Federated Hermes (FHI) 27 Oct 232023 Q3 Earnings call transcript

Greetings. Welcome to the Federated Hermes, Inc. Q3 2023 Analyst Call and Webcast. [Operator Instructions] Please note this conference is being recorded.

I will now turn the conference over to your host, Ray Hanley, President of Federated Investors Management Company.

begin. may You

joining welcome. Hermes today's and for President for us Debbie the Chief Officer. joining CEO; Saker the Q&A Good who Cunningham, our Nusseibeh will Thank money international be the Leading is And Financial Chief call Tom of Hermes Officer for Chris today. markets. the and are Federated morning, CEO Donahue, you us Limited, Donahue, Investment and and Federated operation;

we implied update we want actual the call, make Federated statements. SEC may assurance be assumes our Federated materially statements, and filings. duty Please in statements. note the Chris? of Hermes and can to Hermes no During given results different any forward-looking that forward-looking than by review be these to may as disclosures results, to No the risk results such future

I in and performance, asset results. assets Ray, growth morning money Tom good $XXX as management market with income solid well. billion, driven comment of of growth you, We on will business by produced Thank review financial record QX, assets record the all. billion. Fixed Federated under $XXX Hermes' solid ending had will

Looking at first equities.

QX $X.X of a high-quality net and seeks said U.S. This income MDT of $X.X impact growth, of did rising quarter. have had, combined due agnostic $XX.X to losses and is large-cap international strategic positive net net and stream redemptions market is QX see leaders equity each FX strategy down billion including $X.X equity. The XX high benchmark were totaling Assets strategies, and billion outcome-driven we companies. billion from as We SMID domestic $X.X to redemptions billion. in sales dividend strategy billion. dividend and It

cuts the fund months. As X and yield weighted dividend S&P the X.X% had the in yield of trailing X.X% of increases dividend has and fund compared in XX XX to a seen X/XX, average the a

years X the the quartile XX% our using top peers peers end equity Morningstar of of data beating Looking funds in trailing performance and category. to compared were equity were of their at for QX, XX% and

of the For had first million. equity net $XXX SMAs combined on QX, equity X funds side redemptions weeks the of and

turning Now income. to fixed

by increased a entity. Fixed fixed billion separate billion net an institutional $X a sales separate in record income $XX.X reaching accounts a to mandate QX of approximately with billion $XX.X high $X.X billion Assets the income were by billion by and large of in of funding $X.X billion. public institutional multi-sector account driven from $X.X

million Fixed SMAs $XXX fund record bond income million. Within net $XXX income Fixed million, $XXX strategy, Plus net redemptions sales of about QX of had of QX flagship funds respectively. had had funds, return sales and net total million. gross and Core our about $XXX

that the both So CIT. includes fund the and

fund QX funds bond million and bond SMA fixed funds and Core intermediate fund, of Plus income $XXX the fund, posted added million. the other with funds of The sales cash redemptions corporate the strategies collective net three plus. Ultrashort return bond including the had total third about XX income sterling in investment quarter, positive $XXX total net return the fixed sales. We

using peers; beating end their funds income top quartile XX% Regarding were and our the of of of the performance, Morningstar XX% fixed the at years, for X were QX in trailing data category.

million. under market about impact billion. The quarter prior $XXX about the was about of the to first $X.X and distributions by and redemptions alternative net fixed in of just the decreases coming of $XXX decreased the $XX quarter from about markets SMAs decrease million QX, of value For weeks had to assets million, X and funds billion category, income of net third due $XXX $XX.X FX private In million. redemptions

