Q2 2023 Federated Hermes Inc Earnings Call
Good morning, everybody and welcome to the Federated Hermes incorporated Q2, 2023 analyst call and webcast 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 phone keypad. Please note. This conference is being recorded I will now turn the conference over to your highest Raymond Hanley President of Federated Investors Management company Raymond over to you.
Good morning, and welcome Thanks 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 or soccer and a savvy who is the CEO of Federated Hermes limited and Debbie Cunningham, our chief investment officer for the 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 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.
Thank you Ray and good morning, all I.
I will review Federated Hermes business performance and Tom will comment on our financial results.
Looking first at equities.
Assets were down 637 million.
283 billion due largely to net redemptions of $828 million.
Partially offset by market gains of about $115 million.
Even so we saw Q2 positive net sales in 15 equity strategies.
Including Asia ex Japan, MDT large cap growth MDT mid cap growth and international leaders.
Now the strategic value dividend domestic strategy had Q2 net redemptions of $700 million.
Compared to net sales of $727 million in the first quarter.
As we have talked about before this strategy is outcome driven and its benchmark agnostic. It seeks a high and rising stream of dividend income from high quality companies.
Over the last 10 years ended June 30, It has returned on average seven 4%.
To make the point the strategy returned eight 5% in 2022 compared to a loss of over 18% from the S&P 500.
Thereby ranked in the top 1% of its Morningstar assigned category of large cap value for this 2022 performance.
Year to date, however through June of 'twenty three it has a negative return of five 3% compared to the S&P 16, 9% gain and that ranked it in the 99 percentile of its assigned category.
This year the market as you know has been led by a small group of technology companies that are largely outside of this strategies objectives as they either paying no dividends are have a low dividend yield.
The top yielding quintile of stocks in the S&P 500 are underperforming the bottom.
You know the bottom yielding quintile by nearly 40% to date.
Now this strategy would benefit investors rotate back into cheaper high yielding defensive stocks.
Looking at our equity performance overall compared to peers and using Morningstar data for the trailing three years at the end of the second quarter, 50% of our equity funds were beating peers and 29% were in the top quartile of their category.
For the first three weeks of Q3 combined equity funds and SMA had net redemptions of $310 million.
Now turning to fixed income.
<unk> decreased slightly in the second quarter to 87 4 billion.
Fixed income funds and SMA had Q2 net sales of $454 million.
While fixed income institutional separate account net redemptions of $526 million were driven by regular cash flows from a large public entity.
Within funds for our flagship core plus strategy total return Bond fund had Q2 net sales of about $1 billion.
Core plus and other fixed income SMA strategies added $207 million of Q2 net sales, while net redemptions of about $354 million occurred in this re ultrashort funds. The ultrashort net redemptions were down.
From $1 2 billion in the prior quarter.
As a note total AUM and ultrashort Youre about $5 4 billion here at mid July .
We had 15 fixed income funds with positive net sales in the second quarter, including of course total return Bond fund and S. D. G engagement high yield fund.
Regarding performance.
At the end of the second quarter end using Morningstar data for trailing three years, 49% of our fixed income funds were beating peers and 16% were in the top quartile of their category.
Fixed income funds and SMA had net positive sales of $20 million.
And the alternative private market category assets increased by $428 million in Q2 compared to the prior quarter, reaching 21 6 billion.
We had the final close of pack five the fifth vintage of our private equity co invest fund in June reaching $486 million in commitments, which exceeded our $400 million target.
Commitments came from existing <unk> series investors as well as new investors from Europe , and South Korea.
Federated Hermes G. P. E has a 22 year track record of making co investments, having committed $4 5 billion across 278 global quote co investments as of March of 'twenty three.
We continue to market horizon, three the third vintage of our horizon series of private equity funds.
Horizon III has commitments of a little over a $1 billion through the second quarter.
We are also in the market with the Hermes Innovation fund.
Which is the second vintage of our private equity innovation fund.
The first vintage of our real estate debt fund and the first vintage of our nature based solutions.
Now we began the third quarter.
With about $5 billion in net institutional mandates yet to fund both into funds and separate accounts.
These wins are diversified across fixed income equity and private markets.
Fixed income expected net additions totaled $2 5 billion.
This includes wins and active cash short credit corporates high yield and core plus.
