FHI - Earnings call transcript Q3 2021

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Operator

Good morning, ladies and gentlemen and welcome to the Federated Hermes Analyst -- excuse me, the Federated Hermes Q3 2021 Analyst Call and Webcast. At this time, all participants have been placed on a listen-only mode and we will open the floor for your questions and comments after the presentation. It is now my pleasure to turn the floor over to your host, Ray Hanley, President of Federated Investors Management Company. Sir, the floor is yours.

Ray Hanley

Thank you and good morning and welcome. be Donahue, Federated Chief will President; CEO call Tom and Financial today's Chris Hermes' Donahue, and Leading Officer.

Hermes International Joining Saker us Money of Markets. the Officer Nusseibeh, are Cunningham, Federated Business who is Chief for the CEO for the Investment and Debbie Q&A our of

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

Chris Donahue

will ended good including I markets Hermes Ray fixed comment of $XX including a review with and and our you, $XX Thank in assets alternate/private financial billion, long-term income of waivers. $XXX morning. at management results, billion assets and record under QX will Federated on record Tom business billion. performance in

under in advice QX. new EOS one $X.X were and added We end Hermes client at Federated the third new trillion clients of quarter six year-to-date. Assets the at by

fund in $XXX we XX by Hancock the positive negative third quarter million, $XXX in and flows equity equity net equity sales added strategies from assets were saw fund about the in While million Horizon transaction.

of million, of in third their third dividend XX% million in Morningstar and quartile trailing three almost top Equity down and sales. net positive XXXX. domestic for QX quarter, $XX fund data down years positive category. sales and down from combined slightly were equity $XX value $XXX from redemptions QX, fund million equity million SMA Using beating in million QX had SMA strategic end peers from and of The QX $XXX strategy $XXX of compared in about the SMAs performance of the solid. Our had XX% funds of peers the was to at quarter were our

three-fourth was For the redemptions funds tactical this of shift about and first of Interestingly, by client. $XXX had QX, equity SMAs a three weeks net about of million. one

fixed solid sales to income. and turning Now, was of another quarter performance. net QX very

Assets net sales growth income X% strategies net about had billion public large entity. or Fixed fund Fixed came prior sales separate all total of net billion, a from XX driven We sales of income QX increased multi-sector net solid coming billion the in the return from with were $XXX quarter with income from billion sales. the duration of strategies. account nearly by million. by fixed funds by in that's $X.X well, $X.X as separate net Most of quarter. driven account $X.X were core with results short $X.X strategies third the sales

investment-grade and the launch additional in our transparent trailing growth we draw on strengths while end An quartile XX% plan the Now, and for Morningstar these focused third median. the we're and two ETF above launch of short-duration successful the of quarter areas for planned we're offerings. using a and three also of progressing towards active bond initial of we products, the top XX% our our short-duration These in on corporate fund. ETFs: bond high-yield fund the first QX initial offerings these funds data and At years, had

For sales net fixed first about SMAs QX, of the weeks had three and funds income of million. $XXX

aforementioned million, alternative/private fixed about finance. direct including over to institutional QX sales to and markets, $X.X billion million. trade in little mandates net with the unconstrained direct credit expected net were into funds absolute in income additions and both fund, separate These lending category, credit $XXX a $XXX are across began market alternative/private the yet $XXX credit, accounts. lending We and return and occur real million estate million, diversified unconstrained $XX in Now

products. markets private new two on working are we Now,

our We raise during for additional initial direct in assets about expect and expect XXXX. fund to closing new $XXX the for million QX lending

fund closing private working over also of new an to some with are clients. fund mix initial a clients and set new the for will on new existing We rolling equity be QX. a This

