Q2 2020 Federated Hermes Inc Earnings Call
She said I read it Hermes Q2, 2020, and always call and webcast topic.
Oh, that's our net listen only mode. A question answer session will follow the formal presentation.
And you want should require operator services during the conference. Please press star zero on your telephone keypad. As a reminder, this conference is being recorded I would now like to trend. This conference over to your host Mr. Ramin Hanley President of Federated Investors Management company. Thank you you may begin.
Good morning welcome.
During today's call will be Chris study do CEO and president of Federated Hermes.
<unk>, Chief financial Officer, and joining us for the Q and they are soccer Niseighty CEO of the international business of Federated armies, and Debbie Cunningham, our chief investment officer for money markets.
During the call we may make forward looking statements and we want to know that Federated herpes actual results may be materially different than the results implied by such statements. Please review the rest disclosure in our FCC filings no assurance can be given for future results and Federated Hermes assumes no duty to update any of these forward looking statement.
Chris.
Thank you and good morning, all I will review Federated Hermes business performance and Tom will comment on our financial results.
We continue to make progress establishing our brand as a leading provider of active responsible investment management driven by the combination of strong fundamental analytical capabilities.
And the multi sector insights provided by the iOS that Federated Hermes engagement operation.
IOS assets under administration were 1.1 trillion at the end of the second quarter and we expanded the E O S staff of Engagers in specialists to 60 during the second quarter.
Now recently the international business, just Federated Hermes was assessed by real impact tracker, which certifies institutions, most committed to impact and we achieved the highest score in the history of its certification as a result, the firm has joined real impact trackers certified.
Immunity for which only around 5% to 10% of Sun managers are eligible to qualify.
Real impact tracker identified to our firm as the leader in creating impacts throughout its operation investment process corporate engagement and policy and advocacy in particular, the firm's philosophy and approach to stewardship was highlighted as the model for.
Or other firms looking to improve their active ownership.
In addition, and separately.
I didn't nations P. R. I just are awarded the domestic portion of Federated Hermes with an overall a rating for our annual responsible investing assessment the international business, a Federated Hermes received an a plus rating.
Now turning to our equities business assets closed the quarter at 77 billion up from 68 billion at the end of the first quarter as market values rebounded by just under 11 billion offsetting that redemptions of 2.7 billion.
While the overall net sales of combined equity and separate accounts were negative the 2.7 billion I just mentioned.
We saw positive net sales in a number of strategies.
We had 12 equity strategies with net sales in the second quarter led by Kaufmann small cap.
Other equity funds with.
Net sales in the second quarter included global equity, Yes, G global small cap equity.
NBP, all cap core and the STG engagement equity fund.
Using morningstar data for the trailing three years at the ended the second quarter, 30% of our funds nine out of 30, we're in the talk for title and two thirds 20 or 30 were above median.
Looking at the strategic value dividend strategy.
Its objective as you recall is to provide a high growing dividend income stream from quality companies.
The domestic funds a 12 month distribution yield was 4.4%, which ranked in the second percentile of its Morningstar assign category at the end of the second quarter.
The answer amaze strategies gross weighted average dividend yield.
5.26 at the end of the second quarter.
The domestic strategic value dividend strategy had combined mutual fund and the S.M.A. outflows of 1.6 billion in the second quarter.
Compared to 461 million of outflows in the first quarter.
Q3, Q3 results through July 24th show combined find an estimate net redemptions of just over 200 million.
Dividends stock for soundly out of favor during Q2 cyclical risk on Tech led rally.
The best performing market sectors were lower dividend paying consumer discretionary and information technology type stocks.
Low beta underperformed high beta.
Hi, yielding stocks underperformed low yielding.
And high quality underperformed the lowest quality.
While the second quarter market characteristics were not conducive to our low volatility high dividend strategy. We believe that our continued focus on the core goals are providing higher than market dividend yield from high quality businesses assets will resonate with investors over time.
Especially given the outlook for lower rates over an extended period of time.
I don't recall that even during these net redemption times.