EUR closed global II, with market of in private market first first fund. XXX of market private and and with Innovation million, approximately equity in commitments pan-European billion on Horizon about Fund in $X.XX fund of the We of Impact $X.X of yet net also close second our vintage institutional We our separate with both our we're in quarter. innovation the We're III series QX the August in the has third the third for are vintage our had the through Hermes vintage billion Fund. U.K. to our Nature accounts. with funds Horizon III, Horizon mandates the equity We funds. began in growth

cash, come market and of million global and diversified expected wins strategies expected lending come billion totaled yield total to equity income, is and wins across billion, $X.X Fixed wins $XXX wins of markets. absolute mandates about fixed additions return. net short active into private are private in wins with the corporates. income high About Approximately These in credit, strategies equity in and equity, to private GEMs. is equity, equity total include included in expected bio $X.X and net which direct wins

deposit for expect to from in yields, deposits. and, asset market strategies reached billion, favorable elevated market market be to compared direct highs of conditions market money liquidity money the conditions financial market markets. compared cash benefit the for money $XXX continue to record of both system course, $XXX strategies bank bank A market and class, of assets short-term total levels Money Moving We rates higher rates. billion. favorable peak, will and for assets rates interest yields favorable to market an we money as

be direct third we in in products flows challenged product at customers market money financial retail from funds yields. toward the good quarter, by continue Institutional security geared the activity intermediaries. of saw Looking flows to

including of the Our end about the at share quarter, third funds X.X% estimate the the at second fund end X.X% up market was of of from about market sub-advised quarter. money mutual

in assets managed $XXX including multi-asset. billion were $X $XXX billion Looking Tom? mutual at few fixed in markets, at in billion private markets; income; in market billion. a billion billion Money recent $XX fund equities; billion, of totals asset as days ago, in $XXX approximately alternative $XX and money assets $XX were

QX to discussed interest we $XX.X prior Total substantial in in on from interest million million decreased and mainly our million performance and last the quarter transactions for $XX.X QX fees were QX fees carried second the the carried call. the performance to to quarter. $XX.X compared Thanks, revenue Chris. due related

Revenue structures market money in money All $X.X decreased $X decreased expense. an market assets added decrease Changes revenue million, by distribution from higher million. to product related million while by other offset decreases, in by revenue. certain average drove assets these $X.X

cash restructuring completes the of million, open included offset million $XX.X by expense QX, related market the now. discussed up to lower end performance QX, of of fund our million other fund carried and of $X investments compensation to decreased carried $XX to in million about in includes for quarter due questions money an compensation available were $X.X $X mainly and increase million we about million related operating FX-related QX related The expenses as prepared fees $XXX and in remarks, expenses. At interest. infrastructure other call which the reduction us. and prior operating to QX million Holly, in partially in in that approximately distribution QX interest to the and costs to from to would was decrease a fees expenses about $XXX discussed. like of

from is Fannon for question at first Jefferies. Dan coming today Your Instructions] [Operator

context wanted rates. of in I for money outlook discuss market to your assets the and

rates up, significant we've is peak I heard is beneficiary. money income from pick about demand see I talking being think fixed that think as to markets also going a and as a others you're

demand So of think wondering what's what versus the will terms more fixed being duration be -- think markets money maybe fare about income traditional in classes? you as we extended, asset how would

point then first you we last begin to have as additional the securities which, those mentioned, money, to it said time. in this at I But comments. and rates will more several some Debbie attract call the peak, on direct by is I comment once will attracted that on over begin calls, institutional as this

see 'XX that so when increase. reticence good Right would flows combine their on waiting rates before, hard expect paid and look And we when Fed also basically, a percent. don't And will course. then about about with is continue exactly mention to It's of of the mentioned -- QX outlook. that at QX to initial forget you longer. But the thing 'XX, take fund of getting advisers over and at say QX through when that's to 'XX market to about now, -- on ease. that, And as And And then our be increased they side, 'XX assets basic when after industry with certainty, XX%. then. the rates, retail the the to of a go from X-plus decline, smart by clip positions, began very would of XX% we're that the the to with lack we in they the grew we position assets assets like XX% financial higher grew 'XX cycles we decide the institutional we've to same grow last they're of to the the money and did industry other

kinds basis Debbie? those So that's to which of we observations. come the on

just I'll of things. couple Sure. add a

extension You we do that trade, within markets. mentioned, money and Dan, the even

we're XX types started teens single days So XX, digits cycle a much the XX, perspective, from out this to of durations now maturities with average down weighted out in longer, days.