$XXX additional the to in initial -- We year. expect close million capital around to raise an with next occur be expected

money to markets. Moving

in Assets were down about billion funds $XX accounts. about $XX billion from separate billion with QX $X from and

funds market share, QX, QX market slightly money Our from down the about X.X% X.X%. mutual end fund was including of sub-advised of at

curve see mid-June, third the higher While the flat the much raised that the didn't 'XX. we We rates in administered Fed will short-term yield rates and remained money in in rates fund quarter. change believe

competitive this mentioned. We continue for waivers more experience will update I purposes. Tom to program, as

turn look money market markets, a $X Tom. it including $XX in in fixed asset $XX equities, Managed were billion alternative assets income taking at billion, $XX private Money mutual totals. and $XXX billion recent to that, and in $XXX multi-asset. With I'll billion Now in $XXX the over assets billion billion. markets were in billion approximately fund

Tom Donahue

were asset to fees and and Operating and QX for decreased million $X.X day the assets was from lower fixed extra equity prior revenue million related of increased higher was in average The performance expenses flat. which quarter of million. Total about the by to revenue. QX lower mainly or QX. waivers compared income offset yield $X.X you. interest revenues average $X.X revenue thank quarter in average categories QX of from $X.X Chris, market Okay. million slightly an QX. compared due minimum up by in impact to the $X.X lower Most million money increased carried were

including, The operating to be million in market money negative We are on minimum among QX, other asset a and recent of portfolio absorb change material slightly impact up way. is from mix. others, asset factors, $XX restrictions asset of QX from several and on the our yield The is team's on factors seeing waivers interest minimum capacity can yield including of amount funds yields, amount expectations to mix currently waivers, in entertainment estimate in operating estimated and minimum on yield mutual rates, restoration based asset and about Any vary travel the for $XX in million pandemic-related investment levels, will levels for factors. on QX. these based waivers waivers impact income income The expenses as impact ease. distributors the

acquisition BT XXX.X During completed quarter, non-controlling remaining Fund Pension Scheme's for third interest we pounds. of the million Managers XX.X% the in Hermes Limited

up approximately and we prepared of now. the QX, purchased During questions to that completes about for open we'd XXX,XXX our for stock our shares million. $XX call remarks John, like

Operator

[Operator first Instructions] Dan is Fannon from Jefferies. coming And from question the

Your live. is line

Dan Fannon

Well, thanks. Good morning.

the economics versus of of ones? as the cycle maybe different as what rates between sharing, relationship potentially but is inputs and previous come and First about you question from this we the is back factors the expense understand time more that drive this curious that mentioned competitive distribution that think And normalized is and to different levels? about fee outlook can competition waiver you potentially rate the on changes any

Tom Donahue

is expect So And yes, time, competitive And to will view The basically remained. Dan, rates as go we with as has how market. -- our up that's -- competitive this over it. Tom. of we rest environment rates It remains. the always we the remain

Dan Fannon

rates you going guess the generally I is Can sequential with being the the higher. waiver being to but give delta driving just But that us factors just Okay. down, clarify than assets that? fee are trying up specifically

Tom Donahue

going in waivers is just waivers are that's how predict are rates X that's And what's that, it. what's -- do to the we maintain If yield that the on discussion competitive than not nature then or X above on really marketplace. the competitive we that the going can't the going and the there. higher we to in really So depends and on minimum happen

Ray Hanley

Ray. it's Dan, And

Just were average end to the the higher more than market the to little for jump third At third detail. quarter. assets a of the the quarter, bit fund money down assets in the

least the $X asset And at we into up waivers So quarter billion but a the that's happen. were of the funds about higher about at where assets $X government and government, were entered the with billion level. bulk average up

our So those mind. in with look assets we do that ahead --

Dan Fannon

it. Got

you. thank Okay,

Operator

Ken The JPMorgan. is from next from question coming Worthington

Your line is live.