Through July 24, see gross sales gross sales of this strategic.
Value dividend and ask them a strategy, we're just about $3.5 billion showing there is active life in the strategy.
Turning to fixed income assets reached a record high of 73 billion at the end of the second quarter driven by over $6 billion in net sales and nearly 2 billion of market gains in the quarter.
On market conditions changed dramatically from the lows in March and our broad array of solid fixed income strategies, we're well positioned to me investor demand. We had 23 fixed income funds with net sales in the second quarter.
Hi yield funds led the net sales with over 2 billion.
Multi sector sector bond strategies also had solid net sales led by 300 million in total return Bond fund and also drove.
Strong results in separate accounts.
Corporate International Global.
Vermin municipal bonds bond funds all had net sales.
As did our fixed income SDMA strategies across sectors short duration strategies were also in demand.
At quarter end using Morningstar data for the trailing three years, we had eight funds, which is 24% in the top floor tile and 18 funds, which is 53% in the top half.
Moving to money markets.
Assets increased about 6 billion in the second quarter, two a record high of 458 billion with growth in money market funds of about 8.7 billion, partially offset by seasonal declines in separate account assets of two point.
4 billion.
Money market assets reached a high.
483 billion in late May in advance of tax payments usage of care funds and other uses of cash.
Our money market.
<unk> market share, including the sub advised funds at quarter end was 8.1%.
Fractionally from 8.8% at the end of the first quarter.
Now taking a look at recent asset totals and movements.
Managed assets were approximately 629 billion.
Including 452 billion in money markets.
80 billion in equities.
75 billion in fixed income.
$18 billion in alternative.
And 4 billion in multi assets.
The money market mutual fund assets were 339 billion.
In terms of flows third quarter through July 24.
Equity funds and ESA amaze were negative 240 billion.
Fixed income funds and SMS days were positive 756 billion five the subtraction method, we were 565.
Million dollars to the positive so far in the third quarter.
Now as we begin the third quarter, we begin with about $1 billion in net institutional mandates yet to fund and most of those are in fixed income.
Now an overall comment as relates to cobot.
We have continued to function well throughout these challenges we are fully operational our technology resources have enabled us to have upwards of 95% of our employees successfully working from home.
The portfolio management teams are connecting regularly and managing well through challenging market conditions.
Our regional consultants and other sales and customer service personnel are staying connected to their clients.
And while we continue to hire an onboard new employees in the second quarter. We do look forward to the time when we can come together in person in our facilities.
Now for the financials were turned to Tom.
Thank you Chris.
Q2 includes a full quarter of results from the AHGP private markets subsidiary, which became became a consolidated entity effective March 1st.
Total revenue for the quarter was up slightly from the prior quarter due mainly to higher money market assets generating 30.5 million in additional revenue a.
A full quarter of AHGP results, adding 6.1 million in revenue.
And higher performance fees of 5.4 million.
Partially offset primarily by money fund minimum yield waivers of 19.6 million.
And lower at equity asset related revenue of 13.7 million.
Looking at expenses comp and related expense increased 8.2 million from prior quarter. The growth was due mainly to higher bonus expense of about 6.1 million.
Primarily related to higher sales.
And 3.9 million from the impact of a full quarter of AHGP results.
Partially offset by 1 million of lower stock based compensation expense and seasonally lower payroll tax expense down about 800000.
The decrease in distribution expense compared to the prior quarter was due to the impact of minimum yield waivers, which reduced distribution expense.
By 17.6 million.
Partially offset by an increase of 10.5 million, primarily from higher money market fund assets.
The increase in other expense.
Operating line.
Item from the prior quarter with due largely to higher amortization of intangible expense from the Emmy PC and AHGP acquisition.
We expect amortization of intangibles expenses.
To be 3.1 million in the third quarter compared to 3.9 million in the second quarter.
The impact of money fund yield related fee waivers on operating income in Q2 was about 2 million.
Based on recent assets and expected yields the impact of these waivers on operating income in Q3 could increase to about 4 million.
