Q4 2021 Federated Hermes Inc Earnings Call
Speaker 1: Good day ladies and gentlemen and welcome to the federated Hermes Q4 2021 analyst call and web
Good day, ladies and gentlemen, and welcome to the Federated Hermes Q4, 2021 analyst call and webcast.
Speaker 1: At this time, all participants have been placed on a listen-only mode. And the floor will be opened for questions and comments after the presentation.
At this time, all participants have been placed on a listen only mode and the floor will be opened for questions and comments. After the presentation. It is now my pleasure to turn the floor over to your host Raymond J Hanley, President Federated Investors management company, Sir the floor is yours.
Speaker 1: It is now my pleasure to turn the floor over to your host, Raymond J. Hanley, president, federated investors management company.
Speaker 2: Good morning and welcome. Thank you for joining us today. Leading today's call will be Chris Donahue, CEO and President of Federated Hermes, and Tom Donahue, Chief Financial Officer, and joining us for the Q&A, our Sacker Nassabi, who is the CEO of the International Business of Federated Hermes, and Debbie Cunningham, our Chief Investment Officer for the Money Market.
Good morning, and welcome. Thank you for joining us today.
Leading today's call will be Chris Donahue, <unk>, CEO , and president of Federated, Hermes and Tom Donahue, Chief Financial Officer, and joining us for the Q&A are soccer savvy, who is the CEO of the international business of Federated Hermes and Debbie Cunningham, our Chief investment officer for the money markets during today's call.
Speaker 2: During today's call, we may make forward-looking statements, and we want to note that our actual results may be materially different than the results implied by such statements. Please review the risk disclosures in 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.
May make forward looking statements and we want to note that our actual results may be materially different than the results implied by such statements. Please review the risk disclosures in 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.
Speaker 3: Thank you Ray and good morning all. I will review Federated Hermes Business Performance and Tom will comment on our financial results.
Thank you Ray and good morning all.
I will review Federated Hermes business performance and Tom will comment on our financial results.
Speaker 3: 2021 ended with record long-term assets under management of $221 billion, including record assets in fixed income, $98 billion, and record in alternative private markets, $23 billion.
2021 ended with record long term assets under management of $221 billion, including record assets and fixed income 98 billion and record in alternative private markets 23 billion.
Gross sales of long term strategies reached another record high in 2021, hitting nearly $70 billion.
Speaker 3: Gross sales of long-term strategies reached another record high in 2021, hitting nearly 70 billion.
Speaker 3: a 14% increase from 2020.
A 14% increase from 2020.
Speaker 3: Net sales in these strategies nearly doubled to just under 9 billion.
Net sales in these strategies nearly doubled to just under $9 billion.
Speaker 3: Assess under advice by EOS at federated Hermes for 1.6 trillion at the end of 2021. We added one new client in the fourth quarter and 10 during the year.
Assets under advice by Eos at Federated, Hermes, where one six trillion at the end of 2021, we added one new client in the fourth quarter and 10 during the year.
Looking first at equities fund flows were negative in the fourth quarter by about $1 7 billion with outflows in growth and international strategies.
Speaker 3: Fun flows were negative in the fourth quarter by about 1.7 billion without flows in growth and international strategy.
Speaker 3: Equity SMAs had fourth quarter net redemptions of about 56 million and equity institutional separate accounts had 987 million of net redemptions.
Equity SMA had fourth quarter net redemptions of about $56 million.
And equity institutional separate accounts had $987 million of net redemptions <unk>.
Speaker 3: including 549 million from a UK-based client.
Including $549 million from a U K based client.
We saw positive net sales however, in 18 equity strategies, including global emerging markets Smid U S smid.
Speaker 3: We saw positive net sales however in 18 equity strategies.
Speaker 3: including global emerging markets mid US mid and global global equity ESG.
And global equity global equity ESG.
Looking at areas of focus for equity business in 2022.
Speaker 3: Looking at areas of focus for equity business in 2022, we're providing clients with research and thought leadership on asset classes and strategies that have responded well in past inflationary periods.
We are providing clients with research and thought leadership on asset classes and strategies that have responded well in past inflationary periods.
Speaker 3: Within equities, these include dividend income, international emerging markets, and value strategy.
Within equities. These include dividend income.
Her national emerging markets and value strategies.
Speaker 3: Our largest equity strategy, the Strategic Value Dividend Strategy, is off to a solid start in 2022 with positive returns and early net sales for both the fund and the SMA.
Our largest equity strategy.
The strategic value dividend strategy is off to a solid start in 2022 with positive returns and early net sales for both the fund and the SMA.
Speaker 3: We have a robust suite of international equity strategies managed both in London and in the US.
We have a robust suite of international equity strategies managed both in London and in the U S.
Speaker 3: several of our London Managed Equity Strategies produced solid net sales in 2021, including Global Equity ESG 849 million, SDG engagement 565 million, Asia-X Japan 437 million, and Global EM Smith 166 million.
Several of our London managed equity strategies produced solid net sales in 2021.
Including <unk>.
Global equity ESG $849 million SCG engagement $565 million Asia ex Japan.
$437 million and.
In global EM Smid $166 million.
Speaker 3: All three of the international strategies managed from our Cleveland office are rated five stars by Morningstar.
All three of the international strategies managed from our Cleveland Office are rated five stars by Morningstar.
Speaker 3: We will continue to emphasize these and other strategies that offer solutions to clients as they manage against higher inflation.
We will continue to emphasize these and other strategies that offer solutions to clients as they manage against higher inflation.
Speaker 3: Our equity fund performance is the end of 2021 compared to peers with solid. Using Morningstar data for the trailing three years at the end of 2021.
Our equity fund performance at the end of 2021 compared to peers with solid.
Using morningstar data for the trailing three years at the end of 2021.
Speaker 3: 59% 20 of 34 of our equity funds were beating peers and 26% 9 out of 34 were in the top quartile of their categories.
59%.
134 of our equity funds were beating peers and 26% nine out of 34 were in the top quartile of their category.
Speaker 3: For the first three weeks of 2022, equity funds and FMAs each had net positive sales, which show a combined total of about 46 million. And we had 18 equity funds with positive net sales in these first three weeks of January .
For the first three weeks of 2022 equity fund and SMA each had net positive sales.
A combined total of about $46 million.
And we had 18 equity funds with positive net sales in these first three weeks of January .
Turning now to fixed income Q.
Speaker 3: Two four net sales were just under 500 million as institutional account net sales of 752 million and SMA net sales were about...
Q4, net sales were just under $500 million as institutional account net sales of $752 million.
And SMA net sales of about $60 million.
Speaker 3: We're partially offset by fund net redemption so 330.
Were partially offset by fund net redemptions of $330 million.
Speaker 3: Fixed income separate account net sales were driven by high yield, $407 million, and multi-sector, $327.
Fixed income separate account net sales were driven by high yield $407 million and multi sector.
302007 <unk>.
Strategies.
Within fixed income funds high yield strategy showed net sales of $424 million led by the STG engagement high yield credit UCITS fund.
Speaker 3: Within fixed income funds, high yield strategy showed net sales of $424 million led by the SDG engagement high yield credit use fund.
Speaker 3: Net redemptions occurred in ultra short bond fund and certain other short duration strategies.
Net redemptions occurred and Ultrashort bond fund and certain other short duration strategies.
Speaker 3: We had 19 fixed income funds with positive net sales in the fourth quarter, including strategic income, union, guvvy, ultra shorts, inflation, protected securities, floating, rate, strategic income, total return bond fund, and of course others.