extension keep within order itself. done higher have to the product the So yields the trade in

the got many X used bucketing another thing so that think I to managers is during cash. that's helpful rate cash environment,

of operating kind a stays government on in a sector. amount day-to-day So that's certain the

at a reconciling out of the looking higher something looking that longer. scenario to more higher that a with But -- X.XX for XX-year statement Fed that say kind and in out then for when prime ultimately, strategic longest at is Next a just to you're Microshort bucket. Ultrashort finally go you're longer that's bonds curve market from yield overnight under X.XX X%, with at into

the retail, as do in grow mentioned, we'll I and flows, nothing think institutional. we'll Chris continue in but So

Plus in curve would our people as Ray. just extend been attractive. income product Dan, total well on The average cash the duration. It's particular, year. And fixed positioned strategy well effective we're return out talking to I And clients We've the to interested really are deciding X-year are add, Core in our flows evidenced array. all a weighted with very it's with yields by people bond positioned. for

out So when further. is trade the lot money happens, that the But amount of catch right it's can going -- that have we for of strategies good time. certain there waiting a a

up, days comment Ray that right good turn. on the And month gotten pretty has couple a or had of bringing yet And government They that starting getting are one Ultrashort more the but done lot first in that is just it's here this funds closer. this Fund flow. a positive I Ultrashort job of to haven't and to, quarter,

So And funds we and on $X billion franchise you're a three remember, seeing that's currently people there. here go Ultrashort streets. all that out have

for my on -- to Great. That's wanted follow-up distribution very helpful. I expense.

dynamics the in of Some the quarter.

think money about we around and relationship you I expense. walked little if forward, provide through, more should could a more but market, the in of, importantly, think frankly, -- bit you happened how specifics and AUM the distribution what going

the will then some expense. be assets go pretty forward, up, that and go And that distribution Okay, Dan, should reduced that line going mentioned, anticipate revenue, it's expect reduced we an grow, if would I we had quarter, product as in but Probably, as go cleared distribution the item up, expenses structures the as Tom. of I a commensurate that, up. would on of changes that assets number would up some amount

you a noted, change Yes, is run forward. going to rate Dan, revenue. use good that's to but good commensurate know, to Tom as with It's the But in the a rate forward. going one use run as down, also, QX

Davitt next Your question Patrick coming Research. Autonomous with is from

than cash. the available and more million You was thought cheap, mentioned think, stock of you $XXX had, last you quarter I

So expecting not now even the we repurchase? why more more of in do Should XQ? stock be is that that And cheaper.

That's a great idea.

we -- Yes. buyback our That's share a approved meeting had Board share so million $X history we buyback we XXth our our of completing programs. and program. and have yesterday, We another

shares wanted get ] about [ have [ the left. with to approval $X.X for existing one we more and million $X.X We million only ] left in

speak you there out seeing to and more What And discussions it. are inorganic M&A this right at is to opportunities do another you're your kind of one appetite any on Could Got what point? capital. now?

Yes.

years. for We dividend have and share through buybacks. pay a gone our lot of appetite. We've We

we to for that -- because return but our do I them thing continue to let way to the the is And that's is more first where and an to the we us. people, over loose we getting to somebody turn people think and have on dividend and it meet like it, and look somebody do company. The any on it's -- don't decide make, pay we we'd after roll-up been and the sides, announcements than that, at with returns, sell. challenging time call a -- for buy It's people money to what to the to don't side I we have to fund excellent

active are and I And in of We do. to deals, a people bigger those on list time things to talking to announce. don't take things have

for with next coming Your question from is Worthington today JPMorgan. Ken

question. Dan's I wanted to on earlier expand

number a the opinion So that investors allocated of cash. are have various CEOs expressed to