Ken Worthington

obligations some happening at, are some rate yield BlackRock fee waivers of that on rose try rose August the year, around is maybe seeing yields big competitive to to is beyond? government levels funds was now to looks do similar Coincidence, just and to place have other we've that about. a you've conviction in XX you XXXX fee know matter coming that been months It of to And waivers. jocking say, topic said in next here in and like in yield than competitive yield Okay. on maybe Dan, fund we rather sort by market talking [ph] more kind match win is ago this government competitive. the that increases taking industry September there share assume more always always fund through that of well. So also there the possibly money conviction a the as the might higher although way see Goldman, I didn't I before follow same. XXXX others up business anyway, very on But and we're maybe of or their X

Chris Donahue

do And just -- continue. as the on Ken, behind to trying what We and in with the Debbie let was it's the And don't skin they're way moves. the the marketplace, comment of other. those I to whether some the I'll don't game your really with hard reality was to so the rate something that. what the summer. brain of jump of into disagree those deal specifics those this what yields one of do competitors or will -- are. of about going on observations we

Debbie Cunningham

Debbie. is This Sure.

third constrained various that what waivers. are the to a government curves The ones on generally at which, the ceiling and We're Ray limit. highest from Looking going contributing by debt in the in amount the as available. what's was mentioned, are quarter funds

will so well. road and the down impacting bit in been And fourth as us quarter has a unfortunately degree a be large that kicked little the to

a hearing be marketplace. there's the to curve, means and the the increasing flip and what the curve rates. XXXX, looking are underway indices and whatever in prime debt to influenced think we starts generally ceiling expectation would If at yields, be that's or and a to get XX like providing less ceiling get will what the you're anywhere bus whether needs we're of you you're start seeing curves the increasing And that with to enhanced LIBOR curve some behind that being that markets turn. get And debt us looking other debt constraints, money our standpoint, though are not and from government at curves supply supply, tapering that follow have by And are points. as at X competitor is look soon behind more expectations in that risen or I concern us look the basis calendar tapering the as various into from expected in shareholders that about basically the ceiling government

Ken Worthington

Perfect. so Thank you much.

Operator

question The next from is coming Katz Bill Citigroup. from

is line live. Your

William Katz

thanks much question for this Okay, very morning. taking the

some pretty through of launches within morning. were this quickly product You the

focus what wondering funds if then lending strategy had up to equity? broader a try democratization be a you in to predecessor and the the wondering seems sort just repeat alternatives. sort Just you opportunity? Chris, terms And could was mentioned of compare big and on funds? for question, pick And direct retail to that how tapping do go-to-market what's I those private on your into of fairly there of

Chris Donahue

that But terms One, brings is us markets into basic direct totals new those step was and up into two to items. course, that in this there we'll private second. is on various lending acquisition. sort markets entire deal in enthusiasm here Federated and the part Hermes out a the similar of the going of Bill, the are first get enterprise the what's of items, the a could [indiscernible]. Yes, in size that the where private to obtain curtain, business, whole did in when we the wave the behind of in of view, our for -- was the not And the of

well. million in consistent said, And us we this proceed we up private marketplace of so to And see have as with equity, the lending other going pretty very And happy that well. very around set brings tidy And to $XXX good broadly along. the in -- on I what's this in expect we're and the private is a there. some initial figures close as investors as very, on

you and so, give point from those you whole as to Ray view I'll effort . the have well. his talk And numbers Saker of about then

Ray Hanley

activity the QX. on expect just Bill, in Yes, we

bring would year. direct lending we in rates additional lending, product the will our which million. $XXX EUR funding next about have And we're the On then XXX range looking assets direct total at for million to that asset

raise. and So that will to continue open stay

we've also what of staying about said, And to expect, funds clients investors private year. another iteration would million Saker? done mix in the initial will we some vehicle raise side, from new equity to in be a the look rolling over On and as closing of date. this next well. existing And we that additional as $XXX

Saker Nusseibeh

Thank very you much.