We had 19 fixed income funds with positive net sales in the fourth quarter, including strategic income Muni and got the ultrashort inflation protected securities floating rate strategic income and total return bond fund and of course others.
Speaker 3: In the fourth quarter, we successfully launched our first two active, transparent ETS.
In the fourth quarter, we successfully launched our first two active transparent Etfs and investment grade short duration corporate bond fund and our high yield short duration bond funds.
Speaker 3: an investment grade short duration corporate bond fund and a high yield short duration bond fund.
Speaker 3: We're focused on the growth of these initial products while we also plan for additional ETF offerings in 2022.
We are focused on the growth of these initial products. While we also plan for additional ETF offerings in 2022.
Regarding performance.
Speaker 3: At the end of 2021 and using Morningstart data for the trailing three years, we had eight fixed income funds, 22% in the talk quartile and 17 funds, 47% above me.
At the end of 2021 and using Morningstar data for the trailing three years, we had eight fixed income funds, 22% in the top quartile and 17 funds, 47% above median.
For the first three weeks of Q1 fixed income funds and SMA had net redemptions of about $34 million.
Speaker 3: For the first three weeks of Q1, fixed income funds and SMAs that net redemptions of about 34 million.
Speaker 3: During the same period, we had 17 fixed income funds with positive net sales, including solid results in total return bond fund and high yield. Ultra short funds were negative.
During the same period, we had 17 fixed income funds with positive net sales, including solid results in total return bond fund and high yield ultrashort funds were negative.
Speaker 3: In the alternative private market category, net sales of over 200 million included unconstrained credit of 193 million, absolute return credit of 91 million, and private equity of 39 million. This was partially offset by net redemptions in direct lending and infrastructure.
And the alternative private market category net sales of over $200 million included unconstrained credit of $193 million.
Absolute return credit of $91 million and private equity of $39 million.
This was partially offset by net redemptions in direct lending and infrastructure.
We successfully launched in Q4, a new vintage of our private equity series <unk>, five and a new vintage of our European direct lending series European direct lending to.
Speaker 3: We successfully launched in Q4 a new vintage of our private equity series, PEC 5, and a new vintage of our European Direct Lending Series, European Direct Lending 2.
Speaker 3: PEC-5 had initial funding of 342 million in the fourth quarter, and European direct lending too had 272 million in commitments for later funds.
<unk> had initial funding of 342 million in the fourth quarter and European direct lending too had $272 million and commitments for later funding.
Speaker 3: We are continuing marketing efforts to raise additional assets in each of these strategies this year.
We are continuing marketing efforts to raise additional assets in each of these strategies this year.
Speaker 3: We began 2022 with about 800 million in that institutional mandate, yet to fund into both funds and separate accounts.
We began 2022 with about $800 million in net institutional mandates yet to fund into both funds and separate accounts.
Speaker 3: These additions are expected to occur in alternatives, private markets, including unconstrained credit, direct lending, trade finance, and fixed income.
These additions are expected to occur in alternatives private markets, including unconstrained credit direct lending trade finance and fixed income.
Speaker 3: 16-com wins include core, flexible credit, and investment grade credit strategies.
Fixed income wins include core flexible credit and investment grade credit strategies.
Now moving to money markets.
Speaker 3: Assets were up about 34 billion in the fourth quarter with about 20 billion from funds and 14 billion from separate accounts.
Assets were up about 34 billion in the fourth quarter with about $20 billion from funds and $14 billion from separate accounts and.
Speaker 3: In addition to seasonal trends, we've been at fronted from ongoing stimulus-driven liquidity growth as well as wins in certain institutional market segments.
In addition to seasonal trends, we benefited from ongoing stimulus driven liquidity growth as well as wins in certain institutional market segments.
Speaker 3: Our money market mutual fund market share, including sub-advised funds, was about 7.4% at the end of the year, up from 7.2% at the end of the third quarter.
Our money market mutual fund market share, including sub advised funds was about seven 4% at the end of the year up from.
Seven 2% at the end of the third quarter.
Speaker 3: With the market pricing in a series of hikes and short-term rates in 2022, including the first increase in March, we've begun to see increases in the rates in the three months and longer portions of the money market curve. Tom will update how this impacts our yield waiver outlook.
With the market pricing in a series of hikes in short term rates in 2022, including the first increase in March we have begun to see increases in the rates in the three months and longer portions of the money market curve Tom.
Tom will update how this impacts our yield waiver outlook.
Speaker 3: We believe that higher short-term rates will benefit money market funds beyond waiver release.
We believe that higher short term rates will benefit money market funds beyond waiver relief.
Speaker 3: As in the 2009 to 2006 change period of near zero rate.
As in the 2009 to 2016 period of near zero rates money market funds have retained most of their asset even as alternatives offered higher yields.
Speaker 3: Money market funds have retained most of their assets, even as alternatives offered higher yields.
Speaker 3: Over the span of the last Fed tightening cycle, that began in the fourth quarter of 16 through the last right rate hike in the fourth quarter of eight.
Over the span of the last fed tightening cycle that began in the fourth quarter of 16 since the last rate rate hike in the fourth quarter of 18.
Speaker 3: After an initial decline, our money markets fund managed assets increased by about 15%.
After an initial decline our money market fund.
<unk> managed assets increased by about 15%.
Speaker 3: The industry followed a similar pattern when after initial decline was followed by growth of 11% over that time, friends.
The industry followed a similar pattern when after initial decline was followed by growth of 11% over that timeframe.
The higher rates helped us continue to grow these assets by an additional 22% through the third quarter of 19, when the fed began to ease rates.
Speaker 3: The higher rates helped us continue to grow these assets by an additional 22% through the third quarter of 19 when the Fed began to ease rates.
Speaker 3: Similarly, industry money market fund assets also grew in this period, showing a 14% increase.
Similarly industry money market fund assets.
Also grew in this period, showing a 14% increase.
Speaker 3: Now we closely monitor and comment on the SEC's proposed money market fund regulatory change.
Now we closely monitor and comment on the SEC proposed money market fund regulatory changes.
Speaker 3: The comments submitted to the SEC by us and others clearly note that swing pricing is not a workable alternative for institutional prime and muni money market funds. We believe that most institutions would not use these products if swing pricing were to be imposed.
Comments submitted to the SEC by Us and others clearly note that swing pricing is not a workable alternative for institutional prime and Muni money market funds. We believe that most institutions would not use these products if swing pricing work to be imposed.
Speaker 3: In addition to uncertainty around redemption proceeds, large-scale system changes would be required by both money fund managers and investors to enable swing pricing to work. In our view, few, if any, will undertake these efforts.
In addition to uncertainty around redemption proceeds large scale system changes would be required by both money fund managers and investors to enable swing pricing to work in our view few if any will undertake these efforts.
Speaker 3: As a result, we expect that most of the assets currently in institutional prime and munifunds would shift to government money market funds as many did the last round of the changes in 2016 or to products like our private prime fund that are not subject to two A7 money market mutual fund regulation.
As a result, we expect that most of the assets currently in institutional Prime and Muni funds would shift to government money market funds as many did the last round of changes in 2016.
Or to products like our private Prime fund that are not subject to a seven money market mutual fund regulations.
Speaker 3: We have approximately $8 billion in client assets in institutional prime and muni funds that would be impacted if swing pricing were to be imposed as described.
We have approximately $8 billion in client assets and institutional prime and Muni funds that would be impacted if swing pricing were to be imposed as described.