Of course, multiple factors impact waiver levels, and we expect these factors and their impact to vary.
Non operating income increased from Q1, due mainly to the increase in value of seed and other investments of nearly 15 million.
Q2, compared to similar decreases in Q1 for total swing of $29 million.
This change was partially partially offset by the impact of 7.5 million gain recorded in the first quarter related to the AHGP acquisition.
The 4.5 million change from Q1 in net income attributable to non controlling interest.
Ken subsidiaries was primarily from the increase and market value of consolidated funds.
During Q2, we purchased 843000 shares for $18.1 million with nearly all of this purchased in the open market.
At the end of Q2 cash investments were 373 million of which about 317 million was available to us.
Debt at quarter end was 90 million during March we borrowed 100 million.
On our credit facility, we repay that 100 million and an additional 10 million in Q2.
The Q2 tax rate was 23.8 down from last quarter due primarily to market value gains in the consolidated funds, which have no associated tax expense as the funds are not taxable entities to us.
For 2020, we expect our combined federal state and foreign tax rate to be about 24% to 26%.
Lora that concludes our prepared remarks, we'd like to open up the call for questions now.
At this time will be conducting a question and answer session. If you'd like to ask your question. Please press star one.
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Our first question comes from the line up my carrier with Bank of America. You May proceed with your question.
Good morning, Thanks for taking the questions.
First just a question on money market and the waiver outlook in Debbie maybe first just wanted to get an update on your outlook for yield assets are getting reinvested, including I know during the quarter just how much you some of the fed moves help and then just trying to figure out how that could play out in terms of like mass wave.
Because it seems like a.
A decent amount in the assets by the time, whereas for the ended the third quarter would have been sort of reinvested and add some lower rates, but just trying to get a sense on how that's playing out.
Across the different products.
Debbie why don't you address the reinvestment rate and Tom and I will talk about the impact on waivers.
Absolutely.
Good to talk to you this morning, Mike and as for the fed moves they absolutely. We're certainly helpful. During the quarter.
By changing their repo rates and procedures from a timing perspective that really influence where overnight rates are and for our government products that can have upwards of a greater than 50%.
Mark.
It was extremely helpful. So.
What basically we saw was an increase in.
Hello rate that we were using line overnight basis in those bonds by let's say seven eight basis points somewhere in that neighborhood and they.
Generally.
Kind of leveled off right around.
So low double digit digits as opposed to being down in the one to two to three basis point camp, where they spent.
Good part of the beginning of the corridor and the and.
The first quarter so.
If you have 10% and overnight and.
Nine basis points and repo.
[noise] sounds like Debbie fell off Tom would you address the waiver impact will reconstruct debbie's connection yes the.
We mentioned.
4 million, which would be up from our estimate of of 2 million in the third quarter and you know we stay very close with Debbie and her team on on their forecast and as I've said before that's what we use when we.
Project out one quarter.
You know if you're if you were asked Debbie what you're going to stay for the rest of year.
And she was say well the rates will be.
Similar to two the third quarter, but probably a little bit lower.
And you know that would make our waivers be go a little bit higher, but we only likes to talk about one quarter.
Okay got it right.
Hi, Dan do you have you return your my did you guys My answer sorry, my phone got.
I think we got the the rate picture. So yes, we can move up.
Okay all right. Thank you.
Our next question comes from the line of Patrick David with Autonomous Research you May proceed with your question.
Hey, guys good morning.
Good morning.
Quantify the performance fee this quarter and kind of breakout the nature of those performance season, how they break into the various asset class revenue buckets. Please.
Well.
The total was about 6.7 billion.
And that was that was generated through Oh Hermes strategies. So soccer may have a comment on on that.
The to the comparison number in the prior quarter was about a 1.3 million. So as we've said before a those numbers are going to move around and our.
Yeah difficult to a two to project, but soccer do want to comment on the nature of the Q2 performance it sure. So.