we It's of into team, expect the raising business, of singular is on the private best facets talking we've in we performance for And a And assets through firm to to terms fact talked able we year, is and strong. assets in direct continues assets It vintages that equity, increasingly on a very the of in the clients is U.K.-focused. One about new is very in that to the flows why through past they've out working and present the estate, there do. flow from fund. as what these typically equivalent many what have which specifically whole So have capital. as confident raise vintage as markets team has you've about tends is, they particularly about. next through. two anticipated. it, private to next have and within mutual in we it We're had through to to you property to you according across there are unconstrained development we'd first big and this been projects and we're have The just vintage to strong the attract chunks, went making That fund, close. platform. one equity is heard that faster said, in real look, team track the the best addition, to again, that the in The infrastructure, very through Americans private fund I've outstanding of strong what kinds markets coming In returns and and a lending we're footprint choose to strong estate the unit and raised lending, to this but to we talked a continues a clients record into see there continue part to that attract which see to so private analysts raised to would XX hoping trust past, one But direct The and credit. continue one-offs. this view call over Chris which this a a which to continue real can we than to the being various quarter. works that a continue years an going is place be well-established into call that will our pretty be well-regarded business we we through

they don't So be to of tend [indiscernible]. sort

But capability a to we're I certainly is how the it's democratize your as think markets. Chris in question It yet we're how the it. how not is do growth, the business As We're private access with for doing we talk thinking ready is far It return something Chris. very of ways. to that about come substantial. strong we're and and on. our different we working quite to market to as about make combined available it said has do which about to projection something

Tom Donahue

we've with faced distribution to those this along when make pension team that's other had about to with the this will and adding to how business coming Saker that a going expenses institutionalize do One path businesses, talked other broad and Hermes group and -- it The and year. and next scheme in we some is come we're down the all operating available developed exciting these and the with thing, we his purchased Bill. now relationship what being

continue -- excited but So it. pretty we be about to

William Katz

you. Thank

Operator

next Kenneth is The RBC from question coming from Markets. Lee Capital

live. Your line is

Kenneth Lee

any for Hi, market substitutes is thanks money One, sort? of any Wondering question. around funds. the taking either my if fund competitive going just landscape reasoning money part for competitive of market clients seeing the to

Debbie Cunningham

Well, are market deposits that of be a in there as of And are the money seems amount environment though clients. choice always and it competitive deposits a of that uninsured even nonetheless product. today's seems noninterest-bearing, rate that substantial the many are are unfortunately, to low in picture, as where our

products, as as point. cash like ETFs, know ETFs, of this I as have at not we're far been far other As lots occur types seeing mentioned cryptocurrencies, that

we and red -- competitor distinctive hot become those to that are would at we're and on recognize seeing up landscape have moment this We on us as necessarily we our something before anything it involved market watch. understanding in in creep certainly the We're time. that's not that but a doesn't so

Ray Hanley

of to out course, enter up as that, cash add are corporations cycle work, we to to an just clients, of investing come seeing, pandemic. we Ken, and And putting the

see its expect as that's and cash, money mentioned, down well flowed on So where as work will to corporations money they opportunities over invest funds as, and intended into stimulus that's to were continue the months. hunkered eventually and uses through we to goes seeing beginning flowed of whether XX more I do last stimulus to

Debbie Cunningham

And one there with products. low years of context Ultrashort continue last clients have that bucket in and the bit little the thing, cash Ken, been those products, our into rates the go is two Microshort longer course ultra -- a of have last to over that

long those those products. about curve those basically of full that lineup steeper a come years, with overnight liking we're that and higher flows. in the a XX again, also addition, are end funds to curve concerned out But from have the In yield go of rates into

Kenneth Lee

for work Federated then Great, private team fund. little wonder on if underlying sounds direct how more very talk it a helpful. I very if experienced as Hermes? it's markets just could there. bit a you economics perhaps lending one just the the And about And

against permanent through perhaps lending players can in that vehicles? other direct general, do wondering, capital compete how some Just the fund

