Q1 2021 Federated Hermes Inc Earnings Call
Okay.
[music].
Greetings and welcome to the Federated Hermes, Inc. First quarter 2021 and all this call and webcast conference call. At this time all participants are in a listen only mode.
<unk> and answer session will follow the formal presentation, if anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad. As a reminder, this conference is being recorded I would now like to turn this conference over to your host Mr. Ray Hanley President of Federated Investors Management company. Thank you Sir you may begin.
Thank you and good morning and welcome.
Leading today's call will be Chris Donahue, President and CEO of Federated, Hermes, and Tom Donahue, Chief Financial Officer and.
And joining us for the Q&A are soccer and savvy and Debbie Cunningham soccer is the CEO of our international business and Debbie its a chief investment officer for money markets.
During today's call we may make forward looking statements and we want to note that Federated Hermes actual results may be materially different than the results implied by such statements. Please review the risk disclosures and our SEC filings no assurance can be given as to future results and Federated Hermes assumes no duty to update any of these forward.
Looking statements Chris.
Thank you Ray good morning.
I will review Federated Hermes business performance and Tom will comment on our financial results.
Q1 was another quarter of solid performance for Federated Hermes.
The challenging backdrop of the global pandemic and fluid markets, including rising long term rates and short term rates falling to extreme lows, we executed successfully against the variables that we can influence.
We produced solid sales results and we have over much of the last year. During Corona time in fact, we achieved record high growth five 6 billion and net $1 2 billion equity fund sales and total fun and sales.
Growth of 15 3 billion.
A recent ignite study noted Federated Hermes long term mutual fund organic growth rate of 15% and that ranked seventh in the and seventh.
Seventh and the industry for net flows over the 11 month period ended February 28th of 'twenty one.
In Q1, our long term strategies had net sales of $3 2 billion.
We crossed over the 200 billion Mark for long term assets and the first quarter, finishing the quarter with a record high just under 206 billion of long term asset.
We also continue to grow our differentiated Eos at Federated Hermes <unk> engagement function well.
We added three new clients and the first quarter and assets under advice reached one five trillion.
Up from $1 three trillion at the end of 2020.
Our staff level of engages and other specialist reached 68 up from 49 and the first quarter of 2020.
Equity managed assets reached a record high of 96 billion and had net sales of about 600 million.
Equity fund net sales of $1 2 billion were partially offset by net redemptions and a separate account of $600 million.
Equity gross sales increased 38% from the fourth quarter and 28% over the first quarter of last year.
We saw positive net sales in 19 and fund strategies and first quarter sustainable strategies managed by our U K teams drove the strong equity fund sales led by global emerging markets over 400 million global equity ESG over four.
100 million.
S D G engagement equity over 400 million and Asia ex Japan over $300 million.
Other funds with net sales and the first quarter included impact opportunities and MDT small cap core.
Our global emerging markets fund shareholders have been informed that this strategy will close to new investors effective June 15.
Existing shareholders will continue to be able to invest in the fund.
As announced in December the.
And the Kaufmann small cap fund had a soft close effective March 1st during the first quarter here.
And the five Star 10 billion dollar fund had net redemptions of about $30 million and the first quarter due in part we believe due to the soft close.
Certain model portfolio applications that were unable to continue to use the closed strategy had lumpy redemptions in March and April and.
And while there's no guarantee as investor preference and other factors can change, resulting in further redemptions. We currently believe that these redemptions will dissipate and the near term.
Early indications and April appear to support this view.
Using morningstar data for the trailing three years at the end of the first quarter 'twenty.
20% of our equity funds were in the top quartile and 53% were above median.
For the first three weeks of the second quarter equity funds and SMA had net sales of about $30 million.
Turning to fixed income and.
Assets reached another record high of 86 billion at the end of the first quarter.
Up more than 2 billion from year end and up 22 billion or 34% since the first quarter of last year.