Let's start by saying can never predict performances anymore than you can predict performance and but you can get a pretty good idea. If you go through all reported numbers, which are launched in the UK for previous history, we make performances and carriage fees primarily from two main sources. One is from a property portfolios and that then.
Based on into some other sources one is a unit trust.
I'd like to interest, but one loves unit Trust Unitranche I'd like mutual funds.
Essentially institution investors, which has an automatic potency and that is triggered when we outperform a benchmark.
Continued to be one of the best performing funds in the markets over the long term in December.
The other way that we do it and property is in southern development projects.
At the end of the project.
Our shareholders benefit more than the except to benchmark that took us a performance fee, which is paid to us and deep policies of properties have been consistent.
These for the last and yes, lump sums of quantum but in terms of being paid.
All the way they wish we have performance fees is that carry on the private equity funds, which like will private equity funds tends to move around.
Gets paid whenever the private equity realized gains of has been distributed shall doesn't take some parts of the performance fee.
Does that answer your question.
Yes. Thanks, so it sounds like it was all in the alternative revenue bucket.
So it's sold on the alternative revenue bucket and a lot of such as generated in properties.
We do have some pulls and some provenance and sorry public markets, but from Editas dolton buckets.
Hi, Patrick fit into this pump, yes, just to give you give you some of the numbers that secor.
Mentioned, so year to date for performance fees, we have about 8 million in in 2019.
We had 7.4 in 2018 with 8.5 2017 with 7.4.
For the carry year to date, we have 2.5 and 2019, we had 11.3 in 2018 was 2.7 2017 was 13.5. So you see by we don't want to predict the numbers.
Yes. Thank you.
Our next question comes from our next question comes from the line.
Robert Lee with KBW you May proceed with your question.
Great. Thanks, Thanks for taking my question, so everyone's doing well.
I guess, maybe little bit on little bit of a modeling questions. So.
Can you give some sense no.
Compensation, obviously, you've had the consolidation on the rest of the.
Kind of buying fishing talked about some comp accruals.
Bonus accruals.
You know how should we be thinking about.
Those were basis some of those.
Just kind of good run rate to be based smartphones is there anything kind of that.
No.
Catchup accruals or anything that you should we think about so how should we think of comp.
Yes, sure sure up and we're doing well here. Thank you.
[music].
The yet in my remarks, I mentioned that.
The biggest driver.
That's good comp.
Sale.
And sales related and of course, you look at the numbers that Chris mentioned.
We're pretty happy with that the old days, we call that a success item because we have increased sales were going to we're going to earn more money eventually.
So that increase but also investment performance and incentive.
Aligned with investment performance has increased here here in the states.
And so that line has increased and then you know our operating teams and administration have just done an outstanding job and this.
This environment so.
I expect that will that we'll continue to improve.
Of course that depends on earnings also and then.
Over in our international area in Sackers area with the performance across the board and they take a more holistic approach.
Things improve that those numbers, we'll expect to go up to.
Okay.
Okay. Thank you.
And just curious on kind of made most of the money funds business.
I mean after kind of.
Industry surge.
Back.
March Q on Q2 I guess.
Pace, all industry slowdown tax payments.
And then but.
How do you kind of thinking may for on demand for your particularly as the yields come down so much gap between.
The government by bank deposits are substantially.
If at all these things that impact.
Institutional demand, we should think about going forward.
So I'll make a couple of comments Rob to start and then.
Debbie to comment on the.
Difference in yield between Gabi funds and deposit rates and commercial paper funds, but overall, we always like to repeat the sounding joy of the fact that the clients are in there for daily liquidity at par and the yield as a secondary consideration.
And this is a cash management service as much as it is an investment.
And therefore overall long term big picture, we're looking at.
Hi, or highs and higher lows on our charts as the ebb and flow of money market.
Activities change as you do the fleet point out and this has been true sense, we got into this business.
In the mid Seventys Debbie.
Thanks, Paul.
You look at.
Bank deposit rate.
There are the basically so.
Yes.
Paul from.
And then earnings perspective look at the gross yields on our money market funds for got booked for the government sector with about 25 basis point.