Approximately $1 3 billion of total net wins is expected to come into private market strategies. This includes private equity direct lending and absolute return credit.
Including bio diversity global emerging markets MDT mid cap growth.
And global equity.
Moving to money markets.
We reached record highs for money market fund assets of 364 billion and total money market assets of $509 billion.
The second quarter presented a challenging environment for managing money market strategies as the debt ceiling crisis significantly impacted short term debt markets.
Despite this challenge money market strategies continue to benefit from favorable market conditions for cash as an asset class higher yields elevated liquidity levels in the financial system.
And favorable yields compared to bank deposits.
As short term interest rates peak, we expect market conditions for money market strategies will be favorable compared to both direct markets and bank deposit rates.
Looking at flows in money funds in the second quarter, we saw good activity from products geared to the retail customers of financial intermediaries.
Institutional product flows were challenged by the aforementioned debt crisis direct security yields.
And the regular June corporate tax period.
Now the SEC is you know recently adopted new rules for money market funds. We continue to study these rules to assess their impact.
We were pleased to see the swing pricing was not included.
And then the ability to use a reverse distribution mechanism was included as an option and then remote possibility that negative yields jewelry to occur.
We were also pleased that the SEC agreed with our recommendation to remove temporary redemption gate and the link between weekly liquidity asset thresholds and liquidity fees, which we believe created an incentive for investors to redeemed sooner in periods of market stress.
And prevented the manager from using as much liquidity as it was available.
The inclusion of mandatory redemption fees subject to certain conditions and institutional prime and Muni funds presents a challenge for fund advisors and investors.
We have approximately $11 billion in third party institutional assets and institutional Prime and Muni funds that we believe could shift to alternative products that we offer including our private Prime fund and government money market funds.
It's worth noting that institutional prime and Muni funds already have fluctuating net asset values and that there is an exception or carve out for so called de Minimis impact based on the hypothetical selling of a strip of securities.
That may occur on the rare days, when we have a 5% redemption trigger.
We will be talking with our institutional clients over the coming months on this topic.
We believe that these investors will continue to use the institutional prime and Muni funds.
At least into late next year, when the new rules take effect.
Our estimate of money market mutual fund market share, including sub advised funds was seven 2% at the end of the second quarter down from seven 4% at the end of the first quarter.
Now looking at recent asset totals as of a few days ago managed assets were approximately 707 billion, including 510 billion.
In money markets 84 billion in equities 89 billion in fixed income $22 billion in alternative private markets.
And $3 billion in multi asset.
Money market mutual fund assets were 365 billion.
Thank you on financials. Thank you Chris.
As described in the press release Q2 results included two transactions that impacted results were a combined loss net of tax of 800000.
The transactions include a sale by a shareholder in one of our private equity funds of a portion of their investment to a third party.
And the restructuring of one of our infrastructure funds.
We continue to manage both funds.
Total revenue for Q2 increased $51 million from the prior quarter due mainly to an increase of $38 million and carried interest and performance fees.
Which $25 9 million.
Is drunk carried interest revenue from consolidated carried interest vehicles that was offset mainly by compensation expense.
Retained carried interest and performance fees increased by $12 1 million from the prior quarter.
Total Q2 performance fees and carried interest were $39 4 million.
All other revenue increased by $13 1 million or 3%.
Due mainly to higher average money market assets, bringing in $11 6 million of revenue.
And an additional day in the quarter, bringing in $4 $6 million of revenue.
Partially offset by lower average equity assets, reducing revenue by $2 5 million.
Q2, operating expenses increased $37 8 million from the prior quarter due mainly to $25 7 million of compensation expense from the consolidated carried interest vehicles.
And from $9 eight.
<unk> 8 million due to the restructuring of the infrastructure fund recorded in other expense.
All other expenses increased by $2 million or 1%.
The $23 million increase in compensation and related expense from Q1 included the $25 7 million in consolidated carry interest vehicle compensation and $1 4 million in severance, partially offset by $4 1 million of lower incentive compensation.
<unk>.
The increase in professional service fees in Q1 was due mainly to higher legal and consulting fees.
The increase in advertising and promotional.
From the prior quarter is mainly due to the timing of certain conference in advertising spending.
The effective tax rate was $27 four for the quarter.