The Q1 growth was again driven by strong net sales of just under 3 billion.
Our broad array of solid fixed income strategies was well positioned to meet market demand.
We had 21 and fixed income funds with net sales in the first quarter.
Q1, net fund sales leaders were ultra short bond fund with about $1 6 billion at.
The multi sector total return bond and short intermediate total return on funds combined for nearly 600 million.
And continued strong results and high yield with nearly $400 million.
Within high yield net sales were led by another U K sustainable strategy. The S. D G engagement high yield credit fund.
With 686 million.
While our domestic flagship five star institutional high yield Bond fund Q1, gross sales were up 20% from the fourth quarter.
The fund had net redemptions of about $300 million due to a $600 million redemption from one client who made a tactical change in their asset allocation strategy.
The fund has returned to solid net sales of nearly 150 million here in April and it has produced net sales and 22 of the last 25 quarters.
Corporate high yield international multi sector Muni.
Simple bond fund categories, all had net sales as did our fixed income SMA strategies.
Across sectors short duration strategies were in demand we.
We saw another solid quarter of net sales for the U K based unconstrained credit strategy with net fund sales of nearly $80 million.
And a couple of new institutional wins as well.
Fixed income separate account net sales were led by multi sector and corporate mandates.
At the end of the first quarter and using Morningstar data for the trailing three years, we had 26% of these funds and the top quartile.
And just about half of the funds above median.
For the first three weeks of the second quarter.
Fixed income funds and SMA had net sales of about $160 million.
We began the second quarter with about $1 6 billion and net institutional mandates yet to fund.
And to both funds and separate accounts, including about 700 million and unconstrained credit and 500 million from three new trade finance wins.
Now moving to money markets.
Assets were down about 1 billion in Q1 Premier at.
Our money market fund market share and including sub advised funds at quarter end was about seven 4% down slightly from the year and market share of seven 8%.
While we have seen.
Longer term interest rates increase recently short term interest rates remain at historic lows with yields on money market and securities dropping to the low single digits over the last couple of months.
As a result minimum yield waivers were greater than anticipated and the first quarter and.
And certain money market separate accounts have begun to be impacted and a similar way.
Minimum yield waivers are expected to increase again in the second quarter before declining over the rest of the year as we noted in our press release.
As usual, we are experienced waivers for competitive purposes as well.
Against the challenging interest rate and yield environment money market funds continue to show their resilience and value to investors issuers and the overall financial system.
The most recent of ICI statistics show four five trillion and money fund assets up from $4 three trillion since year end.
And three six trillion at the end of 19.
We believe that the lower interest rate challenge will pass and despite the feds current stance.
It's hard not to conclude that the pandemic recovery and the massive stimulus being unleashed will not lead to interest rate increases.
We also believe that as we enter another round of the 40 plus years of money market fund regulatory discussions.
The truth that the March 2020 market disruptions in the midst of the global pandemic. We're in no way caused by money market funds.
And he is central role and money market funds play and our capital markets will be recognized by regulators and.
We expect the regulatory process to follow the data.
Any regulatory changes should be based on facts, not false narratives and should preserve issuers and investors ability to utilize and money market funds.
Now taking a look at recent asset totals managed assets were approximately 640 billion, including $430 billion and money markets $99 billion and equities 88 billion in fixed income 19 billion and alternative and for Bill.
And multi asset.
Money market mutual fund assets were $306 billion.
We announced earlier this week and agreement with Hancock Whitney banks Horizon advisors that is expected to transition about $568 million and equity and fixed income assets from the Hancock horizon funds.
This follows a similar transaction with Hancock into 2017, the transition $435 million and assets.
Subject to regulatory and fund shareholder approvals and other customary conditions.
These trends as transitions are expected to happen in September.
And recall that these numbers are $568 million is not in the E. U M. Today, nor is it in the pipeline figures.
