Cohen & Steers' Strategic Shift to Real Assets: Navigating Rising Rates and Alternatives Exposure

In a year marked by persistent inflation and rising interest rates, Cohen & Steers has emerged as a case study in strategic adaptation. The firm's assets under management (AUM) surged 10% year-over-year to $88.9 billion in the first half of 2025, driven by $4.4 billion in market appreciation and a reversal of net outflows, according to a Panabee report. This growth, however, masks a deeper narrative: a calculated pivot toward real asset strategies as a hedge against macroeconomic volatility. With open-end funds attracting $580 million in inflows-particularly into U.S. real estate strategies-the firm is betting on a sector historically resilient to rising rates, the report says.

The Real Asset Gambit

Cohen & Steers' real asset strategies, which blend real estate, commodities, and infrastructure, are explicitly designed for inflationary environments. The firm's dual approach-combining top-down tactical allocation (20–25% of excess returns) with bottom-up security selection (75–80% of returns)-positions it to capitalize on both macro shifts and granular opportunities, the Panabee report notes. This model aligns with broader industry trends. J.P. Morgan Research underscores real assets as a "diversification and inflation hedge," noting that commercial real estate, farmland, and energy are gaining traction amid economic uncertainty.

The firm's recent seed investments further illustrate this strategy. A $54.3 million commitment to active ETFs-part of a $242 million expansion into consolidated funds-reflects an effort to democratize access to real assets while attracting new client segments, the Panabee report highlights. Yet this aggressive capital deployment has strained liquidity, resulting in a $177 million operating cash flow deficit in H1 2025, the report adds. The challenge now is whether these investments will scale quickly enough to offset short-term pressures.

Rising Rates and the Real Estate Paradox

While higher interest rates traditionally weigh on real estate valuations, they also create tailwinds for income generation. J.P. Morgan Research forecasts REIT earnings growth of 3% in 2025, with potential acceleration to 6% in 2026, driven by disciplined underwriting and strong consumer demand. Hines, a real estate investment firm, adds that rising cap rates and supply constraints could reshape return expectations, ultimately bolstering long-term income growth, per a Credaily brief. Cohen & Steers' focus on U.S. real estate strategies thus appears prescient, particularly in sectors like industrial real estate and healthcare, which remain resilient despite broader headwinds, J.P. Morgan notes.

However, the firm's AUM growth has not been uniform. Institutional accounts saw $885 million in outflows, reflecting client sensitivity to rising rates and competition, the Panabee report observes. This underscores a key tension: while real assets offer inflation protection, their appeal depends on structuring strategies that balance liquidity needs with long-term returns.

The Path Forward

Cohen & Steers' recent launch of the Real Assets Compass-a tool to compare risk-adjusted returns of portfolios with and without real estate allocations-signals a broader push to educate investors on the diversification benefits of alternatives, J.P. Morgan suggests. As of September 2025, AUM edged higher to $90.9 billion, albeit with $81 million in net outflows, the company said in a PR Newswire release, suggesting that the firm's strategy is gaining traction but remains unproven.

The coming months will test the firm's ability to convert seed investments into scalable products. If REIT earnings and commercial real estate stabilization materialize as projected by J.P. Morgan, Cohen & Steers' real asset strategies could cement their role as a cornerstone of alternatives exposure. Yet the path is fraught: rapid AUM growth in new ETFs is critical to justify the $242 million in seed capital, and rising rates may continue to pressure valuations in the short term, the Panabee report cautions.