The Q2 rate was impacted by the restructuring of the infrastructure fund.
Which included the purchase rights to receive future carried interest.
As a result, our effective tax rate was higher this quarter compared to our expected rate of 24% to 26% through 2023.
At the end of Q2 cash and investments were 521 million of which about $459 million was available to us.
Jenny we would like to now open up the call for questions. Please.
No comment at this time, we open the floor for questions if.
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Please pose a mainland lusby pulse any questions.
Thank you. Your first question is coming from Daniel Fannon of Jefferies. Daniel Your line is live.
Thanks. Good morning, So wanted to start with just money market flows and understand your comments that you know as rates stabilize.
Or do you expect to see those flows pick up but also just wanted to contrast that to what we're hearing just broadly about fixed income flows also picking up when that occurs so how do you think investors and the balance between what bond funds and money market funds are going to look like as we or our allocations are going to trend as we get towards.
More of that peak rates or lower rates potentially dynamic.
Daniel I'll comment on the bond fund portion of that and I'll, let Debbie add on the money market portion.
So our franchise, our core plus franchise total return bond.
He has.
Over $18 billion in it and it is a great bucket to have a very good story over the long term and so as.
We're looking at the fixed income market that has a big allocation almost no matter what is going on in the marketplace and therefore, we are winning mandates where that is a core position and and how people are feeling is a little different.
And then our core allocation and so we're winning in that space.
If you talk to the <unk>.
They are somewhat reticent.
To go into the market are full bore even though you've seen some changes along those lines with market performance.
And so they are quite sanguine about our core position in our core plus fund.
And I'll, let Debbie comment on the <unk>.
Money market portion and then I'll draw them back together after her comments.
Thanks, Brett so from the money market side of the equation much of the growth that we have seen so far has come from the retail side of the market and that's simply because compared to bank deposit rates, where they were for a lot of the zero rate environment.
Market funds are now paying much more attractive market rate of return.
Our institutional buyers. However, they have the ability generally to be able to be in direct market specifically.
So buying direct commercial paper buying direct C D and as the market has increased.
He had been purchasing direct market securities such as those in order to pick up the yield the higher yield more quickly money market funds operate with a lag may be 25 to 30 days, depending upon what our weighted average maturities are.
One market.
Pete or plateau at Netscape, and even then even more so when they start to go down the other side the opposite occurs for the institutional investor where they come into those funds that actually lagged the market and therefore stay at that higher rate for a longer period of time so generally.
That's when we would see institutional market.
And the institutional flows pick up Wow retail will be maintained at that point. So it comes from two different sources. The retail side as money is coming off of zero and very attractive versus bank deposits and then once rates plateau and start to go down a EBIT margin of late.
Comes from the institutional side. So that's and then these are generally cash manager.
Cash management flows that doesn't include what Chris was talking about those flows that ultimately may.
They make their way back to the longer side of the fixed income markets or even the equity markets for that matter okay.
Chris back here.
Okay. Thanks, and so what's really going on here is in the almost independent decisions.
In addition to.
Filling out our core position.
Those fas that are willing to lengthen duration like the product.
The product.
There is a very good job of capturing.
Alpha on the downside and on the upside and if you look at a three year rolling returns over 72 periods about.
About 97% of the time this fund beats the competitors.
And the bench and so it's a it's a very solid product and others are consolidating managers and doing other things like that and Thats why youre seeing.
These strong flows into the total.
Total.
Total return Bond fund category.
Okay. Thank you that's helpful. And then I was hoping to clarify some of the dynamics within the carried interest in the quarter.
I think you mentioned the restructuring of the infrastructure funds, who it is.
And I believe something else I might've missed it but if you could just talk about specifically what happened and then the.
But understanding what the impact was a carried interest in comp, but I believe there was is that partly why the elevated legal cost as well just wanted to make sure were you looking at that you kind of normalize the expense levels exiting you know kind of the second quarter.
Would be helpful.
Okay Dan.
So we have.
The horizon product, which has a long term large private equity investor was looking to.
Exit some of their position and we worked on this for a long time.
They were able to complete the transaction sell their physician to somebody else and importantly, we still are managing it. So just we're managing it for somebody else that triggered.
The carry from the gains that they've got by selling it which triggered a carry of which we get some of it being.