In closing my remarks, I'd like to thank our employees and clients for resilience and adaptability has demonstrated over the last year, it's gratifying to see progress in many places and moving past the worst of the pandemic.
As we head towards midyear and with vaccines and all available to all U S. Adults were planning for the staged return of more employees to our U S offices during the summer.
Tom.
Thanks, Chris.
Total revenue for the quarter was down from the prior quarter due to the increased negative impact of minimum yield waivers of $27 million.
Fewer days.
Costing $9 3 million.
And lower money market.
<unk> costing $6 4 million and lower performance fees.
This was partially offset by higher revenue from long term and.
<unk> of about 21 5 million.
Q1 revenue included $9 4 million and combined carried interest and performance fees compared to $11 2 million in Q4.
Now Q1 includes carries interest of about $7 million from variable interest entities associated with the H G. P acquisition that are being consolidated beginning in Q1.
And is carried interest is paid solely to certain current and former employees of H G. P. E. And therefore is also recorded as compensation expense beginning in the first quarter.
This amount represents the current and former employees carried interest since March 1st 2020 acquisition date, as we finalized the acquisition accounting for the transaction.
As noted in the press release negative impact from operating income for minimum yield waivers on money market mutual funds and surface.
And then certain separate accounts may range from $35 million to $45 million during the second quarter.
This range is based on gross yields on government money market portfolios of three to 10 basis points.
The historically low yields are being driven by technical factors at the front front and of the yield curve.
And March we began taking on more of the impact of the low rates through waivers as we were not able to further reduce distribution expenses on certain funds and separate accounts.
This was largely responsible for the higher than forecasted Q1 waivers and the higher forecast range for Q2.
We believe that minimum yield waivers are likely to peak in Q2, and we expect short term rates to increase in Q3 and Q4.
The amount of minimum yield waivers and and the impact on operating income will vary based on a number of factors, including among others interest rates the capacity of distributors to absorb waivers.
Asset levels and flows.
Any changes in these factors.
And impact the amount of minimum yield waivers, including and a material way.
As Ray indicated at the beginning Federated Hermes is not undertaking any duty to update this information throughout the quarter.
Looking at operating expenses.
The increase in comp and related from the prior quarter of about 5 million was due mainly to the consolidation of <unk>.
The variable interest entities that I mentioned earlier, which added $7 million of catch up expenses.
And about $4 million and seasonally higher items.
Partially offset by $8 million of combined lower vacation pay accruals.
And lower incentive comp expense.
The decrease and distribution expense compared to the prior quarter was mainly due to the impact of minimum yield waivers and fewer days.
And lower money market assets, partially offset by the impact of higher long term assets.
Office and occupancy expense was higher in Q4.
Which included a nonrecurring lease incentive gain of about $5 million.
Noncontrolling interest decreased from the prior quarter due mainly to the decrease and the value of investments.
By consolidated funds and two lower income earned by Hermes, resulting from less performance fees and carried interest in the quarter that I already mentioned.
During Q1, we purchased approximately one 5 million shares for $45 million to substantially complete the.
$3 5 million share program approved last year.
The board authorized a new 4 million share repurchase program yesterday, it's our 13th program since we went public.
As contemplated in the put call option deed executed when we purchased the majority interest and Hermes Fund managers limited and July 2018.
Which we publicly filed at the time a request for valuation has been made by BT PFS.
And we're working with <unk> pursuant to the agreement to the agreed upon procedures and the option deed and.
Cannot be determined at this time, whether a put call option will actually be exercise or whether a transaction will occur we.
We do not currently anticipate providing interim updates on the put call process.
Laura that.
Concludes our prepared remarks, and we'd like to open up the call for questions.
At this time, we'll be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is and the question queue. You May press star two share and move your question from the queue for participants using speaker equipment and maybe Nancy.
Therapy to pick up your handset before pressing on the Starkey one moment, while we pull for questions.
Our first question comes from the line of Dan Fannon with Jefferies. You May proceed with your question.