Speaker 3: Taking a look now at recent asset totals. Managed assets were approximately $651 billion, including $436 billion in money markets, $90 billion
Taking a look now at recent asset totals managed assets were approximately 651 billion, including 436 billion in money markets.
<unk> 90 billion in equities 98 billion in fixed income.
Speaker 3: 98 billion in fixed income, 23 billion in alternative private markets, and 4 billion in multi-ass.
$23 billion in alternative private markets.
And $4 billion in multi asset.
Speaker 3: money market mutual fund assets were $294 billion.
Money market mutual fund assets were 294 billion.
<unk>.
Thanks, Chris.
Total revenue for the quarter was down 2% from the prior quarter due mainly to lower average equity assets.
Speaker 2: Total revenue for the quarter was down 2% from the prior quarter due mainly to lower average equity assets.
Speaker 2: higher money market fund waivers, and lower performance fees, partially offset by higher money market assets, higher alternative private market assets, and higher fixed income assets.
Higher money market fund waivers and lower performance fees, partially offset by higher money market assets.
Our alternative private market assets and higher fixed income assets.
Q4 carried interest and performance fees were $3 7 million compared to $5 1 million in Q3.
Speaker 2: Q4 carried interest and performance fees were $3.7 million compared to $5.1 million in Q3.
Speaker 2: Operating expenses increased slightly in Q4 compared to Q3. Compensation unrelated was down due to lower incentive compensation expense.
Operating expenses increased slightly in Q4 compared to Q3 compensation and related was down due to lower incentive compensation expense.
Speaker 2: Advertising and promotional increase due to higher advertising and conference expenses.
Advertising and promotional increase due to higher advertising and conference expense.
Speaker 2: We saw some restoration in travel and related expenses during Q4 when pandemic-related restrictions eased.
We saw some restoration in travel and related expenses during Q4, when Pat pandemic related restrictions ease.
Speaker 2: With short-term rates moving up in anticipation of FedRite, Fed
With short term rates moving up in anticipation of fed right Ted.
Rate hikes, beginning in March we estimate that the negative impact on operating income from minimum yield waivers on money market funds for Q1 will improve to about $22 million compared to $38 million in Q4.
Speaker 2: rate hikes beginning in March, we estimate that the negative impact on operating income from minimum yield waivers on money market funds for Q1 will improve to about 22 million compared to 38 million in Q4.
Assuming a fed rate hike in March we expect the Q2 negative impact to decrease about 90% from Q1 estimated levels.
Speaker 2: Assuming a fed rig hike in March, we expect the Q2 negative impact to decrease about 90% from Q1 estimated level.
Speaker 2: Estimates are based on our investment team's expectations for portfolio yields and recent assets levels, asset mix and other facts.
Estimates are based on our investment team's expectations for portfolio yields and recent asset levels asset mix and other factors.
Speaker 2: The amount of minimum yield waivers and the impact on operating the cymbal ferry.
The amount of minimum yield waivers and the impact on operating income will vary.
Speaker 2: based on several factors including among others interest rates, the capacity of distributors to absorb waivers, asset levels,
Based on several factors, including among others interest rates the capacity of distributors to absorb waivers asset levels and.
And asset mix.
Speaker 2: and he changes in these factors and impact the amount of minimum yield waivers including in a material way. Now look.
Any changes in the Faq and these factors and impact the amount of minimum yield waivers, including in a material way.
Now looking at expenses for a minute.
Speaker 2: for the future. Overall, most expense line items will be impacted by inflation for Q1 and for all.
Yes.
For the future overall, most expense line items will be impacted by inflation for Q1.
And for all.
2022.
Known comp and related items, including things like payroll tax and bonus restricted stock will increase in Q1.
Speaker 2: known pomp and related items, including things like payroll tax and bonus restricted stock will increase in Q1 by about $8 million.
Hi.
$8 million.
New hires wage increases bonus reset increases we expect will occur in Q1, but we're not going to predict by how much.
Speaker 2: new hires, wage increases, bonus reset increases. We expect we'll appear in Q1, but we're not going to predict by how much.
Speaker 2: Of course, there are less days in Q1 versus Q4 reducing that revenue.
Of course, there are less days in Q1 versus Q4, reducing net revenue.
Distribution expense is expected to increase as rates rise.
Speaker 2: Distribution expense is expected to increase as rates rise.
Speaker 2: System and communication is expected to increase as we continue to invest in the technology supporting our business.
System and communication is expected to increase as we continue to invest in the technology supporting our business.
Speaker 2: advertising for motion and promotion the full year of 2022 should look similar to the full year of
Advertising to promotion and promotion.
Full year of 2022 should look similar to.
The full year of 2021.
Speaker 2: Travel should increase as we hope to return to more normal operation.
Travel should increase as we hope to return to more normal operations.
Speaker 2: As you heard Chris mentioned, our ETF and our private markets business plans are being implemented along with the successes that he mentioned.
As you heard Chris mentioned, our ETF and our private markets business plans are being implemented along with the successes that he mentioned.
Speaker 2: So overall we're going to continue to invest for growth and we will deal with the reality of inflation.
So overall, we're going to continue to invest for growth.
And we will deal with the reality of inflation.
Speaker 2: At the end of 2021, cash investments were 427 million, of which about 397 million was available to us.
At the end of 2021 cash and investments were $427 million of which about $397 million was available to us.
Speaker 2: During Q4 we repurchased over 4 million shares of our stock for approximately 145 million.
During Q4, we repurchased.
Were purchased over 4 million shares of our stock for approximately $145 million.
Speaker 2: That at the end of the year was 223 million, reflecting both the acquisition of the remainder of the BTPF interest in Hermes, going Q3 and the Q4 share repurchase.
Debt at the end of the year was $223 million, reflecting both the acquisition of the remainder of the Bts interest in Hermes during Q3, and Q4 share repurchases now.
Speaker 2: Now, net cash and investments were 147 million at the end of the year. We continue to be
Net cash and investments.
$147 million at the end of the year.
We continue to be active in buying our stock.
Speaker 2: We are monitoring the debt financing market and may pursue long-term financing arrangements to supplement our cash flow from operations to fund sharey purchases, potential acquisitions to pay down part of our existing debt and for other corporate purposes.
We are monitoring the debt financing market and may pursue long term financing arrangements to supplement our cash flow from operations to fund share repurchases potential acquisitions to pay down part of our existing debt and for other corporate purposes, depending on market conditions and other factors.
Speaker 2: Depending on market conditions and other factors, we're considering long-term of approximately $300 million.
We're considering long term debt financing of approximately $300 million.
That concludes our prepared remarks and in case, we would like to open the call up for questions now.
Speaker 2: That concludes our prepared remarks. In case we would like to open the call up for questions now.
Speaker 1: Thank you. Ladies and gentlemen, the floor is now open for questions. If you have any questions or comments, please press star one on your phone at this time.
Thank you ladies and gentlemen, the floor is now open for questions.
Have any questions or comments. Please press star one on your phone at this time.
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Our first question today is coming from Dan Fannon at Jefferies. Your line is live you may begin.
Speaker 1: Our first question today is coming from Dan Fanon at Jeffries. Your line is live, you may begin.
Speaker 4: Thanks, good morning. I guess to start on the fee waiver guidance in terms of the assumptions, as you think about the improvement here to march without any fed change, is that assuming asset levels as of 1231, or asset levels as of the numbers you gave today, and then it is based on the current yields, expectations of further improvements, just a little bit more color on the kind of shorter term dynamics before the Fed actually moves.
