Earnings call transcript Q4 2022

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Operator

Good day and welcome to the FHI Q4 2022 Analyst Call and Webcast. At this time, all participants have been placed on a listen-only mode. [Operator Instructions]

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

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

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

Chris Donahue

financial assets driven by I XXX record you review money high will of business was Federated results. and under billion. billion in XXXX This XX.X year-end. Hermes' a of our market Tom to We record with management assets morning Thank QX at ended Ray, of total all. in billion will performance, growth on good XXX comment reach

equities. to Turning

net sales billion SMA. the dividend The strategy continued about of of partially from positive market net to FX Assets the accounts, nearly fund, gains, increased fund due quarters billion that and to to produce in with and $X billion the value in net redemptions. about from with solid of QX that quarter a by XX.X which impact, almost offset three separate all were strategic sales by X

ex-Japan, our net Value Growth Small has MDT million QX net [X.X equity European QX positive and The Growth, including [ph] fund XX were of strategies. U.S. ETF saw billion] International International equity We Value. growth in Equity, Dividend, Strategic in sales concentrated assets. mid-November Strategic Value fund Clover Cap in Asia XX redemptions Dividend Large Alpha launched in now strategies,

our their Morningstar equity the solid. years, equity fund of peers compared peers beating and year, end at funds in the of the the the Using performance end category. at three XXXX, for quartile XX% XX% data were of was of to Our were trailing top

our XXXX, well to begin inflationary dividend the international, continues we focus responded value. include times. have income, strategies and These equity emerging clients in with markets, on As be that

equity weeks the of We for with ex-Japan, first positive Emerging QX, three Asia including XX net Dividend, sales combined Cap period, international sales Global of equity leaders. Markets, SMAs had XXX positive had Core, and and net Strategic million. during this MDT Small Value Now, funds

fixed to income. now Turning

from to as billion Assets from increased X.X by QX offset about of of funds of about by X.X were the billion about in and billion market gains assets XX.X billion redemptions Henderson X.X values acquisition X.X CW from net a billion. bond return of flagship billion led performance from that and about had Core has Within XXX accounts long-term of million, separate Plus funds, benefiting QX opportunities. And X.X record. our expanded to strategy distribution sales net our total partially

bond net in mentioned, already X.X nine Microshorts funds. bond well Core Within for fourth QX income sales QX two SMA combined net about just total fund. ultrashort institutional with as bond including the as funds the two as bond intermediate three positive high quarter, and fixed and return We had yield the corporate in million fund billion other added of under Our XXX fixed QX funds net income fixed occurred net redemptions Plus Microshort and strategies million sales. funds, multi-sector income of XXX of sales.

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

credit. SDG return high fixed weeks led engagement For the first of three yield million funds SMAs total bond of had and income net sales XXX XXXX, positive and by

XX the During positive period, had income sales. net fixed same we with funds

assets in up, category, redemptions absolute to MDT In direct equity, infrastructure. bond. sterling others up, redemptions. was and return corporate private net was Some by and the were Bear and include: cash plus, high-yield markets by impact, institutional partially positive Pru and due credit, the alternative net increased was private losses market lending FX offset bond, offset These of and up.

a and institutional marketing a co-investment has year-end vintage and We vintage mandates fifth commitments Private into in of net the Now, X.X Horizon about we Equity yet PEC Horizon funds XXXX P-E-C, the begin year-end. private to of continue billion structure separate over little equity through our has accounts. raised billion Fund. PEC, X the of million and about third with fund through both XXX

strategies, about is X.X Equity Global and market including X into high in to billion credit, private are additions expected SDG total short investment lending, come in credit of Equities. About unconstrained Fixed Emerging direct Asia Global income are Markets, this equity, private grade and credit. expected billion net of yield wins duration. ex-Japan,

higher The increase for are Moving conditions system, yields, levels financial the Money liquidity favorable an market yields to cash class. to seasonality compared money and and markets. from bank market strategies QX asset elevated favorable reflected in deposits. asset benefiting as

expect We short-term deposit particularly benefit compared over funds to as market time, will rates higher rates. money