investors funds you So I or guess, direct over-indexed market, So institution versus market do market are over-indexed today stand but money cash funds? our versus see really first, cash other and of to you asset they channels? how sort about other do not? retail talked And you within the to classes? And money our over indexed think cash,

enough retail we good are judgment to The incidental very or our on based very, just over-indexed get to a is very, cash do. they are which robust, is about have statistics whether I what clients make as information very, force, sales to the that to not. don't unsure

that as whether don't vigorously they the funds. money the response board. something, sorting have But would than we I ones offer marketplace that products across over-indexed to to we the give money in mean you my that, So this more And that's you so-called as the others enough average think cash have about are the think unless I are do have Debbie? yield because they stats that. would tell bear in don't And participate would

is our of The add of investment types people you It's only basically that are about it. money I'd assets fund It it's money like look in rate products. funds, liquidity the growing side types whether to money fund are a total separate seem of accounts, for the market liquidity if at assets, percent they both collectives, X/X be our pools, seems privates, X/X other of thing government commensurate local offshore, of equally. doesn't overweighting growth

Okay.

Fair inclusion has it guess given to it underperformed meet minimum back challenging why And be magnitude it not then Federated be I the the to since consider this? was would requirements indices. adjust Okay. enough. stock And a in excluded the how stock underperformance, the for from bit that quite announced of would the structure Russell Russell?

of And those of And in buy not using That's of stock. the have I we to committing the of Well, just can't in that. we're a terms into coming not structure, [indiscernible] as a time. the of for that. do it lot the mistakes. confidence connect can't considering I going [indiscernible] performance been But to And Russell the same the out structure. long just one course, it. of We've

going about fun. it's talking think it is to So happen. I But don't

with Your coming for Bedell Deutsche next question is Bank from Securities. today Brian

which on way the would there a fund you money on that back First Maybe the from, allocations retail sensitive from one. this one, just size can be two-parter those squeeze money franchise. behavior If money risk off in market platforms based, side, money you're One, platforms? for away base one. Is getting so the market that market in equities. I allocation across what say, on to fund start mutual I'll your would any potential say, from, with inflows to be

know. don't We

take that but your You your that the charts I to to that retail. answer that that. shows going could in assets you question. That's and If how on the is enough we at question. And keep chart isn't don't terms field, the of are answer to not broker-dealer -- you in to we answer much look the have going I

very in time number that of money retail our experiencing market for all two, Yes, products, they're XXXX retail of and number XXXX, one, largest amounts funds, large the I say growth diverse; distributors can frame.

distributions. not one it's preference or across So institution's heavily allocation sales weighted or to tactic. It's

Fair Okay. time for ESG fund more me to question also one there is and enough. And on ask money question? a

Keep rolling.

Okay.

Okay.

price rate been side. think going maybe maximum Just think the extension if extending sort at the you a one to How are I money one naturally, fund start better, constraints? of guess, extended subject cuts. the the is have which longer we to point, on in some duration you to a And market quick you liquidity of

generally we we -- speaking, XX-day mean, ranges. Yes, I target Right.

to up April So to exit much rule days; discussions, an with to given XX XX at guess in XX we're too funds, right that XX liquid whether now, that and asset govie client get days; extension, XX ever standpoint sort XX about that, into want to requirements a But as there's to the maybe XX it your more weekly XX daily XXs. that. our the be going know would will concern always funds mid- new the even being kind I is XX in I clients come SEC will to get of another prime that muni but difficult of mean high from And to there's our days. XX well. to of into longest there's large requirement than XXXX, to days not we're

it, Got it. got

then you as Okay. influence seeing versus you for U.S.? And again ESG, that for the U.S. I strategy, side, maybe you're any this funds has year the in your challenges changes rolled product contrast can rollout might all And in guess you And just out? versus what -- have seeing just in Great. that seen the future ESG unfolded then Europe? Europe both if ESG demand how the are on political we've and ESG