The ink and.
And which the managers to get some of it which is why it is compensation.
So that stand alone by itself that would've been.
Positive contribution.
Two two earnings.
So the second transaction.
Was in our infrastructure business, where we kind of looked at it and realized that we needed to update it to.
More satisfied the existing investors and to transfer it into a better structure to grow it in the future.
Is that what that did was triggered.
<unk> interest from the past.
That we were able to recognize the reason why we were able to recognize it and why we didn't recognize it before was because there was a clawback.
Once we restructured the claw back ends and therefore, we recognized it.
What we also had to do was went out and got a fair market value of the carry for the people who get the carried interest.
We had to take that as an expense by the way that was not a comp expense, even though it's paid to them.
The employees and it shows up in the other lines.
Now both of those things and we continue to manage that portfolio too.
I think it's important for <unk> <unk>.
To make any follow up comments on those businesses.
Sure. Thank you.
So two things about this one if you think about the first transaction is actually a success because when you have the private.
Market Investor.
The index for the long term.
We want to ensure that the for the long term and you also want to make sure that if they need liquidity at some stage. They can find we can help them find somebody else if thats, what we did and that then triggers the realization of some of our carry both for us and for the managers.
The second one is different and the sensitive clients themselves wanted this restructuring so that we can adapt it to what they want to do when again, we kept the management of it. So the first keep courses that we have.
The second one is something like this gives an indication. This is neither a forecast. It's just simply the numbers are the numbers, but it gives you an indication of how private markets work, which is there's a lot of it.
Revenue that is generated within private market as it comes through.
These lumpy carry payments that happen overtime, which we cannot predict but you can look at the port strike that denotes attached to the press release and you can see the averages over time and that's an integral part of how we do it now we have established an incredibly strong reputation in all parts of private markets.
In private equity is the track record is outstanding and that's partly why we managed to close upon the bulk.
Expectations.
And properties, let's say.
Indirect lending and so on so it's a combination of us keeping clients Oh, it's actually expanding our client basis in many ways and then realizing the carry some of which goes through the managers, which is typical with the private markets and some of which comes to Inc, which is the house.
So it gives you an insight if you like of how other markets works and.
How attractive this businesses proposal stickiness with longevity.
Interest, which you generate within it for us as well as for our clients.
So the last comment that I have is we put in the net net net on all of these things, which I understand are complicated to figure out and that's why we put in.
That.
The after tax impact was only 800000 when you take all of these transactions and all this millions of dollars. We kind of wanted to give you an indication that that wouldn't have impacted earnings too much well 800 about exactly.
Okay. Thank you.
Thank you. Your next question is coming from Patrick Davitt of Autonomous Research Patrick Your line is live.
Hey, good morning, everyone.
<unk> reported on some money fund fee cuts earlier in the months, but I think misrepresented the impacts so could you frame any immediate impact to the earnings model from those reported changes and then more broadly what exactly are the changes you've made and any color on the reasoning for the new framework. Thank you.
Yes, Patrick it's Ray.
We did.
<unk> Board approved.
A reduction in investment advisory fees on a group of our money funds, but as you.
<unk> indicated there is no impact to our revenue because.
We already had long standing advisory fee waivers. So this was not revenue that we were collecting.
It may have been reported as such or indicated that.
In addition at the beginning of July we launched 10, new share classes on three of our Treasury funds and we did that to give clients additional product options and also to have some consistency when looking at our treasury products compared to the government and prime funds when you look at.
Things like expenses and minimum investments and some other features.
As a as a consequences of these.
Creating these new share classes certain of them are.
Priced at 15 basis points.
Net of waivers.
And so.
So that does represent on a new share class.
A lower net effective fee rate than what was pre.
Previously available and.
That's kind of in line with moving in line with where some some of the competition funds are and again, giving us consistency, we already had that pricing option on the on the government side, which is the are.
The bigger category so.
Those are the changes at a high level Debbie I don't know if you want to add anything to that.
That might take place between share classes within a product we expect to be modest at this point.
And the intention of course is to.
Regardless of shifting and if any of that occurs or when our our when we undertake changes like this our expectation is that they will be revenue enhancing.
Got it thanks.
As my follow up you you're building a fairly nice cash balance.
