that is not owned by listed REITs.
Leaving the group as Jim Corl, who previously worked with us from 1997 to 2008, and his last four years as Chief Investment Officer of our listed real estate team, Jim spent the last 11 years at Siguler Guff & Company where he helped build and lead an opportunistic real estate investment business. We're excited about the team that Jim has built to execute our [ph] private business, which is a testament to Jim and to our platform.
Without distractions from legacy assets, this team will be able to focus on the best investment opportunities available today. Our goal is to excel in private real estate as a standalone as we have enlisted, but more importantly, to innovate and combining listed and private to create more alpha levers. Investors have become more interested and agile in allocating between the two markets.
Moreover, many institutions have real estate allocations that are heavily weighted, and legacy property types such as office and retail. As a result, they need new solutions. And we believe we were well positioned to provide advice on how to rebalance using the listed markets, or segments of the private market. These dynamics will position us to gain a greater share of real estate allocations, where private typically has the greatest share.
We have a product plan that includes strategies and vehicles for both the institutional and wealth channels. Bob Steers and my collective vision is to have both private unlisted capabilities and real estate and infrastructure, enabling us to provide standalone strategies and bespoke solutions that include both markets. We will work closely with Greg Bottjer, who Heads Product Strategy, as well as our executive committee to build this foundation for our next phase of growth.
In conclusion, while the past year has been unprecedented, we are energized and optimistic about our future. Considering we have been working from home for more than a year, I'd like to thank our employees who have remained focused, diligent and dedicated in serving our clients. We look forward to returning to the office and seeing our colleagues and all of you in person.
I'll now turn the call over to the operator to conduct the Q&A session. Milad?
Thank you very much. [Operator Instructions] Our first question comes from the line of John Dunn with Evercore ISI. Please go ahead.
Hi, guys, it's great news about Bob. To start maybe could give us a little more color on the past, to adding private real estate, why now? And maybe how quickly you think things can ramp? And then, I know sizing is hard, but maybe give us an idea of your aspirations about how much AUM we could eventually get to?
Sure, let me start, in terms of why now, as we look at how well we've done building out our real assets strategies, we think it's time to continue that exercise to develop our product strategy for the next five years. And as I mentioned, we think there's an opportunity to innovate and combine both listed and private strategies and different vehicles for both institutional and wealth channels.
So, more specifically, as it relates to how we went about it, before the pandemic start as we started to think about the strategy, as we were looking at how we might want to do it, because we were so long in the real estate cycle, we didn't feel like doing something like an acquisition, made sense. So, we started talking about building it organically, which is how we like to do things.
And at the same time, we started to have conversations with Jim Corl, and started to lay out a strategy to build this effort. Then the pandemic hit, and it from a cyclical perspective made us even more eager to create the team, because we felt that the real estate cycle was being reset, and that we would have a great investment entry point around which to build a strategy.
So, that's some context. As it relates to how big it can become? You've heard us in the past talk about how we can't predict AUMs or because there's so many factors that go into it. So, what we will be focused on is generating alpha, and innovating on strategy. But if we get that right because of the size, of the private real estate market, we think it can be a meaningful contribution to in our investment strategy lineup, and our asset base.
Gotcha. And maybe just, maybe on the possible timing of the ramp. And then also, do you guys have other aspirations in private markets? Infrastructure seems like a logical step, maybe even private credit?
Well, we're going to focus on real estate number one, and then secondarily, infrastructure and it could be something like infrastructure debt, so a focused version of credit. But I think it will be harder to develop an infrastructure because it's a less well-developed investment area, but it's going to be rapidly changing.
In terms of the ramp up, we're going to focus first on an opportunistic strategy for the institutional market, and there will be no lead time involved typically, as you would find in the private equity market for that type of strategy. But we also have other plans to potentially look at the closed-end fund market where we could combine both listed and private real estate investments.
So, there will be some lead time, because these types of products tend to have longer lead times. But we feel like we're gaining momentum now that the team is formed. And, we have some very well planned out product strategies.
That's great. Thank you very much.
Our next question comes from the line of Mike Carrier, Bank of America. Mr. Carrier your line is open, you may proceed with your question.
Great. Good morning. Thanks for taking the questions. Jon, Joe, you both provided some color on the outlook, given rising rates and inflation expectations. But can you provide some context on what levels are backdrop, it tends to be good for your strategies in demand, versus what type of a backdrop could become more challenging?
I'm going to ask Jon to start with that. But I think we're in a very, very interesting period as relates to this question. And, I think, to maybe, say that simply I don't think that there are periods in the past that you can really look to, to see how some of our asset classes are going to perform in an environment where yields are being pinned down, you have building inflation, expectations, and you have an economic recovery that is perhaps unprecedented.
So, we're seeing interest in our strategies from all, a lot of different investors who are trying to solve different portfolio needs. But let me turn it to Jon to provide some more direct investment perspective.
Okay, sure. Thanks, Joe. Look, I think it's less about absolute levels. And it's more about why our interest rates moving up? Why is inflation moving up? And historically, if interest rates and inflation have been moving up, because we have strong real GDP and inflation going up because we have strong demand as opposed as supply constraints, or no slack in the employment markets, then that's tended to be a positive dynamic for our more equity like, or economically sensitive asset classes.
So, whether that's real estate or infrastructure or commodities or resource equities, a strong demand is the dominant story rather than Oh, interest rates are moving up, or Oh, inflation is moving up. It becomes more of a problem when inflation goes from being reflationary or even a little bit hotter than central banks want to and of course, central banks so far have said they're okay with things running hotter.
That's why we think that message means that there's more like years of dovishness ahead of us, rather than quarters of dovishness ahead of us. But if inflation were to spike sustainably above some level, where it's at a control, then then you're getting more towards that rapid tightening cycle. That's not what we are talking about when we're talking about that we think that we're going from a lower inflation environment the next three to five years to a higher inflation environment.