And the XXXX. I'll I'll things. XXXX Hermes did X were let from with cultural ESG of was we looking of European years at So the We Saker due first, main side. when diligence then take them to Brian, one that on comment

the fiduciary, you exclusive risk great, able fiduciary to pecuniary sounding interest figuring with spent features can this repeated the all been we the we the order then we out how a work to you if lot research of to have that's successfully to use to ESG. underlying say where the joy says, a an have continues. a basically And in returns. marketplace, that you too. fund, And you of time, to also investor. that of article had have Stanford you're set be for ESG impact the to the forth of And yes be want Department analyze this SEC, Labor, review to improve done if to the time that that During the think Law And

study the stuff Now light are out well, -- the of concluded does of risk asked we of, Dublin. funds. is to security. stay individual you a that there's in the came of of politics that and question try and a how engagement Texas where from the in an a in okay, or Oxford stay reduce portfolio recent what was would the political and down performance I of affect street that and Austin College, in University professors we do that bunch us? Well, and the UCD basically can out mention that it

Okay.

a we people But reasonable interesting marketplace, going are can efforts. an integration disagree. one that's with fair So the fight in and to our continue

Saker are between We continue. a there performance way difference that that is managers food active basically the are, were there's his to points, we these this, at going looking We're big said enhance we role between let to in as in we but I'll though And U.S. big U.S. the even talk structure about and there's basic overseas. a the fights on Europe. difference

you very Chris. much, Thank

ESG our ESG. mind, a returns just of we look long is before said financial at the to business, conviction business, way it we over on shows term. way long-term our term. indeed in Hermes that enhancing been we And Chris want the value average, adds overseas, data something talk see So integrating about the that I about in a internal as the and ourselves To actually reemphasize has it our long institutional because

EOS. through is part we stewardship combine returns. Furthermore, it So with us, this business, to of enhancing our engagement

show out previous support said, enhance financial actually does that As type engagement have that our studies new the Chris that come come out studies has returns. of that

example, to ESG for the not do. enhance we not, it's That's not title us do reasons nonfinancial value create Now Unless any stocks. emphasize, from wealth. to long-term we ask do and sustainable particular for integrate other for clients divest we what important to trying specifically,

enhancement over demand increase The Europe. have this is I but of in sake XXXX. We've our the to the Hermes, investor. there we for So just fiduciary that to what law. was a US Limited. And duties point. in first do people do that I point in for it. do demand for the Federated which continues is certain we Chris Hermes old back which social had think finish at general by making for to that's claim, of one returns, the ESG allowed to one the we a up do Europe, Hermes Europe, factor, thinking in has about continued to space structures totally jurisdictions in is will not underlying create old to it And In certain and see the one with there. look just And of and by a the of is says, additional line we background as continuing would in of that This demand for opportunity the impact. and came to for why business grow try experience we long enhancing we

ensure to and fact gives Our is the our do, to fiduciary that roll where it what is bounds the are products continuing outside we United position in to within demand enhanced of the us continue out -- mind, of the doing to in duty. what States our strength fact, we increase within

rest Specifically, the of out the dying demand Europe. is not

the for little bit is being. than within possibly Asia demand big in increasing an European less the but time we Europe, a market see

from ISI. for coming with Dunn Your next Evercore today is John question

kind the stage much to is versus of Can How of the and later average timing characterize the wins maybe newer of sort funding? pipeline? you unfunded time

shown see have markets the couple and typically, don't down investing. next statistics when equity can have not assets get John. we I fund often because take commitments of in give private as drawn management a when But actually into in income as money Sure, closings, you you'll quarters the under is year those until we and quarters. to it's on fixed as the long

we'd for quarters do to pipeline, of on private of and the next couple the the timing extend market generally out more to equity have weighted and you So several a fix but the work give to some kind average look quarters. over

you. give Got increasing then strategic can a some of of to investor maybe And of just the value look thinking current dividend, backdrop? of like you kind holding at point? they there? maybe us assets about on How the profile conversations sales your flavor wholesalers going, versus the And at how the are