Hi, Thanks, good morning.
My question is just on the outlook for fee waiver and she talked about the peak being and <unk> and then disappear or declining thereafter and is it just your view of future rates or can you talk about the inputs to.
That you are using.
Using to calculate that.
Come up with that view that the fee waivers will decline and the latter part of the year.
And then ill talk for a second and then Debbie will talk because it's the view of our.
Future rates as what's driving that and are sharing with intermediaries.
Dan This is Debbie.
And some of the more specific factors about our outlook has to do with currently where overnight rates are trading which is and the one basis point, maybe one to two basis point range. If you go back to early in 2021 year and throughout most of 2020 and <unk>.
And then make began.
Overnight rates have been somewhere in the neighborhood.
And five to eight basis points, our expectation would be because of various.
Processes that day.
And has already gone through by increasing their their RP counterparty.
Limits per counterparty from 30 to 1 billion 30 to 80 billion and they did that a couple of months ago.
And by announcing their expansion of the potential counterparties that they will allow from a trading perspective with them through the RFP. We do believe that we will see some technical adjustments to that reverse repo rate taking it from a floor of zero, which is to a large degree driving.
And that overnight repo rate of one basis point right now up to a level that's more like more like what it was post the financial crisis.
Zero.
Interest rate environment, which was five basis points commensurate with that would be likely and <unk> adjustment of five basis points and what this does not only raises the.
Floor from and overnight perspective by that amount of basis points, but it also raises.
On the money market yield curve by.
<unk>, yeah, probably three to five basis points, depending upon what part of the curve you are looking at so that plays directly through as we invest in those markets on a daily basis to the yields of the fund and the waivers.
Okay. That's helpful. And then just a follow up on expenses and comps. So I think in the quarter you mentioned that the carried interest and the flow through so we have 7 billion of comp that's nonrecurring plus another four for seasonal.
So anything else just any expenses and we think about that you reported that could be a one off in nature and nonrecurring and then also if there is more carried interest as we think about it going forward is the payout ratio going to be as high as what we saw this quarter based on some of those legacy funds.
So.
First question Dan.
The $7 million, we can't call. It one time I call it more of a catch up because as we get more carried interest and part of your second question.
Will flow through there again, but this was a.
Since March 1st number so thats why it was much bigger and there was a decent amount of carried interest and there obviously.
So I'm.
I'm not allowed to call it one time, but.
Do call it catch up.
There are other things and the.
And the expenses so with.
Waivers, if they show up as forecasted and rates don't rise faster than we're expecting.
And I wouldn't I.
I wouldn't see.
Nope.
Increasing and might even decrease and same thing with distribution fees.
And.
The other items.
Travel and related is that going to.
Creep up higher because we're able to travel more because of the pandemic.
I hope it does and expect it to.
And advertising and promotional and while we kind of look at that over a whole year period. The Q1 number was probably light compared to what we're going to do that.
The rest of the three quarters.
Forecasting and the second question and forecasting Kerry.
And what's going to happen and.
And you're calculating and trying to figure out some some.
Some percentage of that versus anything.
Just not going to be able to help you out with that.
Not at all and I don't think sector is going to be able to add anything and there to say hey.
They CPE carry and what's it going to be and percentage of anything.
And I don't know if you can add anything to that or not.
No nothing to add to that is.
And I always say, we have a profile for both carrier and performance fees and.
You can see them historically, because we would declare them historically and the numbers of free to play here and also on the numbers, we find and London.
And you cannot predict them, but we do know that day.
Come through over time, that's the best that I can say.
But just to clarify it was $9 4 million carried interest revenue on $7 million of compensation that was associated with that and that's the same type of ratio. We should think about for carried interest on a go forward basis.
Yes.
And the nine point.
And there was a couple of million dollars basically of performance fees and $7 million of carried interest.
Put up which I guess I didn't give that.
So all carried interest goes into Tom So then.