<unk> did a lot more repurchase in the second quarter, where I see maybe your tone on the last call would have suggested so should we be leaning more into repurchases as we think about our models for the second half now and now that your price is much lower than it was last quarter.
Yes, Patrick.
So we had the Russell we got kicked out of the index and the Russell. So we werent sure what was going to happen there and wanted to be prepared.
And then we also knew that money market regulation was coming.
And where exactly sure what was going to going to happen there and so looking into the future. The Russell is behind us.
And we did buy shares during that period.
Thought that there was.
Lower price then was appropriate so a buying opportunity and now that the money market thing is.
Not as bad as it could have been we think that our stock is underpriced.
So we will review as we buy shares based on that thought process.
Thank you.
Thank you very much. Your next question is coming from Mike Brown of Kb Doubly Mike Your line is live.
Great Good morning, everyone.
Good morning.
Just touched on the dynamic with the Russell removal. There we did receive a number of inbounds about that dynamic and the resulting technical pressure on on the stock can you just touch on this dynamic a little bit a little bit more and I guess given your governance is really kind of part of your investment strategy why not meet their requirements to stay in India.
<unk>.
So I'll field, the first part and Chris can answer the last question.
The dynamics are hard to understand and know exactly but we looked at our volume and saw that before the index date, our volume picked up.
And the price came down.
Leading up to it if you look at.
A month or so beforehand, the price went kept going down down down and the volume went up.
Whether that was people.
Sure.
Addressing and preparing their portfolios in advance of the.
The Russell change or whether it was people and.
Bedding or selling based on what they thought was going to happen in the money market business.
You can pick I think it was probably both after you had a big volume day after I get 12 million shares or something on the day that Russell changed and exited a few days before.
The stock, we kind of outperformed relative to the market and then roughly the five days after we.
It kind of underperformed. So maybe that was the people who were tied to the ROFO index, but not actually index funds.
We're adjusting their portfolios, we thought that was a buying opportunity and participated.
And we think it's in the rearview rearview mirror now because our share.
Share trading seems to have settled down to more historical levels.
So changing in order to get with an index.
It didn't strike us as a way to do this strategy for Federated Hermes, Inc.
The index people decide not to be an index doesn't mean that we have to decide to join their non index index.
We have had this structure going all the way back into the <unk>. When we went public it was an intervening time in the eighties and we were owned by Aetna.
But when we bought ourselves back in 89, we went back to the same structure.
And in conjunction with looking at the.
The funds the money that we manage on the institutional side, it's been our conclusion and it's worked well for us that is very clear as to who is in charge and who is managing the money.
And we're not worried about who's having lunch with home and we are able to therefore focus on investment management performance and growth of the enterprise I would also add that because we do generate cash flow. We can take these incongruities in the marketplace as buying.
<unk>.
For the underlying stock. So we are happy with our structure, where we are.
Okay. Thank you for the thoughts there and then just as a follow up if I just to approach the capital allocation question, a little bit differently.
Are you seeing any opportunities on the M&A front and how are you thinking about some of the strategic opportunities that would best fit Federated.
That you think could kind of take it on your next evolution of growth here.
Okay. This is Tom we have we've talked about before looking in the real estate.
Development area, that's going to be a long long process, it's going to probably be.
Acquisition in the U S and we've got to get the benefit.
The skills and expertise that we have in London.
And trying to bring that over here.
Will require boots on the ground and in the U S and so that's a long term thing it has to fit with us it has to culturally and all the things.
Took us a long time to find the.
Acquisition, and Hermes I would expect that it's going to take us a long time to find something that makes sense for us there too.
That kind of be the biggest thing we don't have.
Needs.
In growth or plant or value. So those would probably are expect to be more roll up type of things that happen and then of course in the money fund business.
We're all in in the money fund business and if someone wants to be out we are a <unk>.
Hi.
Really interested players.
Okay, Great I appreciate the thoughts.
Thank you very much. Your next question is coming from Brian Bedell from Deutsche Bank, Brian Your line is live.
Great great. Thanks, good morning folks.
For taking my questions first on the money market side sort of a combo question on the <unk>.
On the on the proposals from the FCC, particularly the liquidity rules, I think going from 10% to 30% and.