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

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

Tom Donahue

to intangible in lower offset by for expenses fees QX offset assets exposure. revenue QX, operating X% hedge carried and from performance million of XX.X million or impact money to the million QX driven average charge, compared FX from million. X%, X.X increased currency performance by were Thanks, mainly X forwards Total impairment about fees Chris. interests the certain the or non-cash mainly average million by market due XX.X used asset pound assets. partially higher decreased X.X interest, quarter long-term prior lower carried QX and to

value change valuation cash asset Hermes impairment was to XXXX quarter. to intangible The rate, about higher assets in the fair of a X% driven total acquisition by compared the price. one the the prior acquisition, from Managers in Limited flows discount changes projected of charge lower was The representing due Fund and of the

income, interest the positive share the of investment on investments. added earnings subtracting gains non-operating the of to In impact the attributed the non-controlling $X.XX, per impact to after quarter for the about due market

is Looking ahead income, the lower in to million days impairment QX, excluding to The with results. charge operating else result equal. the X.X impact impact fewer certain all in and seasonal will impact being factors of about expected of

$XX about X million assessment, related due seasonally QX, to taxes. million compensation on based addition, and higher compensation payroll primarily than an In early higher for of stock could expense expense be and

all loss We to compensation related to a purposes. these capital one-time also base expense, a of multiple tax amounts and incentive will on The higher based vary of rate was QX, effective higher recognition have course, for factors. expect lower primarily pay, in tax

non-controlling get that's granted. pretax our exceeds certain higher price Non-taxable, and income, a where tax the stock Federated were compensation our deduction income included interest when to the we when in based but non-taxable shares Hermes stock price investing

the million to were about rate the end available and to our We At in was to XXX XXXX, be investments effective us. XXX XX% tax of cash in XXXX. range of of expect million XX% which

like [I] [ph] call up now would the for open to questions.

Operator

line today Jefferies. Dan, coming Certainly. from Dan live. is Fannon first is at for [Operator your Instructions] Your question

Unidentified Analyst

actually for Hi, good morning. Dan. on This is Rick

million and how X.X about about lower kind should that, was thinking for of believe line, Just or charge the that compared think the expenses? double non-comp a three impairment into expenses, quarters approximately the by And range, trajectory we to the other general last clicking also, I year-ago. excluding around

Just rate] FX the sort [ph] out savings? sort that, impact wondering of that FX [run the called was impact, was other of this, is or in direction

Chris Donahue

cover will those, a few come of I'll some Ray Yes. with in more.

mentioned the I comp So, already.

We expect being So, up. assets, on inflation are up. systems we price travel go fees, communications, to we as increases. comment distribution and you all the see service expected goes Distribution, would more those to days All the as up, would old we to success other? have that And that item, and else go all as go get that equal, up. expect related, professional

Ray Hanley

Yes. in QX. significant Rick, you're the pretty with in movement saw pound impact, correct and we obviously, FX the

in that for with had direction, pound had line QX net the moving other a And expense was we the then that credit million we $XX we so, item. a And the mentioned. net that

Unidentified Analyst

at just a And Got for sort a or can that the as quarters of or expenses you that? then that that we there called sort pre-pandemic, out, on, better look maybe color. think is levels Appreciate of of a to revenues general of way year to it. higher you point set of percent could

Ray Hanley

Yes.

and sales and be force up, more and raise T&E, that out there calculate assets there way it do should it's about. But trending costs we that believes like So, way it. just the talking they based We're trying the way. it. we trending and to like look that to can think don't it more up they're at for way traveling at it the best calculate do don't that you're And, and on to you don't all. what's don't out We see

Unidentified Analyst

Appreciate Understood. if there. that. And last one I sneak question could in

to – kind into date, the does just exit And that rate look going how long-term does of quarter flow how the to like fourth of was and called January? fee compared out, of quarter, the kind terms In for of sort rate, early the average? discussion that