Thanks, Good morning.
Just I guess to start on the fee waiver guidance in terms of the assumptions.
As you think about thank you.
Improvement here to March without.
And he said change is that assuming asset levels as of 12 31 were asset levels as of the numbers. You gave today and then is it based on the current yields expectations of further improvements.
Little bit more color on the kind of shorter term dynamics before the fed actually moves.
Speaker 5: Yeah, it's the asset level is as of, I think January 21st and rates. You want to comment on that, Debbie? Certainly. Yeah. We're looking at what will continue to be in our minds, expectations of a steepening yield curve as we get into the months of February and March and closer to that March FOMC meeting.
Yes.
The asset level is as of I.
I think.
January 20, <unk> and.
And rates you want to comment on that Debbie certainly, yes, we're looking at what we will continue to be in our minds the expectations of.
Steepening yield curve as we get in to the months of February and March and closer to that March epilepsy meeting.
Got it okay. Thank you and then in terms of the expenses I appreciate the color around inflation and the seasonal dynamics for the first quarter.
Speaker 4: In terms of the expenses, I appreciate the color around inflation and the seasonal dynamics for the first quarter and some of the other color. But the fourth quarter levels, a good starting point when we think about that comp reset because it came in lower, the 124 and the fourth quarter, just...
And some of the other color but.
As <unk> the fourth quarter levels, a good starting point when we think about that comp resets because it came in lower by $1 24 in the fourth quarter, just thinking about was there a true up and maybe also with her performance or incentive fees in the fourth quarter as well just trying to think about what we should just be adding eight in some inflation to the one.
Speaker 4: thinking about was there a true up and maybe also with her performance or incentives in the fourth quarter as well just trying to think about.
Speaker 4: what we should just be adding, Aiden, some inflation to the 124 if that was artificially low.
24 of that was artificially low.
Speaker 2: Yeah, so we didn't have a great year in terms of 2021, so that you saw the incentive comp went down at the end of the year as we analyzed and look how much should be paid out. So we reset those for 2022. And I already mentioned the 8 million of normalized type things.
Yes, so we didn't have a.
A great year in terms of.
2021.
You saw the incentive comp went down at the end of the year as we.
Annualized and looked at where it is.
How much should be paid out so we reset those.
For 2022.
I already mentioned the $8 million of kind of normalized type things.
Speaker 2: How much you want to go up from there? We expected to go up, but we're just not gonna
Okay.
You want to go up from there we expect it to go up but we're just not going to.
Speaker 2: speculating on how much the reason is because anytime I do that, I've just been wrong because things change in the marketplace so much that we got tired of Workcasting and then being way off
Speculate on how much the reason is because anytime I do that I've just been wrong because things change in the marketplace. So much that we got tired of.
Forecasting and then being way off.
Okay.
<unk>.
Thank you our next.
Speaker 1: Our next question today is coming from Patrick David at Autonomous Research. Your line is live.
<unk> today is coming from Patrick Davitt Autonomous Research your line is live.
Speaker 6: Hey, good morning, everyone. Personal waivers, some of the other large money fund complexes have suggested it could take a few months for them.
Hey, good morning, everybody.
Just on the waivers if some of the other large Muni fund complexes have suggested it could take a few months for the waivers to come off.
Speaker 6: as much as you guys are guiding to. So what gives you the confidence that you can be kind of 90% off, that rapidly, that quickly after.
As much as you guys are guiding to so what gives you the confidence that you can be kind of 90% off.
That rapidly.
That quickly after the first sites.
You know everybody factors are a little bit catharine its asset levels at that composition. How much is in government how much is in prime how much of the muni.
Speaker 5: you know everybody factors are a little bit different it's asset levels at that composition how much is in government how much is in prime how much is a muni uh... you know the dynamics of the curves between those sectors uh... what to what what what the actual outlook would be on the next petitions whether it's you know
The dynamics of the curves between those sectors.
Q, what what what the actual outlook would be on an expectations whether it's.
Additional news beyond March.
Speaker 5: additional moves beyond March, or only one or two moves throughout the year.
Or only one or two moves throughout the year.
Speaker 5: You also have the expense factors that are being charged. Those are not uniform across the market and as such, the waivers aren't uniform based on that.
You also have the expense factors that are being charged and those are not uniform across the market and as such.
Waivers or Egfr based on hours, so lots of different factors that go into that determination.
Speaker 5: So there's lots of different factors that go into that determination and calculation.
And calculation.
Got it thanks.
Speaker 6: And I appreciate the guidance on 8 billion in funds that would be impacted by the swing price.
And I appreciate the guidance on <unk> 8 billion in funds that would be impacted by the swing pricing but.
Sweet pricing appears to have been accepted in Europe . So why are you. So as you are coding the reaction in the U S. Just out of curiosity.
Speaker 6: So what you're saying appears to have been accepted in Europe . So why are you so draconian on the reaction in the US?
Speaker 3: it deserves draconian response and uh... in your and in your opinion really do it on real money market funds except for their pricing them uh... more or less out of a black box what it does is you end up with pricing that makes the product unusable and and customers at moving a four percent if four percent redemption occurs then you have to go to a swing price
It deserves draconian response and.
In Europe .
In Europe , they don't really do it on real money market funds, except for their pricing them.
More or less out of a black box what it does is you end up with.
Our pricing that makes the product unusable and customers at moving up 4%. If 4% redemption occurs then you have to go to a swing price and our customers arent going to know that that's going on in a non volatile timeframe and theyre going to be.
Speaker 3: And the customers aren't going to know that that's going on in a non-volatile time frame. And they're going to be surprised to the negative to get hit with what amounts to a redemption fee through the mechanism of a swung price.
Surprised to the negative to get hit with.
What amounts to a redemption fee through the mechanism of us one price.
Speaker 3: The mechanisms that have to be put in are expensive, time consuming and of no value. And so why are customers gonna do that? Why do we wanna do it? And...
The mechanisms that have to be put in are expensive time consuming and have no value.
So why are customers going to do that why do we want to do it and.
Speaker 3: basically it it looks to me like it's in live in the what the fed said years ago that they wanted to either kill prime and munifunds or quote regulate them out of existence and our view is from a look at you know real stakeholder uh... uh... defense
Basically it looks to me like it's.
Enlivening, what the fed said years ago that they wanted to either kill prime and muni funds or quote regulate them out of existence and our view is from a look at.
Real stakeholder.
Defense that issuers have the right the issue in and buyers have the right to buy these products that have proven very resilient and very successful over the years protestations by the fed to the contrary notwithstanding.
Speaker 3: that issuers have the right to issue in and buyers have the right to buy these products that have proven very resilient and very successful uh... over the years protestations by the uh... fed to the contrary notwithstanding
Okay.
Thank you.
Thank you.
Speaker 1: Our next question today is coming from Ken Worthington at JP Morgan. Your line is live.
Our next question today is coming from Ken Worthington at Jpmorgan. Your line is live.
Speaker 3: Hi, good morning. Chris, you noted that short and ultra short bond fund outflows. I believe in 4Q and I think you highlighted again so far in 1Q.
Good morning.
Chris you noted that shorten ultrashort.
Bond fund outflows I believe in <unk> and I think you highlighted again, so far in <unk>.
Speaker 7: Given the market is anticipating higher interest rates, why are these funds seeing outflows? And I noticed this has happened in the past, too. But I would kind of think that investors would be allocating more to short and alter short, not less in a, you know, as we approach and as we enter a rising rate environment.