Let's go overnight and weekly to 25, and 50% that proposal, which subset of funds with the impact on the money side for you and then I guess.
That's sort of connected with that I know you tend to manage our you know relatively conservatively across the money fund asset class.
How do you see the competitive yield dynamic on the on the retail side of the business, sometimes you get obviously flows chasing hot Uh huh.
Got money chasing higher yielding and you don't typically engage in that but maybe just some perspective on on where you see your competitive yields in the marketplace and then how that might change in the near to intermediate term.
Debbie.
Sure I can take that so going from.
10% in overnight and 30% in weekly liquid assets that are required in.
In the current role to 25% in dailies and 50% will be required in the new roles.
Funds that that will impact what would be the prime funds.
First of all the municipal bonds are exempt from any kind of daily liquid asset requirement. So it totally weekly liquid assets that impact them and from both the municipal and government standpoint, they operate well in excess of those either 25 or 50%.
A requirement for a daily and weekly.
So it's really the prime funds that will be impacted and for the most part.
And 30.
Especially the 30 had a negative consequence.
The potential for gates in PS.
Tended to never manage our funds with platinum 30, but rather something that was probably closer to 20 and 40, So 20 and 40 gallon good twenty-five and safety is impactful it will have.
And at a basis point impact in those particular products crime retail and prime institutional, but they should still be able to maintain their competitive spread over the government sector, which is where their route.
Mostly.
Actually compared from a competitive yield perspective in the market.
Our products at this point are for retail, especially all are kind of a top of the heap from a standpoint of what their alternatives are.
Generally speaking for cash management products, mostly are our highest competitor outside the industry would be.
The bank deposit market, but retail bank deposit market and that continues to lag.
And point out what those banks are paying an administered rate versus what the funds are earning and passing through.
Has the market rate.
Seasonal side again, as we as yields Pete Plateau and starts to go down the other side. The comparison Kinder direct market for the institutional customers will also become a very attractive at that point.
That's great color and my follow up would be on the on the strategic value Fund. This as you know Chris as you described as it's typical classic.
Our performance versus the peer group and now we're in this obviously mega Mega cap Tech a rally do maybe it would be just some color on on on your Salesforce and and the advisors are that you're selling this product. Two is is it resonating that this is probably a good buying opportunity from at least a mean reversion.
Perspective.
Or do you really do do you know do your advisors typically chase performance on this in and buy it more when it started actually outperforming.
Well you need to look at that in terms of when the money came in how long it's been there and how the advisors presented the product last year. When it was number one this is exact experience we had before the money that comes in because its the number one fund is the money that goes out.
With that performance changes however, the money that went in because it was a growth dividend story.
Stays in and so what the Fas.
Prefer over the long haul is are sticking with our knitting.
And staying with the concept.
The PM and the team have written books on the subject.
Coming up with a new one as we speak.
In terms of the efficacy of this type of investing recent outperformance to the contrary notwithstanding so the core group of those fund holders are remain very very steady and that's why I mentioned, the seven 4% return overall over.
The last 10 years.
Because that's what it takes but at the margin when the money comes in when it's number one because of number one it goes out when that backs up and Brian I would just add we've had.
Continue to have the strategy.
Added and added two platforms.
And exposed to growth.
Growth opportunities within platforms.
Precisely because it is a good alternative.
So the growth oriented.
Small group of stocks driving returns.
I'd also mentioned the Etfs that we launched late last year its around 60 million in assets, but we're having the same kind of experience that's being added as an option.
And so from an advisor standpoint its.
It's a strategy that they want to continue to have access to.
One other comment would be don't forget their Britain near $500 million worth of gross sales in that fund in that quarter. When we had the net redemptions.
The product is alive, and well and our commitment to the whole thing is demonstrated by what Ray just mentioned, namely the new ETF M. AVR when the best time to come out with it.
But on the other hand, it's a long term look at a viable product for the long term.
Yeah, No that's great perspective, thank you.
Thank you very much. Your next question is coming from John Dunn from Evercore ISI, John Your line is life.
Good morning, Thank you.
Continuing on the theme of money market.
Roll ups can you frame for US you know with the higher rates with the closer to the plateau and then maybe some more certainty around regulation.
The smaller players look at that environment, maybe the guys in the 10 to 25 range does it give you more confidence of joining up with someone bigger or if it doesn't work that way and it's just more episodic.