Well heeled on our prime funds are currently about 37 basis points about 12 basis points.
If you look at that low rate.
On a year rate base.
For bank deposit.
Versus money market fund because both have grown substantially given the environment and the.
Risk mitigation that investors are seeking and the buildup in past frankly, but bank deposits have grown by a little over 12% on year to date base as well.
Fine total.
Kevin.
So again, although the numbers.
Base.
Great.
Average that our base level, our GIF right.
Growth rates have been higher.
Product.
I do believe that that being given the very very very low rate that are available on bank deposits you can find.
The occasional teaser rates, but it's not sustainable and generally they are restrictions with regard withdrawals and obviously that's not the case when you're talking about money market fund government or prime.
Great. Thank you if I can just one quick financial follow up on warming keys.
So to answer.
Does that include carrying that.
Just.
The 6.7 for Q2 was just the performance fees.
There was a an additional 1.8 of Kerry.
So eight and a half total for those two items.
Great. Thanks, so much but.
Yeah.
Our next question comes from the line of William.
Any group investment research you May proceed with your question.
Okay. Thank you very much hope it was doing okay spend much time talking about the the multi asset or the alternatives business, which had a bit of a lackluster quarter. We look at the net flows they weren't really part of your flow update you talk little bit about why you're seeing weakness there and how to think about the growth rate ticked up alternatives, particularly given just the tremendous growth we're seeing.
Elsewhere in the industry for that bucket.
And on on the alternatives, which we consider the.
Private markets as you know, we just spent the first quarter getting that organized in terms of corporate structures ownership and getting ready for the future and we did make it clear when we were doing those transactions on the last call that we weren't going to be looking for growth numbers in this case.
Calendar year from those activities, although they are.
Extraordinary opportunities into the future.
And.
I would let sacher comment on some of the things that are going on there that are setting up.
The future growth plans there.
Sure. Thank you, Chris So again, you've got to think of alternatives in different buckets, if you like.
If you look at assesses the real estate.
Portfolio, which is where we've had a lot of performance fees in the past generally these are sold in big lumps to institutional partners. It takes several years to get is one of those deals set up the typically quite large deals and typically investment for the next 10 to 15 years now for that.
Beginning to think about expanding product capability into the United States.
That will take some time sets up sometime meaning more than one yet.
In the meantime, within a home territory in the United Kingdom, we continue to attract.
Interested parties, it's also dependent on finding the right projects to investors.
The unit Trust, which is the mutual fund and property is pretty much at capacity, we have a long line of waiting investors wanting to come in when they Ken if you move to private equity we have a plan. This is agreed with the team when the acquisition was completed of expansion kind of increasing.
The client base, and we will see that come to fruition. The next two to three years from any by expanding within again North American markets, we have all the.
Funds within which is called alternative which we put for the private markets, which are seeing some growth. That's it also substantial as these two particular ones. So I'd say that.
The private markets is being prepared for expansion, particularly in terms of the private equity and three to six actually is on track is just you will not see its quarter on quarter. These elephants that would pick off takes time to get one and then going for the long term.
Okay. Thank you for that's helpful. And then just a follow up I don't want to death, the common Debbie just as you think about.
The money market fee waivers and thanks to the update.
Any thoughts of how the relationship with the on the sharing side might be different this cycle versus the prior zero rate backdrop with the distributors. So in other words. The question is how much sharing should we anticipate is there any risk that federated might need to absorb a higher percentage of those few where business looking ahead.
Well, maybe I'll answer first if you have a follow up.
We were.
Barry.
Put in a lot of effort the last time in the low cycle to meet with everybody and work through the sharing arrangement and pro rata thought process and we're very successful and in the last time around and.
We're still got asked by our partners for now increased participation that they get versus us, but on terms of the waiver sharing we have not seen any any issue with our structure and sharing arrangements.
I have nothing to add to that sounds.
Okay. Thank you all.
Our next question comes from the line of Kenneth Lee with RBC Capital markets. You May proceed with your question.