Given the market is anticipating higher interest rates why are these funds seeing outflows and I noticed this has happened in the past too, but I would kind of think that investors would be allocating more to short and ultra short not less in a as we approach and as we enter a rising rate.
<unk>.
Speaker 3: Some of some of those products have experienced a decline in the NAV and Sometimes we're not really happy with having a decline in the NAV And I think it was about four cents. Yeah, and
Some of some of those products have experienced a decline in the navy and some clients, we're not really happy with having a decline in NAV.
And I think it was about <unk> <unk>, yes, and.
Speaker 3: So that caused some of those redemption.
So that caused.
Some of those redemptions, but thats just the nature of the product. So I agree with you people ought to be coming into those and.
Speaker 3: but that's just the nature of the product. So I agree with you people ought to be coming into those.
Speaker 3: And this is a great time for them to be doing that.
This is a great time for them to be doing that but we're still living on the backside of that Debbie yes, Ken I think what I would add to that is if you've looked at the flows over the course of the last several years in the most recent zero rate environment, they've been very very positive in those products and that.
Speaker 5: But we're still living on the backside of that, Debbie? Yeah, Ken, I think what I would add to that is if you looked at the flows over the course of the last several years in the most recent zero rate environment, they've been very, very positive in those products. And much of those positive, many of the positive flows have come from...
Much of those positive many of that.
Much of the positive flows have come from.
Speaker 5: liquidity assets going into, you know, pocketing, segmenting their cash and taking portions out into that ultra short space.
Quiddity assets going into pocketing segmenting their cash and taking portions.
Out into that ultrashort space.
Speaker 5: where those clients are now looking at something that in a rising rate environment, they'd rather be an even shorter product where we have a whole host of liquidity products that have been growing in addition to our new, you know, both taxable and unimicreshore products. So I think...
Are those clients are now looking at something that in a rising rate environment they'd rather be an even shorter products, where we have a whole host of liquidity products that have been growing in addition to our new.
Taxable Muni Microsoft products. So I think the altra shorts will gather assets from longer term bond players as they get shorter, but they will lose assets in a rising rate environment back to the even shorter products and Mike are short of money markets.
Speaker 5: The Altershorts will gather assets from longer-term bond players as they get shorter, but they will lose assets in a rising rate environment back to the even shorter products in the micro short and money market.
Great. Thank you and then I don't know if <unk> on the call.
Speaker 7: thank you and then i don't know if sacers on the call uh... maybe christian answer if he's not this bt still have meaningful investments with federated her meets funds and is there any schedule of planned redemptions or return a capital to to to bt i know this is something when the deal was first done um... you
Maybe Chris you can answer if he is not just BT still have meaningful investments with Federated Hermes funds.
And is there any schedule of planned redemptions or return of capital to BT I know this is something when the deal was first done.
Hugh Hugh Federated someone someone you were maybe with soccer highlighted that those assets were going to come out over time I just wanted to see where we were in that.
Speaker 7: federated someone and someone you were or maybe was sacchar highlighted that you know those assets were going to come out over time I just wanted to see where we were in that in that process
And that process.
Soccer is on the call.
Thank you.
Speaker 8: So, I mean, first off, I don't want to talk in great detail about BTS because it's a main client, but in so far as it relates to the publicly available information, which is to do with the deal. We did say at the beginning that certain assets of BTS primarily in public markets, where do you have a life, a declining life, because as a fund, it's direct benefit fund, and it is a maturing fund, however.
So I mean first off I don't want to talk in great detail about Pts because it's the main clients in so far as it relates to the publicly available information, which has to do the deal. We did say at the beginning that certain assets.
Primarily in public markets, where do you have a life of declining life because as a fund.
The fed funds.
It is a material however.
Speaker 8: We also run substantial assets for BTPS in private markets. And not only did they remain invested with us, we continue to discuss with them new opportunities which they are interested in.
We also run substantial assets will be PFS in private markets.
And also this is a remainder invested with US we continue to discuss with the new opportunities that are interested in.
So where do we stand on the public side.
Speaker 8: to update it. On public side, they are very much on track as per our original agreement with them. So there's no surprises there. The decline is incorporated within our funds. And the key for us is the private side, which is where the majority of us at stands.
To update us on the public side they are very much on track.
On the agreement with them.
So there's no surprises there the decline is incorporated within our funds.
The key for US is the private side, which is where the majority of asset status.
Thanks, David.
Okay. Okay. Thank you.
Speaker 2: And we gave out the levels there when we did the deal and
We came out we gave out the levels there when we did the deal and.
Speaker 2: You know, we kind of did that sort of, but I could see where it stood and anticipated not really.
We kind of did that so everybody could see.
Where it stood in anticipated not really.
Speaker 2: going into a client detail after that. So that was August , right? In August . Yeah. OK.
Going into a client detail after that so that was August right.
Yeah.
Okay. Okay. That's fair thank you.
Yes.
Speaker 1: Thank you. Our next question today is coming from Kenneth Lee at RBC Capital Market. Your line is live.
Thank you. Our next question today is coming from Kenneth Lee at RBC capital market. Your line is live.
Speaker 9: Hey, good morning. Thanks for taking my question. Want to go further color on the potential demand for money market fund products, especially as rate start going up. Thanks again for the historical perspective there. Would you also expect a similar dynamic this time? In which case you would see declines followed by growth over time. Thanks.
Hey, good morning, Thanks for taking my question.
Want to get further color on the potential demand for money market fund products, especially as rates start going up and thanks again for the historical perspective there.
Would you also expect a similar dynamic this time in which case you would see declines followed by growth.
Over time thanks.
Yes.
Speaker 5: Sure, Kenneth. This is Debbie. Obviously. You know, historically when interest rates have gone up, the initial reaction is for
Sure Ken at.
This is Danny obviously.
Historically when interest rates have gone up the initial reaction is for.
Speaker 5: money market funds to lose assets. And generally speaking, over most cycles, it lasts longer than it did in the 16 to 18 cycle. We think this will be more like the 16 to 18 cycle because of a couple characteristics. Number one, we're starting from zero again. So that's a difference than prior increasing rate cycles. And number two, it was caused by a sort of a major event in this case, a pandemic.
Money market funds to lose assets and generally speaking over most cycles it last longer than it did in the 16 to 18 cycle.
We think this will be more like the 16% to 18 cycle because of the capital characteristics number one we're starting from zero again so.
That's a different than prior increasing rate cycle and number two it was caused by a.
Yes sort of.
Major events in this case a pandemic.
Speaker 5: And ultimately, you know, zero has been experienced for a long time because of that particular factor. When you have a Fed though, like we have now, and like we have in 16 to 18, where you've got...
And ultimately zero has been experienced for a long time because of because of that that particular factor. When you have a fed though like we have now and like we had in 16 to 18, where you've got.
The preference for communication and a yield curve that effectively reflects expectations of fed movement now it is dynamic obviously and if you asked me three months ago or even three weeks ago. My opinion would've been different for what that that fed movement would have been but.
Speaker 5: the preference for communication and a yield curve that effectively reflects expectations of Fed movement. Now it is dynamic obviously if you asked me three months ago or even three weeks ago my opinion would have been different for what that Fed movement would have been. But the Fed that we have now is very communicative. Their Fed speak is out there in unison and as such products reflect.
The fed that we have now is very communicated there.
<unk> is out there in unison and as such products reflect.
Speaker 5: that from a yield curve standpoint, faster than they have in what I'd call more historic fed tightening cycles. And in this case, again, I'm not even calling it, and the Fed isn't calling it a tightening cycle, as they did not in 16 to 18. It's more normalization. It's getting rates back to where they should be in a more normalized environment with an inflationary environment that also becomes more normalized.