The carried interest.
For this quarter was was lower than its been.
In other quarters without the 7 million catch up.
So the 7 million and catch up and the $7 million and comp offset but that doesn't mean that going forward, you're going to see a one to one offset.
Okay. Thank.
Thank you.
Our next question comes on line of build cash.
And with Citigroup you May proceed with your question.
Okay. Thanks, and just just coming back to the money markets a little bit maybe a bigger picture question is there any.
And of repricing your platform to move away from the sensitivities to such low interest rates.
Or is there anything you can do on the distribution side.
To reduce the reliance on the distribution to carry their weight just trying to understand how does sort of softened some of this acute cyclicality on the business model.
Bill It would be a great idea and if we had pricing power.
We would use it.
We have discovered that there are many many competitors who make those kinds of structural changes are quite challenging and difficult and that's just the way we the way we have experienced it we are now and our fifth decade.
Dealing with this conundrum.
And if you may recall, we started off with.
Back in your childhood 100 basis point money market funds and we're a far cry from there.
And we.
We have looked at other kinds of models.
But we really arent able to figure out one.
That avoids the marketplace remember what this fund is is and actual marketplace right not and administered rate.
And so it is subject to these vagaries.
We still like the business because over time it adds a beautiful.
Our balance ballast to.
To the enterprise.
Even though we have to suffer through these times with these big waivers.
Okay second question, just coming back to capacity for a moment she.
And so you mentioned coffee mentioned and so then.
And the emerging market portfolio is there anything else on the horizon and the equity side or even the fixed income side.
You'd be anticipating as potential close that could further impact the net sales opportunity.
No.
Okay. Thank you.
Okay.
Our next question comes from the line of Mike Carrier with Bank of America. You May proceed with your question.
Good morning, and they stay on the question.
Just on the money fund side on the change in rates and waivers you over the past few quarters fairly significant.
But given the economic growth that we're seeing it seems like the rebound could be equally swift.
So I just wanted to get your view on.
What do you think you could get rate flavors battery levels and you'll see that we just saw <unk> reported.
Sure.
I do think what I mentioned earlier, the technical adjustments that we hope are coming and the second quarter from the fed with regard to the RP and <unk> rates should be extremely helpful.
And basically that.
Another kind of technical factor is the debt ceiling issues that start to impact and the beginning of the third quarter once that and that has supply issues associated with it because net treasury has to get its cash balance down under a certain number so once those.
Issues are past us, we believe that the money market yield curves, which on that price.
Prime side like the bids be curve, which I'll note on using that instead of LIBOR now and stop Bloomberg and short term bank yield index.
And I knew gauge that we think is helpful. On the prime side that curves already backed up maybe 1% to three basis points since the beginning of the year really starting in the fourth quarter of last year, but the bell curve, where the majority of our assets lie on from a government on standpoint has actually declined.
And gotten less steep by anywhere from one to three basis points. So we think we start we started and the third quarter to have the bell curve start to normalize a little bit more.
Also at that point, it's our expectation that because of the economic recovery, we should be seeing and improvement.
And.
Where are we where we see our current standard inflation measures and.
And the fed will need to begin to address that issue the target rate.
And we think that they start that process by a beginning.
And you announced cut backs and their bond buying late in the second half of 2021, which then sets the stage for further economic recovery further inflationary issues and 2022.
And at which point, we think the fed will react by by increasing by 25 basis points. So the point and that the point in that.
Our answer to your question, Mike is that even without the fed adjusting that target that funds rate. We think that there is a huge benefit with some of the technical adjustments that they can and will likely do that will improve the products from E on gross yield standpoint, which obviously helps flavors.
But that's the truth.
But the true target adjustments to outcome until sometime in 2022 later in the year more than likely.
Okay, Great that's helpful and then.
And just as a follow up on the long term side fixed income flows continue to be robust just any color on on distribution channels or where you're seeing the strong and and and we saw some modest outflows and multi asset and all so anything there that you could think day.