Ray Hanley

fees I fee landscape alternative blends at on points can the episodically. of comment the for do address We in landscape? wouldn't talk comment which a on And around private just private include not Saker, and Saker strategies. business, to our market/alternative carried market for along come for XX at performance want broadly to you point. direct levels and it fund the that's Essentially, interest basis under slices range competitive that lending. that can this of does and competitive levels just particular particular

Saker Nusseibeh

Sure.

funds lending there. you're different I there out efforts right, mean So direct many are and

us differentiates what things. think I is three

The under team, it's the experienced back particularly in of carries leadership first weight. particularly the is space financial lending thing Patrick a the way all of and lot Marshall, to a team that the going the crisis

we continue is The as to make second we which loans one looking is different we a model our the successful. gives to factors, myself least think way in allows in a Chris bit the can attractive is that methodology alpha. to Europe. we And loans have the of also believe source we particularly different and are -- you've to the We from not competitors way both believe, it we factors to insight future have against at because past, advantage take and is slightly and different, heard the integrating particularly from offline us think adds assessing And little slightly that ESG marketplace. competitive third as more you but buyers, alpha a and the this we adds

attested very so second very fill clients so the new approach in certain pretty much fact whenever have to and that this and managed first It strong launch too quickly. is we we've we very and tranches seen far we're the tranches, by that is when we proposition a Europe. So

advantage. strong I'm So have we that do a certain pretty competitive

Chris Donahue

Scheme it, coupled gone investors on not approach you has thematic on offering integration. lending individual And way private a And time, with from third-party completely of a of a the long question, the with it's successfully that way approach they're and PE a for I phrased and quite into Each fund. They're would that had on side, advisory the together. Pension the ESG side, very fund, the separate. growing you add originating obviously, with equity direct unique club-like the side investment investors it PE the of but

direct PE, we that think And for be so enthusiastic these and the a of offerings. lending see in flavor what unique us is each the you allows to

Kenneth Lee

very that's helpful. again. Thanks, Great,

Operator

Research. coming The is Instructions] next from Davitt [Operator question from Patrick Autonomous

Your line is live.

Patrick Davitt

that. good One more on Hey, morning. follow-up

hearing cover. be to used with kind have Could to about private think an I it through that almost management money. the strategy always strategy evergreen doesn't raising am that we correctly alternative So type lens, that of is it? kind vintages way give the right we're the that asset equity can you And is -- like like of

Saker Nusseibeh

it that's investor is markets. developed going to deals you said, business. public that Again, vintages rolls vintages. the a So methodology, equity really has it have record of as years very a what way in like The it's they've team lead I'd so domain, does And matters but emphasize it in a stunning track Chris differentiated private private many back can this out. and equity accessing check and

element differentiated, again, is this, they very second thematic The put on. that overview

hopefully private Now, forward. no and typically clients will looking we launched vintages different what funds all previous this quite do we're in who performance of go past often, vintage of strategies these is is is the private we roll what in that invest too. sell But often, once as private, over it were about you with we because future. it, And of get But guarantee that's that's question. do quite to equity you profit what and the your carried that time you when live next a answers to has hope happens realize I equity think on, into comes vintage. the there in in is vintages how

Patrick Davitt

that Is -- not like like doesn't it Hermes there's they correct? have it's a X Hermes Fund Fund sound following like or been on But X.

Tom Donahue

Fund there just what said? like that Is is you sounds X. It Hermes

Chris Donahue

but that. the that. better of not me for do names constraints far about you like yet talk us to happens. just Yes, name let what Yes, them legal it's answer But is that because exactly

Patrick Davitt

size previous the us the Can you of tell funds?