That kind of yield curve standpoint faster than they have in what I'd call more historic fed tightening cycles and in this case again are not even calling it and the fed isn't calling a tightening cycle as they did not in 2016 to 18, it's more normalization, it's getting rates back to where they should be at a more normalized environment.
With an inflationary environment that also becomes more normalized.
Speaker 3: Okay, let me, let me add also a couple other factors. One is...
Ken Let me let me add also.
A couple of other factors one is the.
Speaker 3: to take a look at the money supply. And all of money market fund users are function of that in the hands of all the individuals that have money. And so this is a look at what you might call core money market funds where people just need a cash management service.
Taking a look at the money supply and all of the money market fund as a function of that in the hands of all of the individuals that have money and so this is a look at what you might call core money market funds.
There <unk>.
People just need a cash management service and this isn't an exorable thing that grows I don't think they're going to start shrinking the money supply now it's not a direct factor and it certainly doesn't turn in quarters like we're looking at.
Speaker 3: And this is an inexorable thing that grows. I don't think they're gonna start shrinking the money supply.
Speaker 3: Now it's not a direct factor and it certainly doesn't turn in quarters like we're looking at but it is an underlying feature which enables us to get the higher highs and higher lows. It's one of the ingredients. Another one is
It is an underlying feature which enables us to get to higher highs and higher lows. It's one of the ingredients. Another one is that these products over all these decades have shown tremendous resilience and tremendous ability to give the clients what they want and so.
Speaker 3: The these products over all these decades have shown tremendous resilience.
Speaker 3: and tremendous ability to give the clients what they want. And so that's another big factor in why these products continue to be successful.
Another big factor.
And why these products continue to be successful.
Gotcha very helpful. There.
Speaker 9: And one follow up by ASIMA. Just one of you could just update us on capital allocation priorities. So they had meaningful sharing.
And one follow up if I may just wondering if you could just update us on capital allocation priorities. So they had meaningful share repurchases in the quarter and you talked about a little bit about our long term financing solutions I wonder if you'd just give us a little further color around there. Thanks again.
Speaker 9: You talked about a little bit about long term financing solutions. I want to give you a little further color around there. Thanks again.
Speaker 2: Yeah, the fronter color is to look at what we did in the fourth quarter. We weren't very happy with the stock price and we think the future of the company is great. So we've been buying more shares. We've got a new share buy back program, the seven and a half million. We've, you know,
Yes for further color as to look at what we did in the fourth quarter.
We're very happy with with the <unk>.
Stock price and we think the future of this company is great and so.
We've been buying more shares we got a new share buyback program was $7 5 million.
We continue to be active and we expect to be active and with the debt levels.
Speaker 2: We continue to be active and we expect to be active and with a debt level.
Speaker 2: We want to look for long-term financing to continue to have availability on the short-term and also, you know, satisfied with the rate on the longer-term basis.
We want to look for long term financing.
We continue to have availability on the short term and also satisfied with the with the rates on the longer term basis.
Gotcha. Thank you very much.
Thank you. Our next question today is coming from John John <unk> at Evercore ISI. Your line is live.
Speaker 1: Thank you. Our next question today is coming from John Dunn at Evercore ISI. Your line is live.
Hi, guys.
Speaker 10: i guess uh... you know with the waivers kind of the way out in the outflow i mean the outlook for flows you know pretty good at at the effect uh... conversations with small and money market players uh... this is delaying the role up heels and that how does that dynamic work
With waivers kind of on the way out in the outflow.
Look for flows.
Pretty good.
That effect conversations with smaller money market players.
Is it delay kind of the roll up deals.
How does that dynamic work at this point in the cycle.
Speaker 3: what what we have discovered is that the cycle really doesn't drive that truck it's it's more of a longer term internal decision by other potential roll-up candidates
What we've discovered is the cycle really doesn't drive that truck is it's more of a longer term internal decision by other potential rollout candidate.
As the CEO in the business people and the CFO of those enterprises decide whether those things makes sense for them given the risk profile and the growth profile. So.
Speaker 3: The CEO and the business people and the CFO of those enterprises decide whether those things make sense for them given the risk profile and the growth profile.
It just it doesn't work as an accelerant we've been in this a long long time, and it's hard to connect something that happened in the marketplace within things releasing so what's our answer.
Speaker 3: It just doesn't work as an accelerant. We've been in this a long, long time, and it's hard to connect something that happened in the marketplace with then things releasing. So what's our answer?
Speaker 3: we simply call on them all the time so that when the opportunities arise everybody knows that federated hermises a warm and loving home for their money fund
We simply call on them all the time, so that when the opportunities arise everybody knows that Federated Hermes as a warm and loving home for their money fund.
No.
Yes.
Got it and then you mentioned the strategic value dividend fund.
Speaker 10: Got it. And then you mentioned the strategic value dividend on doing better so far in 22. Can you run this highlight product sold and you think it's potential for a pick up there to pick up some of this lack in other areas that equities this year?
Doing better so far in 'twenty two.
And just how that products <unk> and <unk>.
Do you think there's potential for a pick up there to take up some of the slack and other areas in equities this year.
Speaker 3: we do and that's why i mentioned the uh... thought leadership that we were putting out into the market place began many months ago uh... with the belief that perhaps uh... inflation was not quote transitory close quote and that's uh... to look at the index paid is to c p i of various investment areas and
We do and that's why I mentioned.
Thought leadership that we're putting out into the marketplaces began many months ago.
With the belief that perhaps inflate.
Inflation was not quote transitory close quote and look.
Look at the index betas to CPI of various investment areas and.
Speaker 3: Those charts and works showed that dividend stocks, value stocks, and as I mentioned, even international and small cap, and obviously tips are the gang of solutions that you can work with to help clients manage around these higher inflation and higher inflation expectations.
Those charts and works showed that dividend stocks value stocks and as I mentioned, even international and small cap and obviously tips are the gang of solutions that you can work with to help clients manage around these higher inflation and higher inflation expectations.
Speaker 3: And so the strategic value dividend fund is right in the middle of the mix for that. And that just underscores one other point here. And that is we like to call ourselves a franchise for all seasons. And so when you get these giant reversals from growth to value.
So the strategic value dividend fund is.
Right in the middle of the mix for that.
And that just underscores one other point here.
And that is we like to call ourselves a franchise for all seasons and so when you get these giant reversals from growth to value and you have inflation, which are different.
Speaker 3: and you have inflation which are different situations than we had over the last several years. You have solutions for products that are ready and able to go.
Situations as we've had over the last several years you have solutions for products that are ready and then able to go.
Okay.
Thanks very much.
Thank you.
Speaker 1: Our next question today is coming from Robert Lee at KBW. Your line is live.
Our next question today is coming from Robert Lee at key BW. Your line is live.
Speaker 6: Great thanks, good morning everyone.
Great. Thanks, good morning, everyone.
Hey.
Just wanted to maybe go back to expenses, a little bit and no Tom.
Speaker 6: Just wanted to maybe go back to expenses a little bit and in the Tom understanding, don't want to give four guidance, but maybe just to level set, you know, 2021, I mean on comp, I mean, clearly some reversible prior cruel. So if we're trying to think of kind of a...
Tom understanding don't want to give forward guidance, but maybe just to level set.
2021 to meet on comp I mean.
Nearly some reversal of prior accruals. So if we're trying to think of kind of a.