And those to be positive going forward.
Yes.
In terms of the distribution, we're seeing a lot of good things singles and doubles occurring around the around the distribution.
I'll just give you a few without the names of the distributors, but.
We had one just added a preference for high yield bonds that helps us.
We added another one and accept our responsible investing Institute training program.
The micro shorts and new products are being added.
The engagement fund is now on a number of other list.
ESG has come in to be a big theme and a lot of places as I mentioned in my remarks, the short term remains strong.
Ultrashort and are being well received.
And people are looking at floating rate and and around the horn. So.
What what you have is a whole array of products and that's why we keep mentioning 19 2021 different products, whether it's equity or fixed income that are positive flows.
The breadth of the offerings that we're able to make now if you have specific.
Questions Ray has a comment well you mentioned the multi asset and.
The largest fund we have and that category is our muni and stock advantage fund and we see a pretty bright outlook for that strategy given the outlook for tax rates and it's a pretty.
And unique strategy and combining Moody's and stock exposure.
And in the first quarter. It was just about breakeven on on.
Net sales and is slightly positive here and the first part of April and for the prior couple of quarters.
And 2020, we had some outflows and that strategy. So we think there is an improved outlook and the category.
Got it okay. Thanks a lot.
Our next question comes from the line of Robert Lee with <unk>. You May proceed with your question.
Great. Thanks, Good morning, everyone hope everyone's doing well.
And then he feeling back.
Great. Thanks.
Maybe going back to the.
And.
And the money from questions and I'm just trying to.
And so you know maybe.
And if we move past Q2 and.
Everything being equal I know, there's a huge number of moving parts.
No I think about the guidance you gave for heading into this current quarter and the rates.
And stayed lower.
And lower but if we got back some time and rate environment say over a five basis points and some basis points, but we'd be looking at <unk>.
Fee waivers and Q3 Q4 or be on kind of more similar to what we.
You originally were anticipating for Q1.
And maybe the fourth quarter, just trying to size.
And if rates go up and you know what the against this vaccine.
Hey, Rob.
So it's tough for the last time, we predicted.
You know six months ago, or so said Oh, we thought.
2021 was going to be 90, 999, and okay. So we stopped talking about the future like that and we.
We're on models based on on Debbie's team's forecast.
And we don't get too to as low as.
As low as we were before based on on there the midpoint of their range.
We don't get the Q Q1, and we don't get to 2020 numbers.
As far as Youre going to get me to go on that.
Well, it's always worth a shot.
Yes.
Maybe on the.
Moving back to the.
Minority interest from from D C.
Just kind of curious a couple of questions and number one is is there an option as part of that arrangement for the existing Hermes employees to increase their stake. So once the price and you can read upon it could actually be for me as employees take part of it or.
Or is it just can be potentially.
Federated.
And how do you kind of.
And on price Hasnt, and any kind of weighted for instance.
You know potential financial impacts from it or how we should be thinking about going forward.
So on and on the first question it would be a straight up deal.
Between the pension scheme and.
And Federated Hermes and J.
Our employees have their 10% and would keep their 10% and have arrangements and numbers of years and all sorts of a whole different programs. So those two do not intersect and J just as a comment here recall that when we did the deal.
We're perfectly happy to buy all the stock or buy a portion of the stock. So long as we bought control and the reason for that was that we have a very large client who created this whole enterprise and however, they wanted to handle it is how we wanted to.
And to handle it on that subject. So now that they have put in for evaluation, we're happy to go down that road.
And <unk>.
See what happens now in terms of the valuation and what impact it would have they own 29 and 5%. We are on the threshold of acquiring evaluation and therefore, you will not get me to go sport fishing on the valuation, but you are certainly welcome to have a swing at that pitch.
And.
And if it comes to evaluation, we agreed to then Theres no puts and calls and we just do it or maybe they put or maybe we call and.
