Federated Hermes Inc Q3 2024 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Patrick Davitt - Autonomous Research - Analyst : Hey, good morning everyone. First one on money fund market share, I guess the $15 billion money funding flow you announced last night was a lot better than the publicly available data we could see. So maybe the real time data we're getting is just wrong, but it's still certainly looks like you lost some flow share in Q3 and that continues in October. So do you think you're losing flow share? And if so, what is the nature of these big chunky flows we're seeing going to your competitors that has you missing out on those big chunky mandates. Thank you.

Question: Patrick Davitt - Autonomous Research - Analyst : Very helpful. Thank you. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 25, 2024 / 1:00PM, FHI.N - Q3 2024 Federated Hermes Inc Earnings Call And then a quick follow up on the other expense line. You mentioned $5.2 million decrease from FX. So is the right run rate there, looking into Q4 kind of in the 3.5% to 5% range just trying to make it clear what that number should have been without the FX noise. Thank you.

Question: Patrick Davitt - Autonomous Research - Analyst : Yeah, I mean, more just like what's the kind of regular way number there in the quarter without any FX impact is what I'm trying to say.

Question: Patrick Davitt - Autonomous Research - Analyst : Got it. Okay, thank you.

Question: Ken Worthington - JP morgan chase - Analyst : Hi, good morning. Maybe first on regulation. I believe in October, the final wave of the SEC's money market fund reform took effect. Can you just remind us what went into effect? And to what extent you're seeing an impact to interest in your prime funds?

Question: Ken Worthington - JP morgan chase - Analyst : Okay. Great. Tom maybe to follow up for you. You mentioned the proxy costs, and I think there's director costs that flow in maybe this current fourth quarter. Can you remind us of the dollar amounts and where those costs hit? I think some are contra revenues rather than outright expenses.

Question: Bill Katz - TD Cowen - Analyst : Thank you very much. Good morning everybody. So just going back to money markets shockingly. So just big picture down if I look at where you ended the quarter and where your intra quarter update is. At What point do you start to think? You see the behavior more robustly migrate back to money markets if you will? Because what we continue to hear from many of your peers, whether it be the traditional managers or the alternative managers, that money sitting on the sideline is going to find its way into risk assets, whether it be fixed income, equity, or alternatives. And I'm looking at sort of flattish quarter to date update despite the 50 basis points cut in the Fed. So at what point might we see the behavior change and how do you sort of see that interplay between maybe the retail part of the business and the institutional side and maybe you can help quantify that mix for us? Thank you.

Question: Bill Katz - TD Cowen - Analyst : That's helpful and maybe just a question for Saker or whomever and this might just be rounding. So you laid out a nice pathway for several for funds in the market or sort of coming into the market as we look out over the next 6 to 12 months. But you also round maybe just rounding, but the AUM in the alts bucket does seem to be down about $700 million quarter day. Again, it might be rounding. Can you talk a little bit about what we should expect in terms of distributions as we look out through the next 6 to 12 months or realizations coming out of the portfolio? And can you actually grow the alt bucket given all the growth opportunities against that? Thank you.

Question: Bill Katz - TD Cowen - Analyst : Okay.

Question: Kenneth Lee - RBC capital market - Analyst : Hey, good morning. Thanks for taking my question. Just one on the money markets. And I think you mentioned previously that so you saw some clients, corporate clients shift money on on an overnight basis, between direct paper and money markets. Just want to get a little bit more detail on that. How easy is that? And, to the extent that there's some uncertainty around the Fed rate cuts and the trajectory there. Could you see some lumpiness in terms of money market flows just based on, on how easy it is to shift one way or the other? Thanks. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 25, 2024 / 1:00PM, FHI.N - Q3 2024 Federated Hermes Inc Earnings Call

Question: Kenneth Lee - RBC capital market - Analyst : Got you, very helpful there and just one follow up if I may any update thoughts around capital management and outlook for any kind of potential inorganic opportunities out there. Thanks.

Question: Kenneth Lee - RBC capital market - Analyst : Got you very helpful there. Thanks. Again.

Question: Dan Fannon - Jefferies - Analyst : Thanks. Good morning. I think you mentioned in the prepared remarks $3.7 million of severance. And I think associated with Hermes, curious if this is a part of a broader restructuring or cost cutting effort, that's more elaborate or more of a one off.