Speaker 6: And a lack of a better way of putting a normalized comp level, you know, should we be just averaging the four quarters understanding in the first quarter last year, there was a bunch of noise, you know, that would kind of get, get us to round 130-ish million levels. That best way to think of it is kind of, you know, as we head into next year.
I don't know select the better way of putting a normalized comp level should we be just averaging the four quarters understanding in the first quarter of last year. There was a bunch of noise you know that would kind of get get us to around the 130 ish million level is that.
The best way to think of it as kind of you know as we head into next year.
Yeah. So.
Speaker 2: Yeah, so the first quarter, that's why I went through inflation and expenses in the first quarter. And then if we're right and the earnings of the company because of the rating prices are going to change, every time we put a cruel in for...
Rob.
First quarter, that's why I went through.
Inflation in the expenses in the first quarter and then if if we're right.
And the.
Earnings of the company because of the rate increases are going to change.
The time, we put an accrual in four.
Speaker 2: at earnings quarter, we are supposed to project.
At earnings quarter, we're supposed to predict.
Speaker 2: What we think is going to be the bonuses and the comp for the year.
What we think is going to be the bonuses and the comp for the year.
Speaker 2: So come Q1, we're going to have to give it put in a pro number in.
So come Q1, we're going to have to give it put an accrual number in <unk>.
And.
With our expectations of rates going up and you know.
Speaker 2: with our expectations of rates going up and basically taking most of the waivers out. So we're gonna have a nice decision to make in there and that's why I don't wanna predict it. Obviously we took a lot of comp out in Q4 based on...
Basically taken most of the wafers out.
So we're going to have have a nice decision to make in there and that's why I don't want to predict it obviously, we took a lot of cop out.
<unk>.
Q4 based on.
Speaker 2: You know, based on the earnings and the other factors. And so, would we restore comp? If the earnings are restored, yes.
Based on the earnings and the other factors.
So when we restore call if the earnings are restored yes.
Speaker 6: Okay, thanks. And then maybe on the ears business, so means
Okay. Thanks, and then maybe on the on the Eos business. So I mean.
Speaker 6: Trillion, six of assets under advisement. I know it's been a place certainly in the, I think in the US, you've invested in.
Trillion six of assets under advisement I know, it's been a place certainly and I think in the U S. You've invested in.
Understanding that it supports kind of the investment process across the firm more broadly but.
How should we think of the economic contribution of that advisory business is it really just hey, you know gives you greater insights, it's really or is there.
Any kind of you know.
Or meaningful you know earnings or revenue.
Upswing that we should be thinking about from that business.
<unk>, it's your turn.
Thank you Chris I think look first and foremost you have to think about it as essential to our brand.
Speaker 8: Thank you Chris. I think, look, first and foremost, you have to think about it as essential to our brand the FHI as being the main differentiator with everybody who wants to play within the ESG space because it gives us particularly deep understanding of all the factors that come to play and remember that for us.
As being the main differentiator with everybody who wants to play within the ESG space.
Because it gives us, particularly deep understanding.
Of all the factors that come to play and remember that for us.
Speaker 8: We believe that putting these factors in leads to sustainable wealth creation, meaning they actually have to around for so.
We believe that putting these fact, because it leads to sustainable location, meaning they actually have turnarounds. So in many ways. The value that you see that our clients see are reflected also in the us.
Speaker 8: In many ways, the value that you see that our clients see are reflected also in the understanding of the company that we engage with, in the environment that these companies operate in and so on. So there's an inherent value in brand, there's an inherent value in understanding companies, an inherent value of actually improving our own performance.
They have with the company that we engage with and the environments that these companies are operating and so on so there is an inherent value brand as an inherent value understanding companies.
Valuable.
Actually improving our own performance as they decided if we get this unique to her teams whether it.
Speaker 8: the insight that we get is unique to our teams, whether in Pittsburgh, Boston, or in London. The second thing you should take into account is that
Pittsburgh and most similar in London. The second thing you should take into account is that.
Speaker 8: Generally speaking, the clients who do have our clients we have in other areas. And that means that it's a holistic relationship.
Generally speaking the clients, we do have our clients we have.
All the areas.
And that means that.
It's a holistic relationship.
Speaker 8: and it tends to tie clients in. We hear Chris talking about us being a franchise for all seasons. And the one thing that is an overrarch in all the season.
Tends to tie clients in here, Chris talking about this being a franchise.
Seasons.
One thing that as an overall.
All the seasons.
Speaker 8: Certainly has been in the market that's out of the US, has been the EOS relationship because it doesn't matter what you're in, there's always going to be for the clients.
Suddenly it has been in the markets outside of the U S has been the Eos relationship because it doesn't matter what you wind is always going to be for the clients.
Speaker 8: of index investments and quite a lot of the time we try to get the EOS services for that index investment that gives us contact and commitment to the clients. If you're asking me, is EOS
Agree of index investments.
A quick look at the time, we try to get the Eos services for that index investment that gives us concern.
Because the clients if you ask me.
Eos.
To make this.
Speaker 8: an enormous amount of money, the answer is it is by definition not as high margin as other, directly high margins, other asset management businesses are concerned, but it's a business that we believe is worth pursuing both from a financial point of view but also from a and from an understanding point of view.
Enormous amounts of money the answer is it is by definition.
As high margin as other.
Hi, Mark.
Our asset management businesses.
But it's a business, which we believe is worth pursuing both from a financial point of view, but also from a.
From a.
And from an understanding points.
Speaker 6: Great, then maybe one last question. This is maybe looking at the S&A business. So.
Great.
Maybe one last question and this is maybe looking at the SMA business. So.
Speaker 6: I mean, clearly the industry, all this, a lot of movement towards, talk about model portfolios, everyone seemed that they're trying to create and model portfolios trying to get them on platform to net.
I mean clearly the.
The industry.
All of this you know a lot of movement towards you know talk about model portfolios everyone's seen that they are trying to.
Greed Crazy model portfolio was trying to get them on platforms and that's you may not have.
Speaker 6: You mean not a, I guess, a part of the industry that I think you guys have spoken to too often in the past? So if you maybe within your SMA business, how you kind of are thinking about, or maybe it's a part of it, you know, kind of developing models capability to try to get that placement as opposed to kind of the more.
I guess, a part of the industry that I think you guys have spoken too too often in the past. So can you maybe within your SMA business. How you kind of are thinking about or or maybe it's a part of that you know kind of developing models capability to try to get that placement as opposed to kind of the more.
Speaker 6: I'll call it traditional, you know, SMA approach, you know, kind of strategy by strategy.
I'll call. It traditional you know SMA approach no kind of strategy by strategy.
Speaker 3: we would be on both streets uh... recent i think we talked about this in prior calls we have one client
We would be on both streets.
Rob.
And I think we've talked about this in prior calls we have one client.
Speaker 3: especially who wanted models along the ESG line, which we set up and are implementing here, I think in the first quarter.
Especially who wanted models along the ESG line.
Which we set up and are.
Implementing here I think in the first quarter and that was a whole new deal for us, but the model thing in the SMA thing are related so naturally we're going to keep repeating what we've been doing on the SMA side and in addition.
Speaker 3: and that was a whole new deal for us but the model thing in the sma thing are related so naturally we're going to keep repeating what we've been doing on the sma and in
Speaker 3: working on these models in response to client demand.
Working on these these models in response to client demand.
Okay, great. Thanks, Chris I appreciate you taking my questions.
Speaker 1: Thank you. Our next question today is coming from Brian Bidell at Deutsche Bank. Your line is live. You may begin.