Maybe it gets delayed a year and maybe it doesn't.
But those are those are the dynamics, so it's 29 and 5% of the.
Former Hermes enterprise that we're talking about.
Okay, great and thanks for taking my questions.
Our next question comes from the line of John Dunn with Evercore ISI. You May proceed with your question.
Yes.
Hi, good morning.
You guys had been active.
Going back on tuck in M&A and you just mentioned horizon.
You see more opportunities like that and could you maybe give us a.
On the M&A environment for both the money market roll ups and and then for the long term zone.
So we're.
Jonathan and I think we are.
We are always out there with our team if you'd notice and the press release.
Our gentleman who's out there doing this says were open and available. This is the horizon press release.
We are open and available and continually looking to help out.
All of the various entities, who may decide that it's better for them too.
Do what we call roll up which has turned their assets over and over to us and so we continue to have discussions out there.
<unk>.
In terms of bigger picture and see lots of a.
Lots of.
Things have happened and the last a year.
Year, and a half in terms of bigger deals and where things fall and as Chris has mentioned.
And we see.
And we see ourselves set up with our with our Hermes.
And our London business, and what we have and the rest of the company.
Great growth opportunity and so we haven't seen that we're playing in those big.
Big transactions and.
We still get the look at them, we still get the books.
Still get contacted.
We haven't had a big level of excitement about moving forward as it stands right now.
If I may comment we are active in this space too. If you recall P&C you mentioned horizon. So you should not be surprised that we are still active in this space.
Got you and then maybe just one more tiny one on this Steve.
Speed of change and fee waivers and it seemed like rates move.
Q1, and waivers changed pretty quickly too.
And how quickly can they turned back down if we get some cooperation from rates and because they have to be any cycling through.
Portfolios, which did take some time.
Sure.
Let me answer that in the context of day.
R. P rate currently being it zero and a potential five basis point move and that.
The largest majority of our 430 billion and assets under management in the liquidity spaces and the government product area roughly two thirds on head.
And as such those portfolios generally have about 40% to 60% of their.
Composition of their assets and overnight and securities. So.
50% of five basis points gives you two and five basis points on.
Two thirds of the assets the other asset classes, the prime products and they are.
Tax free products and then the remaining portion of the government products would be more impacted by what the curve does as opposed to what overnights tail and we think that impact is more along the lines of maybe a basis point or two.
And I appreciate it thanks very much.
Our next question comes from the line of.
Ken Worthington with J P. Morgan you May proceed with your question.
Hey, good morning, Thanks for taking my questions and.
To follow up on Rob's I don't think he got this and I sort of missed part of his question, but in terms of Hermes and the put call provisions.
How how much earnings or how much of your earnings is being generated by Hermes at this point and <unk>.
This helps us gauge with.
This deal and maybe like and would you be willing to do.
On a dilutive deal if it came to that or is accretion a key metric that youre looking at to to execute that transaction I will answer the second part of your question, Ken Tom will take the first the second part as regards whether we're willing to do it accretive or dilutive it doesn't matter if you're.
Inside the structures of the put call arrangement it will be a price it will be evaluation and if it's put we will buy if it's called they will sell and.
The dilution and anti dilution on our non dilution will be a factor in some of that but if the.
Price comes within the range of the put and then we will buy it no matter what the effective. It is so this is really governed by the put call deed as as they call it over there and.
And it obviously can be adjusted or trumped at any time by a negotiation Tom got it.
Okay. Okay. Thank you.
Yeah on.
On the sharing.
And I'll call it.
So we have to do everything.
According to Hoyle from our arrangement with.
With the pension scheme when we when we purchased the Hermes business and that is pricing and sharing on distribution that we do here. So we've talked before about the funds that we started here and there as.
You know a solid arrangement there for sharing and we've talked before about the funds I don't think we updated that and.