Our memory of inflation, of course, is the last 10 years. And the last 10 years was in economic terms, kind of disappointing. Secular stagnation. So, I think what we're talking about is, we're probably coming out of a period that was quite deflationary, to not one that’s highly inflationary but simply one that's more reflationary. And so, that's why we think there's positive tailwinds for the real asset’s category, whether that's real estate, infrastructure, commodities, natural resource equities.
Because there has been – that we're coming off of a decade of headwinds, where maybe people forgot the virtues of real assets in inflation sensitivity. I guess, as it relates to preferreds interest rates, like Joe said, look, there's a lot of debt in the world. We think that there's a lot of incentives for central banks, policymakers to keep interest rates low.
And that's why we may be in some situation where growth is higher than trend, but central bank policy remains very, very supportive. That's why we still think that alternative income has a very valuable place in people's portfolio. Even though we may be feeling that base rates or risk-free rates, they were artificially low six months ago, and they're just normalizing to where they should go.
All right. Great. And then just as a follow up just on the product side, and just given a private market initiative, when you think about the size of that market versus where you guys are, say, in the public markets, just trying to think about how much that can contribute to Cohen & Steers over the next say decade? And then also, just any update on timing as well as on like closed-end funds. If you are continuing to see like demand in the market? Thanks.
Well, again, on the size question, the private real estate market in the U.S. is $15 trillion. You can look at the other asset managers who have businesses and get a feel for how big those businesses can be? Frankly, right now, I'm not thinking about that. Because, again, there's our good competitors and private real estate asset management business. And we just got started, we believe we have assembled a great team. And we have some pretty great ideas on how to innovate.
So, we're, as I said, focused on raising the first dollar and delivering great performance results. And if we get that right, I think that this can be a very meaningful part of our asset base. And as we build that to innovate what strategies that combined with our listed strategies. And at the end, if we get it right, we're going to get a bigger share of the real estate allocations. And I think have better asset retention, where we can offer private solutions to some of our clients.
As it relates to the closed-end fund market, that is a strategic priority for us on the new issue front, and our peers are having very good success as we did at the end of last year with our PTA preferred tax advantage preferred fund, we have two ideas that we think are very compelling. And so, we are talking to the underwriters to try to get a month and offering slot over the next year.
Because the rate of production, if you will, for new closed-end funds is less than what it has been in prior cycles. These monthly slots are more coveted. There are more asset managers who are competing for them. So, it may be something that, where we can't do as many as frequently as we used to. But we think we have two great ideas, and we're working to secure a spot sometime over the next year.
All right, thanks a lot.
[Operator Instructions] Our next question comes from the line of Robert Lee from KBW. Mr. Lee, your line is open, please proceed with your question.
Hi, thanks for taking my question. This is Jeff Drezner on for Rob. I had a question in regards to capital management, and how maybe you see that playing out considering the need for one of these some of these new initiatives and how we should think about that policy going forward?
Sure, let me start and then ask Matt Stadler to add on. First, in terms of the new initiatives this, we built the team organically so there's no upfront capital cost associated with that. But as Matt said, the compensation cost with respect to that are embedded into the comp-to-revenue ratio guidance that Matt provided.
As it relates to the investment vehicles, we could have capital requirements for co-investment and an institutional vehicle if we complete that. And as relates to the closed-end fund market, as we've talked about in the past, the new structure for closed-end funds is that the asset manager sponsor pays all the upfront costs, which typically are around 4.5%.
So, if we're successful and with those vehicles, we would have capital commitments associated with them that, but there would be capital commitments that that would be very rewarding financially as it relates to the economics of a closed-end fund, or the other economics on an institutional opportunistic private equity vehicle.
I don't have much to add to that, Jeff, other than we typically assess closer to the end of the year, we look to do what's in the best interest of our shareholders and Joe just cited the two potential uses of cash that based on the level of success in the asset raises could be meaningful. But again, those would be tied to great returns for our investors.
So, I think either way, it's going to be a win, but trying to measure whether we're going to do something that certainly in the year, I think is premature.
Okay, thanks. And I guess just following. So, historically you paid out between 50% and 60% of your earnings in terms of dividends, can we expect that to be unimpacted going forward?
Yeah, we don't see that quarterly distribution policy being affected by the private initiative or what we're dealing with in the closed-end fund market.
Jeff, I would just add that it's not – our approach to this is not necessarily to have a 10% or 15% increase year-over-year, versus maybe a 45% to 55% distribution of what we believe our earnings would be. And then, that percent variance year-over-year is just the math.
This year, we did a little higher increase than usual, because at the end of the year, our AUM was 15% higher than our average AUM. So, we were positioned to kind of have that baked in all things being equal. So, we were able to increase our quarterly, accordingly.
But just to remind everybody, our quarterly distribution philosophy is to pay out 50% to 60% of our earnings. And then, as we go through the progression of what our capital needs are, whether it's doing a closed-end fund, or potentially making an acquisition, or seeding new strategies? After we go through that analysis, then we've typically paid out a special dividend toward the end of the year.
So, again, we've got the predictable 50% to 60% of earnings quarterly the distribution policy, and then evaluate whether we want to pay a special dividend toward the end of the year.
Great. Thanks for taking my questions.
And those are all the questions we have. I will now turn the call back over to Mr. Joe Harvey, President and Acting Chief Executive Officer for closing remarks.
Thank you, Milad. Well, everyone, thank you for listening to our call today. We look forward to our next update in July. And so, have a good day. Thank you.
And ladies and gentlemen, that does conclude our call for today. We thank you all for your participation. Have a great rest of your day and you may disconnect your line.