Ray Hanley

do get I that. will you will come back and off I that. with Yes, So, Line

Patrick Davitt

Hermes impact how in think question. the from on about earnings of right. ownership incremental the to new a full XQ? Last having All color quarter Any

Tom Donahue

a sense involved think the have things. went that And the -- I that small Saker equity was Ray in time funds. we there previous of side over the last small, numbers positive from does

Ray Hanley

the $XXX fund. Yes. committed million more invested that there's mean, there as about capital. Patrick, capital we committed. last you around And If in read know, and midyear, than was about I twice had that And that,

And may recent so I figures. additional have any last There investments over quarter. dimension. gives don't But have you rough the been a more that made

Patrick Davitt

Thanks.

Operator

Lee The next KBW. from is question coming from Robert

Your line is live.

Robert Lee

Great, thanks, the but good of of just morning now. I private generally kind -- I'm had U.S. of costs. everyone. in or coming the don't I guess markets my you're like heading investing curious first interest question giving is compensation industry Tom, next on into and pressure the business. anything kind assume you no seeing in T&Es know, in thinking about year expenses guidance I up rest

should comp how So kind on kind it if year, and inflation Is thinking year? it of are mean rate be whatnot. plus about any to next aside close putting into budgeting we're into like be to thinking reasonable a should -- next thinking spread? be we How distribution because process? fee growth getting How have of year? waiver impacts you expenses of next your we I you

Tom Donahue

in operations our that benefit, it's the fees, to subjects. to got affect with that's our that Why be here, line, that, being then, this expect market and QX, is we and be -- the and to data, professional going at and quarter around to go conferences furthering in in to is So and and basically if we rate which service the it's affect visiting certainly looking up? that run particularly expect what and just the promotion sales all tick that happening just expect our invest people of to office tick that's back going continuing just QX which question, into companies, start related that's -- that's inflation, does will we or visiting real, also funny most clients QX. answer. travel Well, that yes, and promotion, tech the into And hope -- occupancy. but returned incentive up others versus think, going traveling your meetings markets more to things, office same seen out you ESG-related, inflation, including us up. comp and go I'd we on entertainment read advertising I'm advertising And salespeople up our private year, it and investment and those I we in have next business. this go and

Robert Lee

Okay. And then also to maybe but going bit -- private angles. I little markets a different back the the from mean,

So scalable served of this being capabilities different expanding on would their obviously, growth to And about or strategies often kind both private managers to markets capital notable of funds to take commitments find obviously, private as are BP the that or guess, for you businesses a well? commitments think then two the capital, part complementary private yourselves kind but some GP of whether M&A, there's a one it's of But bigger a yesterday market that do in as lot like But accelerate strategies markets [ph] in focus big a to ways. from capital M&A, perspective, bigger of seed new increased and be do use you of envision purpose past. that business? an is of that of I

Tom Donahue

Yes.

So lot on on we'll part an capital Hermes, course, it a make this how money of us process, Federated our raise. has there in investment. Inc. help And to good talked be to of capital, it will with investment about to teams the make each of the show of faith, for exciting as

I Rob, to expect doing more yes, be would So us of that.

shape a lines and teams going very it we fortunate institutionalize hold out get those those move from really have to are just have But lot the further In terms and of did of one further bring done a -- each structure do buy grab that's of away have our Hermes more. we of M&A, already businesses do it -- it's already lot it, do of original as together, acquisition. the we team purchased it's And investor has lot lot -- we could since distribution and team I we looking but make and a said before, hard that already it's easier and to which to some out businesses a and it it, in go we Hermes expect things. has the Saker's more how

interesting four do talked there. to We some areas do. -- to we opportunities look areas, do bring the we'll about One need of what that the M&A hard has is U.S. have to we at how these considered and Saker of various will they're factors those? and It's five just

Robert Lee

this my morning. for Great, taking thanks questions

Operator

I'd now back to any like remarks. management floor to for turn the closing

Ray Hanley

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

Operator

Thank you, call. does and gentlemen. conclude ladies today's This conference

your Thank You you time have disconnect this lines may a for and day. your participation. at phone wonderful

Federated Hermes (FHI) 29 Oct 212021 Q3 Earnings call transcript