Chris Donahue

the of of changes The assets. fee a really function in blend rate is

And our the a that higher over we so, than assets fee would you've say seen, higher down, in average would one equity rates. growth being to the course than case where example with XXXX example, for – of average have be

do. – lower mutual rates dividend, In strategic out SMAs SMA. have management in funds addition, of the we've the And than had fee growth called value we course

blend high going of the would see, to occurring that material before looking impact. positive the the flows. products I market So, say, it's want forecast solid we're to any positive of of function like ground to cover first most at change And wins weeks rate. good multiple, we've average a We'd some more not producing the in categories is the of doing and use course, couple wouldn't really growth of in where net fee XXXX, of that. asset I equity And yield, they're had

of So, all goes the that to good.

Unidentified Analyst

Really Thanks color. the appreciate guys.

Operator

today Research. is Autonomous for your Patrick live. from Your Davitt coming at next is Patrick, question line

Patrick Davitt

Hi, good morning everyone.

more growth broadly bit way? give little the Hermes went as point, opportunity downgrades? not guess detail out more there my on So, into And cash that question on some in is changes has working products changed view I for first the that you some that the Are the there could planned? on impairment, are a flow on your

Chris Donahue

it and at through, this and since is did deal, a Yes, six discount those since had one cash through and categories and more different gone the deal, have the and if particularly We deal. we the declines, you the recently, we to to have then Patrick we look we predicting back rates at markets. since think I there's then go category, The from the And flows, from scale to Autonomous. the asset public forecasts assets the – look the just XXXX, go when course up did of rates have and future.

when basis, you, a we so, on pretty have had whole to of an long-term on kind And take just simple. the picture accounting impairment basis, an

Tom Donahue

terms on, of still a I I what's happening are mentioned on see to And that things with out number In excitement there. Chris of that pipeline with give things going think we pretty Saker in exciting comment exciting. think our Hermes,

Saker Nusseibeh

Thank very Tom. you much,

from of with Chris. the So, let's that stuff I heard some you mean, just start

an If he these but these into is And [ph] and said Federal ex-Japan. you Asia over of are to of Hermes to And you you old fund, yet are X.X gives and growth. example, billion are business. billion, of talk fund. And managers] With which net about $X.X equity London. for the Reserve a strategies the of in yet signed if actually idea coming the remember, that is strength limited, that is of billion that, majority well [institutional in

you look Then one which forward. and further billion global more it a yes, X.X strength here [XXX then income that into on private over equities but you've add fixed we're into picture global million] some exciting [XXX the got odd we around [indiscernible], positivity another is have that's and equity, mean, looking you very you which and see. XXX [ph] odd based to the tells million, add future going can emerging you I into markets, going million] [indiscernible] [ph]

from lot the but looks and markets, going actually, Now One an in a of why there COVID Ukraine is markets at growth Two for are assets our the since perspective, they fact [couple it got to growth [ph] of much to even war is have XXXX, down, we've yes, that years, grow We've to of] and as went reasons. there is, if that? equities course, demand. continue was was we that look last accounting or seen the this public in us. and through

year. go of we within private [pudding] is markets markets, – our there, parts your of private be proof pardon, of is, exciting offices with at That increase the distribute that We've equities, that's in within the ones continuing over markets. going means that if [ph] the private at we're talked through that And which last We're And looking lots debt. The beg private see to to where sales. to equity, particularly capability in one been the has with too. we've than possibly is you flows other established got. to includes Continental European which least sorry, very mentioned public about Europe there's to invest we then offices I

Strength interest a seeing for our of equity kind strategy. lot our again, seeing clients, excellent year lots from with excitement from this To private clients. of our environment our, we're of an get

our a in force our a help investing play, And into a private is to – I long-term mean alongside that, property which [generalists good travel sales for salesforce] dedicated and of we're that's as to investing on. [ph] So, continues markets we're increase that. whole, work for course,

I’m through say in of because this job in last look and it exciting the exciting going all fund Tom’s not reasons very notwithstanding year happening do a And future So, look I it's future future that come year things a I'm know there's we here growth, the and we that And the but manager accounting, me. looks lots the if for was difficult and the on do I at of comment know. will that’s much to obviously to accounting, to and here London. as I'd that

Patrick Davitt

Helpful. Thanks.

give the Could you Just the performance for a fee number quick follow-up. quarter?