It depends on how the money got in there and who controls the money at the moment of redemption.
So there are 50, maybe 60 listed money market fund players.
The top 25.
Have all the assets the top 20 are the only ones, who really compete for the big assets and it all depends on how that fits into your regular business.
So we have a.
Salesforce that goes around our calls on all of the players in the money market fund business too as Tom pointed out the a warm and loving home should they decide to change their mind on doing this.
And it's episodic.
There was no avalanche after the last go round of SEC regulation I don't expect an avalanche out of this one but periodically CFO Ceos and managers decide that the time has come to wall reset to get out of it and.
That's what we're looking for so I.
I don't believe it'll be.
A catalyst to an avalanche.
Gotcha, and then you talked about.
The strategic value dividend, but outside of that can you talk a little more about the your other equity strategies that you're thinking.
He pick up in demand to kind of soak up some of those redemptions of SPD.
Well the the two MDT offerings have been.
Very excellent the large cap in the mid cap growth.
Picking up both regular fund business and large institutional business.
And their growth is is excellent if you look at the international leaders fund that's another one.
That has excellent performance across the Timeframes.
And is a very good offering inside.
The retail distribution if you go across the pond and you look at Asia ex Japan.
This fund is outstanding in terms of its flows and performance the gems product day.
Emerging markets fund.
Is also continues to win institutional mandates I'm, probably skipping some of my children, who might love dearly, but those are the ones that pop up immediately.
Great. Thank you.
Okay.
Thank you very much. Your next question is coming from Ken Worthington of J P. Morgan Ken Your line is live.
Hi, good morning, and thanks for taking the questions.
Chris Our SEC filings suggest you sold a substantial portion of the stock that you owned during two Q. Some digging suggests that some of this was done by a trust and others were just transfers to other vehicles controlled by your family, but the end result seems like your direct interest in Federated is substantially lower than it is.
That's been in the past so maybe first can you explain.
What appears to be selling during the quarter.
How much stock do you directly own at this point and is that enough to adequately adequately align your interest with shareholders.
Well as I, just said I love my children to and so there was no selling of the stock there was transfers and trust that our controls inside our family meaning.
Me eight kids, six spouses and 40 grandchildren and <unk>.
As to my commitment to the enterprise It goes way beyond.
The stock interests in terms of our family and my commitment in terms of what's going on.
I don't know exactly how many shares I have right now I could find that out and get back to you on that one.
But.
The big bunch of shares are still owned and or by the family and are still very very much.
A role in adding incentive but what I'm, telling you is there's plenty of incentive.
And this whole family.
To keep the ball rolling remember not almost 20% of that stock is on the inside the fort.
Counting the family enterprise.
So.
It's a it's a very good.
Good deal.
Now one one thing that did occur.
Was that my mom, who passed away December 12 of last year.
Pat did sell her shares of which I am the trustee and so that in effect paths against me.
But that's all related to distributions due to a state planning to various entities various charities.
And various.
Children and grandchildren, and great children PS the 179th Great grandchild of my mother was born two days ago.
Congratulations for that.
And thank you for answering.
Just as a follow up on money market fund share you highlight itself from seven four to seven 2% in two Q.
And the dynamics for retail and institutional highlighted by Debbie for <unk> were two for your peers as well as for you during the quarter. So what drove the loss share in two Q and would you expect that lost share to rebound in the second half of the year.
Debbie.
Sure.
I think what drives that is that if you look at.
Other money fund providers that have a larger retail presence and we do that and that retail sector being the largest growth sector.
Yes, it advantages us to some degree during an environment when retail is growing more than institutional.
We do expect that to even itself out as rates increase.
Oh me in a minor way going forward plateau, and then ultimately start going down.
In a slow.
Slow fashion back down again.
We do expect that to kind of influence on the institutional side in a much larger way, where we play a larger role in that market.
Okay, great. Thank you very much.
Thank you and that appears to be all the questions that we have in the key today I'm going to hand, it back over to the management for any closing remarks.
Thank you very much and that concludes our call. Thank you for joining us today.
Thank you everybody that does conclude today's conference call. You may disconnect. Your phone lines at this time and have a wonderful day and a wonderful weekend. Thank you for your participation.