Question: Dan Fannon - Jefferies - Analyst : Great. That's helpful. And then just as a follow up, you talked about a sub advised mandate loss in the quarter or I think prospectively. Can you just talk in aggregate what the sub advised total AUM is for you and maybe the context of the opportunity set for that, is that a shrinking pool of assets is, or is it been a source of growth? Just curious how some more context around that part of the business? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 25, 2024 / 1:00PM, FHI.N - Q3 2024 Federated Hermes Inc Earnings Call

Question: Dan Fannon - Jefferies - Analyst : And has that been a growing, source of AUM or shrinking?

Question: Dan Fannon - Jefferies - Analyst : Understood. Thank you.

Question: Brennan Hawken - UBS - Analyst : Good morning. Thanks for taking my question. You guys saw a constructive outcome with the flows on the bond side. And I'm curious whether or not given some of the struggles at a large, a bond manager, whether or not there was any change in either, flows or RFPs that you noticed since late August? Or any interesting trends that you might note in retail versus institutional engagement regarding your bond offering?

Question: Brennan Hawken - UBS - Analyst : Sure, sure. That's why I was asking about whether or not there's a change in engagement post late August.

Question: Brennan Hawken - UBS - Analyst : All right, I don't know how to run with the buckets or with the interception, but good enough. Thanks for taking my question.

Question: John Dunn - Evercore ISI - Analyst : Thank you. Could you maybe talk a little bit about at the time, the funding of the pipeline and direction where you might expect it to go over the next year or so? And then also, could you describe the kind of the temperature of institutional investors and consultants, you know, looking into next quarter and then '25?

Question: John Dunn - Evercore ISI - Analyst : Got it. And then I think we're all going to be talking more about active ETFs than we were in the past, you know, have you made any -- had to make any additions or behavioral changes? To market, you know, the active ETF suite and how significant do you think that segment can be for you guys?

Question: John Dunn - Evercore ISI - Analyst : Thank you very much.

Question: Brian Bedell - Deutsche Bank Securities - Analyst : Great. Thanks. Thanks for taking my questions. Just one back on the institutional cash management. And I know we have talked about that a lot during this call. Obviously, it's difficult to predict, what types of cash flow needs those clients will have both coming in and going out. But do you have a sense of for those clients that are using your money market funds? What level of assets roughly at least are parked in overnight rate agreement. So almost like an addressable market if you will, if they were to, let's say, switch all the money funds in a rate cutting cycle?

Question: Brian Bedell - Deutsche Bank Securities - Analyst : Okay. But,do you have a sense of what potentially could move over to institutional that's being allocated overnight right now, then in aggregate? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 25, 2024 / 1:00PM, FHI.N - Q3 2024 Federated Hermes Inc Earnings Call

Question: Brian Bedell - Deutsche Bank Securities - Analyst : Yes. How much can go the other way, that's exactly right.

Question: Brian Bedell - Deutsche Bank Securities - Analyst : No going from direct overnight cash into money market bonds. when the --

Question: Brian Bedell - Deutsche Bank Securities - Analyst : Yeah. Okay. No, that is fantastic color. Thank you so much. Maybe I'll just finish up with strategic value. Performance has improved rather dramatically. Looks like I know you don't like to compare this one in the morning to our categories, but your top quartile over the past two quarters by our measure, your top third in that over a one year and three year time frame, the product still in outflows, do you expect this performance to you know, convert to inflows? You know, any time soon.

Question: Brian Bedell - Deutsche Bank Securities - Analyst : Yeah. fair enough. Thank you so much for all the color.

Question: Patrick Davitt - Autonomous Research - Analyst : Hey, thanks for the follow up. Just a quick another quick housekeeping on the $6 million of the $5.9 million contra revenue? Was that all in management fees or split across the three buckets? And then if, if there is some management fees, how should we adjust the individual, asset bucket? Trying to get our fee rates better?

Question: Patrick Davitt - Autonomous Research - Analyst : Okay. And, how is it split across the equity buckets? I mean the asset buckets, do you know? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 25, 2024 / 1:00PM, FHI.N - Q3 2024 Federated Hermes Inc Earnings Call

Question: Patrick Davitt - Autonomous Research - Analyst : All right, great.