Tom Donahue

It's X.X million.

Patrick Davitt

Thank you.

Chris Donahue

carried fee and performance That’s interest.

Patrick Davitt

it. Thank you. Got

Operator

Your next is coming your KBW. line from today Mike live. question Brown Mike at is

Mike Brown

to Want on maybe Great. start balance – here. morning. sheet Good the on the

So, I stands but meaningfully has your position than guess quarter, the I of notice more were buybacks lower grown, that at cash the it did XX% in assets.

dividend you thinking broadly, cash here? return are a your levels more how capital So, about to a we and could see allocation buybacks or special

Tom Donahue

and what very we to shares. a cash long-term has of debt pretty It's not historically raised we significant grown. since back bought yes, Well, And we amount the view hold cash. spectacular have at we favorable rate wanted on to

starting needed. become more is products more has Now, i.e. new investing expensive

resources have So a that's, have we not been a for on to on kind to of cash. demand hold seed but basis, long-term the group assets, to a

of do we them. desire So, the our regular the first with want we see, to will have use because on of money that's And acquisitions of the returns course we our dividend. been

and we special you As back we paid lot dividends, five bought a stocks. of know,

what to do – to the timetable not trying of going figure to this to this out and on this. do lead through us we're cash with table no all you to with those for So, through are the

Chris Donahue

the I'd private a into here do future. we other investing would of even this though a money mention One cash the in lot the earnings means equity are kind available of on the Tom is platform to UK. impairment, the over as that putting for things, still And said, have area which phrase I point down

those related. of the all seed commitments at about technology one-year number obviously are And in in XXX in the mentioned hit million, It any that means again investments $XXX Tom same not million worth fact running doesn't as it know. that income you assets

building those but they the for cash, so, future. point the all to interest of – were are And

Mike Brown

of sounds could a Great. basically just fixed investor it little And can What's like gears growth seasonality of the would has the SMAs? the XQ? in there? And than driving switch if like Any from the ultrashort to The little What’s we're we that? outflows the benefited Thank the on on is side, EOP that additional mix the just fund which but income the flows, flows. put you to down can bit And shifted more in happen? side, that sticky then bit. a market you're money levels, cause drove some sounds you dynamics then around just you. totality expand of – kind that the what from color XQ it some

Debbie Cunningham

start can Interest to marketplace. standpoint in ultrashort I to where then in definitely perspective from interest in the an continued we rates pertains again December. points up go answer questions. XX an From XX are rate and those basis quarter and it basis by the points fourth to

up a are in direction. go see And products opposite sort you at The the going when increase expectation see in going liquidity i.e. in level they'll cash of continue products, market to or outside to money XXXX. modestly, in hold anything generally, marketplace more is, of but higher that rates flows the

flows the Those the institutional come can retail side, out corporate. side, of

So, speaking, as even slowed seeing of in of money that products the, we're the sort some progressed. the Microshorts little year further that offsetting And in ultrashort there's that curve, out products. yield down exit the like in is a has of generally broad-based has types what got bit basically

continues market to money sector. the a the predominantly From be in government obviously perspective, fund mix

we themselves and this being above on [ph] the those XXXX during government most in widening as sectors spread rates interest simply growth amount basis, have the a categories out muni] experienced other of and therefore result the was zero percentage a and However, point [prime where that's at increased. and of between

in issues amount generally of to then into first window continued of market purpose do sees rates, way. second flows dressing, call at has half those out, a decided government part categories quarter let's the many quarter on of it, December, but percentage the inflows pretty those the as out fourth well money which that in amount half this the prime, of has of it’s tax the are trying always December, for second and products. in always, XXXX of firms interest as inflows of not offset in during other increasing however, inflows has the large a the basis, look particular you basis quarter-over-quarter particular, on a of huge Because results funds When goes in some most outflows ultimately a a to it