Hi, Good morning, Thanks for taking my question outside of the compensation expense wondering if you could just shared with us or any of your latest thoughts on how operating expenses could trend, especially in this current environment. Thanks.
Yes, I want to one of the things, we Didnt talk about because I think everybody knows why we don't have Tiffany.
Salespeople aren't aren't traveling and.
Either really as anybody else.
We're hoping that that picks up.
Sometime.
And so as soon as that does.
LOE expense item and DNA.
I would go up.
We're continuing to invest and in our technology and you don't have a number of deferred projects across the company to improve upgrade.
Do do things better, but I don't view those are in the regular context of what we spend and what we work on so I don't see no outsize surprise things coming coming there either.
The distribution line item, we've we've pretty much covered that and we know that flows as asset flows and I just went over the waiver thing. So that we're continue to deal with the deal with that.
You know the Nonconsolidated items, we've we've covered.
And.
I don't have anything further.
Okay, Great helpful and just one quick follow up if I may you repurchased some shares in the quarter wondering if you could just give us your latest thoughts on capital allocation priorities and perhaps.
Any thought on potential M&A opportunity. Thanks.
Sure on on the breakdown.
We are very active AD buying shares back you see the numbers for the first and second quarter.
And the priorities haven't really changed.
As you head injuries in the form of your question M&A remains the highest and best use but we're very active.
On the share buyback and we of course like the dividend as well.
On the M&A side, I see Tom Thirsting do come to the podium.
Well.
It's pretty difficult to go out and meet people face to face.
For the difficult.
And so doing.
Centers ex centers of excellence I think will be a challenge here, but roll ups, where we remain active and and.
I hope to two.
Still close some deals here.
Great that's very helpful. Thanks again.
Our next question comes from the line of John Dunn.
Core.
You May proceed with your question.
Thanks, and good morning.
Could you could you maybe talk about how your relationships with the different distributors are evolving a during this period of time.
The relationships with the distributors are very very strong.
And the evolution is now going deeper into the relationships with the distributors and the individual asset base.
As people have.
Less ability to go and visit they're doing more on the phone more by the.
Zooming in and all of that and the phase as I mentioned I think on the last call.
Our doing increased quality evaluation of their portfolios and this is where our portfolio construction team.
Comes into the mix because now.
We able to present.
Our phase.
With the idea of looking at the portfolios they construct where they may have 10, great funds, but they don't know how the bets are really being made inside those funds.
And so we can help them with portfolio construction and find opportunities.
For various of Federated products, along the way and so the way I would characterize it is that there is some degree of Oligopolies Asian in the business.
When you can't go around and get new clients. The way you would like to so those who have them our bucks up to those who don't.
And I don't know how good that is over the long haul.
But right now it tends to oligopoly lies in strengthen the relationships that are already there.
We have been able to continue discussions on adding products, we as this fixed.
Hermes product and those new products continue to work well and as as you know on our sales numbers.
We have the highest monthly average sales in our history, our previous high had been about 3 billion a month in gross sales and now we're well over an average for the first six months of 4 billion.
Per month, and so this is telling you that even though the regional consultants.
You can't spend any money, they're still able to tell the story and presenters solution.
To summarize I think the relationships have strengthened and I think they have gotten deeper and stronger.
Gotcha, and then maybe a start up and you guys are fortunate to be able to keep investing you can you just maybe remind us of the top area.
Since then if you guys. It at this point.
Well, we will we will give everybody a shot at that.
One of the areas, which we announced recently was a new higher in the active ETF space and.
We are beginning to get ready for that so that's that's one which we think is important.
I'm sure Sacher has a few on his agenda and I'll, let him I have a say there.
Thank you I mean upsize the one that we continue to invest in the U.S., which we just mentioned which is a substantial investment in senior seasoned professionals, who joined us to chip team. We've also had a couple of additional people to impact team in the UK UK, which is strong we've added expertise into our response been itself as well.
We do some research that particularly individual does in fact was a doctrine and has a particular specialization and pandemics as well.