And over a $100 million of the funds that we started here we've seen some green shoots on institutional.
Starting to arise.
There are distribution and the U S is selling <unk> products. So we're excited about that but it's nothing.
Big in terms of dollars and the <unk>.
And the valuation yet and.
And then the Eos business, because that's a whole Hermes business well, Chris mentioned, the number of people and the growth there that's all contained and her and Hermes.
So it's.
It's not a whole lot.
But what we're generating as it stands we have.
A lot of efforts and energy and our whole business development Committee.
Expecting that to grow into the future and starting to see it work.
Okay, great. Thank you. Thank you very much there.
And then the money fund business I believe you guys had set and the past that even and the the worst of the financial crisis that the money market fund business.
Was a profitable business for you given that the and the yield environment is sort of a worse now than it had been and even if it's just temporary.
The money market fund business still a positive earning enterprise for you guys or are yields terrible enough at this point, where it's more.
More and more like breakeven or even generating losses.
It is not generating losses. It is still a profitable good thing to be doing.
Okay. Okay.
I'm, sorry, I'm going to be greedy and do one more given given that your competition and money market funds is probably under huge pressure is there more opportunity to do these money market fund blocks or outright deals or is the business just sort of consolidated enough where that opportunity is not really much of an opportunity anymore.
Sure.
There will be more of those come along can each step in this process from prior to the big recession.
Oh eight or nine.
As I mentioned before there were over 200 people doing.
Money market funds now if you look at the list, it's 50 or so and a lot of those are just and it because they totally control the money in and half.
And as time evolves and as these things occur people.
Decide they're going to throw and the Tau.
And then we work out a deal not unlike we worked out.
And with PNC that works out for everybody.
And as I always like to say, we are a warm and loving home for any money market fund assets.
Great. Okay. Thank you very much.
Our last question comes from the line of Kenneth Lee with RBC. You May proceed with your question.
Hi, Thanks for taking my question just.
And just one on on the money market fund fee waivers I think of it and the prepared remarks, you mentioned something about the not obtain and cost sharing for certain distribution partners just wondering.
If you could clarify that and I'm wondering if you could just talk about expectations for cost sharing going forward. Thanks.
Sure Ken.
So generally on the as rates go down and.
This period and in the last period, we have shared pro rata with our distribution partners.
And as rates and then we get.
Part of our administrative fee basically.
And.
So its fees and total and then.
When we get down to where there's no more sharing I E. The distribution partner is.
Is that.
<unk> zero, there's no more sharing that they can do and we take the brunt of the of the hit on the decrease in and waivers or increase and waivers decrease and rates and that's why you saw in the late in the first quarter, where that switched over to rates were low enough where the.
Distribution.
Couldnt go and distribution.
Savings couldn't couldn't go and expense couldn't go any lower and it hit all to us.
Gotcha Gotcha, that's very helpful.
And just one follow up.
If I may and this.
Just on.
And the H J P E carried interest and perhaps and this is just help me understand and make sure I got all the nuances.
But just wanted to see if the COVID-19 interested level or is that going to be dependent upon our portfolio realizations going forward within as J P or are there other nuances that we should be aware of thanks.
It's an H G P a carried interest.
That's where mainly where it shows up.
Okay.
Is it going to be dependent on on portfolio monetization or any other or is it really just.
So the carried interest if I may so the cadence is specifically and J P is realized there are several funds when these funds.
The assets of the holes come to maturity and to sell them off which is the normal course of action within.
And the kind of interest which is purely within the private equity of GP performance fees.
On the private market assets and go on a slightly different cycle.
But you are correct as far as the perfect and stuff.
Yes.
Got you very helpful. Thank you very much.
Ladies and gentlemen, we have finished our question and answer session I would like to turn this call back over to Mr. Ray Hanley for closing remarks.
And that concludes our call and we thank you for joining us today.
Thank you for joining US today. This concludes today's conference you may disconnect your lines at this time.
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