Thank you. Our next question today is coming from Brian Bedell Deutsche Bank. Your line is <unk> you may begin.
Great. Thanks, very much Chris I like the a warm and loving home comment on money market funds, you should make that a marketing.
Speaker 11: Great, thanks very much. Chris, I like the warm and loving home comment on money market funds. You should make that a marketing brochure, especially here in the refriger temperatures here in the Northeast to this time here. But maybe if I can ask Debbie about one more on the money market fund, flow trajectory, and specifically on brokerage sweep.
Brochures.
Refrigerate temperatures here in the northeast this time of year.
But maybe if I can ask Debbie about one more on the money market fund.
Our flow trajectory and specifically on brokerage sweep if we think about.
Speaker 11: How brokerages tend to lag, deposit pricing, they have very low deposit data than the first couple of hikes of the cycles. Therefore, clients that do want to get a yield would naturally migrate to money market funds in those sweep systems.
How brokerages tend to lag.
Positive pricing you know, they're very low deposit betas in the first couple of hikes at the cycles.
Therefore.
<unk> said you wanted to get your yields would naturally migrate to money market funds and the sweep systems.
Speaker 11: Maybe if you can comment on your thoughts of whether you think that would be a positive contributor as the cycle, you certainly put that high, you know, once per quarter or at a sustained momentum. And if you can refresh us on the AUM that is in, that is in the brokerage sweeps with the money fund.
Maybe if you can comment on your thoughts of whether you think that would be a positive contributor as the cycle.
Certainly if the fed hikes, you know once per quarter or at a sustained momentum.
And.
If you can refresh us on the <unk>.
AUM that is in the brokerage sweeps.
The money fund complex.
Speaker 5: Sure. Well, first of all, most bros, brokers sweeps at this point are within our government sector. That's because of the FNAF nature of the prime institutional and municipal institutional that went into effect in 2016.
Sure.
Well first of all nice press brokered sweep at this point are within our government sector.
That's because of the <unk> nature of that prime institutional and municipal institutional that went into effect in 2016.
I don't know that we actually break that out from an FHA standpoint, I think from an industry standpoint.
Speaker 5: I don't know that we actually break that out from an FHI standpoint. I think from an industry standpoint, from a public standpoint anyways, but from an industry standpoint, I think about 20 to 25% of the government assets in the market are in that type of a sweep arrangement.
I'm, a public standpoint, but from an industry standpoint, I think.
About 20% to 25% of the government assets and are in the market or in that type of a sleep arrangement.
And.
Speaker 10: Rape, do you have additional in that phase? We can buy everything that our financial intermediaries, so we don't break out brokers per se. But when you...
Ray do you have additional.
Megabyte everything that our financial intermediaries. So we don't breakout brokers per se, but when you have.
Speaker 10: One of the reasons why we looked at the historical growth in two steps coming out of the 2016.
One of the reasons why we looked at the historical growth in two steps coming out of the 2016 cycle was that as the rates Rose we did see exactly what you're talking about.
Speaker 10: cycle was that as the rates rose we did see exactly what you're talking about The cash yield in and of themselves become it becomes a more attractive asset
The cash yields in and of themselves become it becomes a more attractive asset class.
Speaker 10: And while that has institutional implications, it's certainly for us.
And while that has institutional implications that certainly.
For us.
Speaker 10: helped us with brokers and other intermediaries who were able to, it's some effort on their part to move out of the default option is kind of the easiest thing to do with their cash, but they're able to access meaningfully hire yields with us, and that was something we were very active in doing right up until the time where the Fed pretty aggressively moved the rates back down.
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It helped us with with brokers and other intermediaries, who were able to its.
Some some effort on their part to move out of.
The default option Thats kind of the easiest thing to do with their cash, but they're able to access meaningfully higher yields with us and that was something we were very active in doing right up until the time, where the fed pretty aggressively move the rates back down.
Speaker 5: We would expect a similar type of pattern to occur here. So, you know, I think it's a repeated pattern that we have some history associated with it as Raymond.
We would expect a similar type of pattern to occur here. So I think it's a repeated pattern that we have some history associated with it as Ray mentioned.
Speaker 11: Okay, that's helpful. And then maybe just back on expenses, I know we still have to predict, but...
Okay. Okay. That's helpful. And then maybe just back on expenses I know it was tough to predict but.
Speaker 11: In the compensation area, I appreciate obviously there's inflation, a dynamic to that, but if we think about the money market fee waivers, recouping those from that 38 million level, just on the sort of variable component of that, the 38 million improvement to pre-tax.
In the compensation area.
You know I appreciate obviously, there's inflation dynamic to that but if we think about the money market fee waivers you recouping news from that 30 $38 million level.
Just on the sort of a variable component of that.
38 million improvement to pre tax.
Speaker 11: I guess what type of offset would there be in comp just simply on that better performance just so we can think of how much...
What what type of.
Offset would there be in comp just simply on that better.
Better performance. So we can think of sort of how much might.
Speaker 11: might be, how much meat pork is about?
Might be a.
Mike you know how much meat balls to the bottom line.
Speaker 2: Yeah, so we're just not going to do it. There's so many variables, just the equity declines in the first quarter and what they do, whether we make that up in the marketplace by recovery or we make it up in sales or in fixed income or in the private market.
Yeah. So.
We're just not going to do it there's so many variables just the equity declines in the first quarter.
And what they do.
Whether we make that up in.
The marketplace by by recovery.
Or we make it up in sales or in fixed income or in the private markets and we're also looking at.
Speaker 2: And we're also looking at the new hires that we're trying to get. And whether we're going to succeed and how much the cost is with the, you know, type labor market.
You know the new hires that we're trying to get.
And.
Whether we're going to succeed and how much the cost is with with the.
Labor market.
It's just.
Speaker 11: Not gonna give you any more help on it. Sorry. Yep. That's okay.
I can give you any more help on it sorry, yes.
That's okay.
I appreciate that it's good color and just one last quick clarification I think Chris did you say 8 billion of institutional Prime was.
Speaker 3: and just one last class of clarification, I think Chris, did you say eight billion of institutional prime was, was that risk for that swing pricing? I said eight billion of institutional and muni prime, so that if swing pricing goes in, we've looked at it and said that's about what would be the subject matter. And then as I said,
Was that risk for the swing pricing when I say eight eight.
$8 billion of institutional and Muni Prime so that if swing pricing goes in we've looked at it and said that's about what would be the subject matter and then as I said.
Speaker 3: I like the last time they'll chase that money into the guvies. The last time we didn't lose any clients, the money just all played musical chairs. And it was less financing in the real market.
Like the last time, they will chase that money into the guppies.
The last time, we didn't lose any clients. The money just all played musical chairs and it was less financing in the Rio market.
Right right Okay yeah.
Speaker 11: Right. Okay. Yep. That makes sense. Thank you for taking my question.
That makes sense, okay. Thank you for taking my questions.
Thank you we have no further questions in the queue. At this time I would now like to turn the call back over to Ray Hanley for any closing remarks.
Speaker 1: Thank you. We have no further questions in the queue at this time. I would now like to turn the call back over to Ray Hamley for any closing remarks.
Speaker 10: Thank you, Kate. That concludes our call for today and we thank you for taking the time to join us.
Thank you Kate that concludes our call for today and we thank you for taking the time to join us.
Okay.
Yes.
Thank you ladies and gentlemen, this does conclude todays event you may disconnect at this time and have a wonderful day, we thank you for your participation.