Well, in in salespeople terms that are discussions there. and the of intermediaries these challenging the discussions, are with

And it to that, got be does. we all along, it and what so do about continues straightforward what we the said repeats fund to simply but

it's of discussions. Morningstar So stimulates to really that's top bottom fit a terms that even to in the it like what category going top, though doesn't stick Pogo the bottom, the the from

quite are because that through And a yield And been a looking so X-plus of on at sanguine core before. that percent shareholders stocks this lot pretty we've solid. they're keeps the of bunch a

not to so the that they're not X, magnificent Now going get you're ride.

is discussion. debate it an active active So and an

with is question from Michael KBW. next coming Brown Your

be when line, back in expense growth a G&A that expectations expect to out the third any to the the puts in given of mentioned, might Tom, is what for on commentary that just quarter? particular, we XXXX I thoughts quarter to clarify some could little G&A a step wanted down? side, was you could like looking of particularly And easier side expenses I what range? and into the I on to growth noncomp the saw a investment growth be fourth And view takes look some Should about bit. or on quarter. mid-single-digit on to dive just forward then predict. that rate better your the the that kind the reasonable come run rate you But for appreciate given I and to just a based bit the maybe

Okay, Mike.

So we related the the about line interest comp comp carried mentioned to that had million. the $XX of

And the in get would all we predict predicting line. because compensation down. future, line the QX and go can't stopped that number, else interest unless So the more into being I equal, carried compensation remember, I

the we is a run promotion, about band up advertising that bit good as go think, up. I the order that And that and I would and in a in they're assets other good. more little expect rate. On bit like a distribution, up, maybe rate little quarter All Advertising run we we and little fourth go think do in goes talked promotion. look it's items, a the for the line if to

in FX has line other The it.

going pound? hedge dollars to So in what's to in happen people have pay the in earn pounds. to our and fees Remember, we because London we the

restructuring. cost we then expense. went the So there. when through if down, goes the pay then pound of infrastructure the But have course, we covered are to We we go

a should bit. costs come down those little so And

basically that's QX. So

'XX, add and getting making 'XX. that. We're to on of I'm not whole too I a into don't our predictions terms In season, have lot excited to really about budget

earlier. would to additions looking Could kind something of assets one you for more you of closer think think of And size, fit transformative? to could so maybe there's the a potential out just interesting more follow-up your dialogue then be a flavor active maybe Or give some a kind maybe of you good having for be do platform? Hermes And What terms CW interesting a there. us deal would types of be that some what like comment in bolt-on? a Okay. It M&A on you're at Henderson, opportunities company? the just Federated of sounds would

coming the are of there. exciting future anniversary And things the about Mike, passed up really into we're part we we X-year on because Henderson. we're that budget the So process actually -- has started. We're -- our some excited expecting there

that transaction part sell utilize forward distribution We us. that doing looking there. opportunity to our it have the make it size works we're it. and have growth so -- So take bring pretty integrate it, with the expertise and well can and to teams some Federated, The of the

like that. things So look for more we will

to just our the is remember the which grow on on that can could side, how you real transformational, we with over it and quarter, do in in size-wise could on is excellent we try and the combine continual and what it infrastructure would describe try prospects take what an I feels it's we of transformational the it. I opportunity those London in be of we have not what says, things there those are side, that alternative at about here like London, If you big do to private how we're more in side, doing, look private is markets willing expect to them estate equity debt try which of here, expect take make U.S. we on last which, the things but it side, be a like kind here we and to team our expand that we skills something interested exciting any Chris would on over comes the always do wouldn't and too. talk, to that. as any would talked something then expertise along unless as growth that deals

call the closing the and end turn We to over of I have remarks. will session, reached question-and-answer now Ray for the

for our you thank joining concludes Thank and you, today. That Holly. call, us we

lines you. participation. and your conclude disconnect time. Thank for today's conference, your This you may Thank does this at you