So these are there is it's come to mind.
And this last quarter, but.
But we've continued to have we've also hot oil and finalize the high Rofin MD fall the private markets business, we've established as we've said.
Thats went quite well.
Yes in the in that the Kaufman team.
You know they've done so well and their performance just speaks for itself and so we are looking for a number of new hires in there.
And they point out that the recent hires that they've made of turned out turned out very well so.
More investing.
In the Kaufman team.
Thank you very much.
Our next question comes from the line of Brian The Dell with Deutsche Bank. You May proceed with your question.
Hi, This is melinda ROI filling in for Brian.
Maybe just one more follow up on the way.
Our topic, that's it seemed to management needs versus distribution expenses.
Versus Twoq you in the context of here.
4 million impacts.
Every quarter.
Linda we don't.
Really do that at the line item basis, so that would be tough to do we could if you want to talk about that.
Following up after the call I'd be happy to to to try to help you there.
Okay No problem and then maybe just one.
And.
The other part of it.
Decline.
In Q2 versus once you do maybe talk about the driver there and is the 32 million dollar levels and selling for it.
Yeah that would have been where the bulk of the revenue impact from the minimum yield waivers.
Occurred so that would explain.
You know just about you know the biggest portion of that change.
There were some other things that.
Happened in there in Q.
One we had a million to non Rick we pointed out a million two of non recurring revenue in a one of the private market companies wired. So so that was booked in Q1 and obviously not in Q2.
But but the minimum yield waivers would explain the the bulk of the this step down there.
Okay great.
Our next question comes from the line of Ken Worthington with JP Morgan You May proceed with your question.
Hi, good morning, I jumped on a touch slate. So hopefully you haven't cover this.
But you flush a series of Hermes U.S.G. focus funds in the U.S.
Can you talk more about progress in bringing those products and services to the U.S. and I think you said you've launched six funds. Thus far how is dialogue going with distribution in our this product is getting on on platforms or maybe it's just too early.
And then you mentioned in prior calls I think really last year about the incremental costs and investments to bring these products to the U.S.
How much of you spent thus far and what's the outlook for incremental investment.
To further launch these products.
Over the next year or so.
They can vary reception has been excellent and.
The assets in those funds were about 88 million at the end of the second quarter and nearly all of that was externally sourced so the seat assets in there about 5 million.
And.
So we're evaluating other strategies to look at and we just launched our first SDMA product.
Based on our Hermes strategy, which.
It will be coming up so it is a little early to see how big these things will get the receptions have been good.
And we've been able to onboard them and get on some platforms. Obviously, we want to get on more in terms of the expense associated with that yes, we talked when we did a deal and had forecast in and you know put out millions of dollars of expected expense, but we now view ourselves as one company.
And you know aren't aren't so here's some extra expenses its normal fun cost and.
And that normal.
You know people cost, but it's not some extra thing to do to have the Hermes team managed the money over there we haven't figured out and.
We don't break that out and don't look at it that way, we have our research committees get together and figure out what's the best product to bring out and what can we sell and it's in its in our normal process now.
I think it's fair enough. Thank you and then maybe some more color on performance fees I know, they're hard to predict but maybe just some guidelines.
Is there anything you can give us on the timing of when funds are eligible to pay. So clearly this you know was a bigger quarter.
It is to cubic quarter, maybe for Q. So timing there and then any way to size unrealized performance fees or unrealized carry how big is the pool that we might have to look forward to.
Based on where things are at this point in time.
Yes sector, you can follow up with a mine on the answer.
Okay.
[noise] you know they just they just you know it involves selling a building and when does that going to happen or or the private equity you know realizing.
And monetizing something that they own and the timing is just total variable we've had things where.
Where they've we've asked them for projections and yeah. This is kind of inter works at Federated Hermes it to try to ask them for projections to.
And it's just.
Oh, the why didn't take longer will this thing then sell what happened while the illegals this and it's just across the board.
Too difficult for us to two figured out now on the you know on a higher level I think soccer can talk about.