Tom Donahue

seasonality of into some pools dominated growth the That And state we account is into for us asset there mentioned category by you Mike, large just play. on come does and separate that manage. that January, cash

regular And made second so, are a know year, the higher fallen, and that half you over higher has it reached tends increasing lows. latter pattern receipts at it's the tax quarter then typically year-end, of middle of down when but through go to highs and it's of the the

lot work those of pools. those success market of a favorable for had yields we've both because to effective and done that utilization also We've increase underlying a of some money macro with clients

Mike Brown

Okay, you taking great. for Thank my questions.

Operator

Davitt. question follow-up for Your live. is line from today is question your Patrick, Patrick next a coming

Patrick Davitt

thanks the follow-up. Hey, for

still the pick to that always you that view keep but January, we a from some and that quarter, looking know Just seasonality milestones from what on to surge really hearing from I for, you really question coming fund there expectation are of that is asked bigger And December money – of deposits. for your similar I last an the say into year up? rotation back this question, there's a is flows at some competitors are that big but noise of you

Debbie Cunningham

maturity when market they of that kind start and reached lag growth Sure, one-month go increasing day. other weighted interest and into funds going a to that the average increasing of direct back than rates rates institutional where exactly call Patrick. might versus something a side. a money greater clients have a from going into direct for increasing, start are the with, exceed interest rather they market, They have funds many have, the funds but are the perspective the market, Generally let's generally are our and down it, just a when market, lag is money plateau speaking, so do direct because excel capability that money than of that's when

generally in that the much to market and here is those this they're that's versus that neighborhood. to going the Now, more And point. when FHI not that own caveat to deposit in at to outsized X, X they're industry from zero, happens at experience from that growth going somewhere from an X our cases,

rates Fed money XX% down direct Overall, perspective on about about market, from the again, in deposits trillion still funds, up on a versus large. funds versus quarter, the in the the they are beta dollars, they're very a U.S. market. have we're And deposit the but looking first to during increased the market happening deposits at what's rates

being So, the increase is deposits. XX% of captured in

As essentially to north was yield such, to the towards up think I a we from of perspective, XX but X% different. basis rate deposit about quarter all average that are which compare points, that where the for is fund heading vastly fourth and X%

we'll a sort outflows So, would continue that recipient being very with outflows a lower natural market that and deposit deposits in is The of funds. trillion fuel beta down just, bucket. money those the of to would drop being be a be expectation in

Tom Donahue

and industry XXX XX%, money we followed a if were and had increased that – about a naturally very then XXX They from to the And our up money billion I've indulge QX XX% we XXXX XXXX, billion, used little pattern. The informative. Patrick, Fed I think before, market pause was by up increase assets to can similar which XX%. QX history, the were this it's I

Then you one. go to the next

of through the about quarter Our about assets and time went XX%. industry XX% did that at XXXX, up the third

matters intermediaries lot, it that. talking of clients, unique And can't I have their depending situation others departments, is a a with if it clients the comment people lot of ones, how same I trust have lot big overall what are are matters and are of point things clientele. make we on next like a The lot lot and you clients others and is history. on a actually, And numbers, would the about your but that who have we a what So, have those that happened. unique

Patrick Davitt

Very helpful. Thanks.

Operator

for There I over closing further in the to appear Ray to to no be hand queue. Hanley any like would questions remarks. call back

Ray Hanley

Well, and thank our joining you us. concludes you. That appreciate we call

Operator

Thank call. you. conference today's This concludes

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

Federated Hermes (FHI) 27 Jan 232022 Q4 Earnings call transcript