That's why I took you through the numbers to give you the past not that that's going to be the future but.
So soccer Nate I don't know if you want to follow up with that.
So yeah, I mean, I I think it's very difficult to try to project.
The future, but from the numbers that.
The problem is given to.
You can see historically, what say property performance fees looked like this is just to install it. This is just the Pos it doesn't mean, the fusion is going to be to say, but it gives you an idea.
And private equity is more variable I think.
In becoming one some as we become part of all cigarettes Hermes one of the things about the differentiates our business is it tends to be very institutionals any long term based.
And so quite often the projects. If we were talking which then pay us handsome dividends are not necessarily traceable on a quarter to quarter basis, but a much more long term basis now.
Rich every year, we make performance season, we make carriers and you can as I say see that's an industry because one comes off so the other projecting how much is gonna be in a particular quarter, sometimes even the particularly yet is fairly halt. Although we can't say is we've been really successful. We've done historically you can see historically, how much we've generated but Pos post a full.
This is no indication of future performance as always say when you're talking to investors I'm, sorry, Combi anymore.
Specifics and less.
Well it was worth a shot thank you very much.
[laughter].
Our next question comes from the line of Robert Lee.
BW you May proceed with your question.
Great. Thanks for taking my follow up I was curious.
The.
On your Henrique yet.
No the.
You mentioned the.
Hi, there.
Yes, we could you maybe talk a little bit about what plans there you talked about acting yes.
Have you licensed one.
Turning to improve.
Technologies out there you know your thoughts around that person.
I'm not sure if you have a file yourself, but you know technology. So.
All angles are up in the air being analyzed [noise].
And.
Branded Clark just joined the firm.
I met with him on Wednesday, and so we're just getting started on that and we're going to figure out what's the best way to go is and don't forget that overall business.
Active side is really in the first setting it may even still be in spring training.
And.
The only 120 billion of over a four trillion dollar Ats business.
And this is why we.
We looked at it this way.
Federated is interested in strong alpha high active share type projects.
And which ones, we now put together and how we structure. It is what we're going to be about so I don't have the math because.
We brought in.
And as someone with a good deal of experience at a number of the big players.
And this is the brainstorming that's going to go on here to see how the Federated Hermes active EPS should look.
[music].
Great that was it thanks for taking my question.
Our next question comes from line of my carrier with Bank of America. You May proceed with your question.
Alright, Thanks, just that just a follow up bigger accordingly.
6 billion have been close in fixed income.
Waiting a little bit of color, but kristi you. Some details on like the product on the high yielding integration I guess just on the distribution side. If you can provide any color on.
No institutional if it was sort of money market.
Yeah. So many shifting you intend to use limited short duration strategies, you see it a little bit more income.
Retail, we can see and then anything on the international side given that you some of the relationships that build over time.
So just trying to get a sense of how they kind of broad base that was in the quarter. Thanks.
It's very very difficult and we don't usually make the speech about how money move from money markets into other products as you know from history.
We deal with most of these clients on an omnibus basis, and so we can't exactly track the cash flow.
We can say as I said on the other me on the call last quarter.
That there is increasing interest in active.
Management.
Projects because people are beginning to see that maybe they don't want to own the whole index.
So thats another factor in terms of the high yield though.
With those.
Net sales over 2 billion.
If you were look at the performance of high yield versus any of the passives Ats the high yield projects and we have are considerably better performers and I think thats very helpful. On the total return bond fund what customers are looking for is people, making judge.
Segment.
For the long term and not just buying the index and so you're seeing some of those footprints come through there and your even seeing it in the SDMA strategies as well.
On the fixed income side, where the performance has been really excellent.
Let's see on.
On the international you've seen.
Some growth there as well.
Not as much.
But it is alive and well.
Hi, Thanks, a lot.
Ladies and gentlemen, we have reached the end of the question answer session I would like to turn this call back to Mr. Raymond Hanmi for closing remarks.
Oh, well that will conclude our call for today and we thank you very much for joining us.
This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation have a great.
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