Q4 2023 Federated Hermes Inc Earnings Call

[music].

Greetings and welcome to the Federated Hermes, Inc. Q4, 2023 analyst call and webcast at this time all participants are in a listen only mode.

Question and answer session will follow the formal presentation, if anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.

Please note. This conference is being recorded I will now turn the conference over to your host Ray Hanley President of Federated Investors Management Company you may begin.

Good morning, and welcome.

Leading today's call will be Chris Donahue, Federated, Hermes, CEO, and President and Tom Donahue, Chief Financial Officer. After some brief remarks, we'll open up for Q&A and participating in the Q&A will be soccer to Savi, who is the CEO of the Federated Hermes limited and Debbie Cunningham Chief investment Officer.

For money markets.

Thomas R. Donahue: During the call we will make forward looking statements and we want to note that our actual results will be may be materially different than the results implied by such statements.

Please review our 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.

Thomas R. Donahue: Thank you Ray and good morning.

I'll review Federated Hermes business performance and Tom will comment on our financial results.

We had solid asset growth in Q4, ending with record assets under management of 758 billion driven by record money market assets of 560 billion.

Now looking first at equities.

Assets were up about $2 billion from Q3 to $79 3 billion due to combined market gains and FX impact of $6 7 billion.

Partially offset by net redemptions of $4 7 billion.

We did see Q4 positive net sales in 11 equity strategies, including MDT large cap growth.

MDT mid cap growth and international small mid funds.

Thomas R. Donahue: Looking at our equity fund performance compared to peers and using Morningstar data for the trailing three years at the end of the year, 48% of our equity funds were beating peers and 24% were in the top quartile in their category.

For the first three weeks of Q1 combined equity funds and SMA had net redemptions of $319 million.

Now turning to fixed income.

Assets increased by about $5 1 million in Q4 to $94 9 billion with fixed income separate accounts, reaching a record high of 51 billion.

Fixed income institutional separate accounts had net sales of $1 4 billion led by corporate multi sector and multi sector fixed income SMA had Q4 gross sales and net sales of $896 million.

And $584 million respectively.

Fixed income funds had net redemptions of about $988 million in Q4 and have had slightly positive net sales for the first three weeks of January.

We had 12 fixed income funds with positive net sales in the fourth quarter, including the high yield bond and collective investment trusts and the Sterling cash plus fund.

We launched an actively managed ETF in the fourth quarter that uses a process similar to what our core strategy of our total return bond fund.

Regarding performance at the end of 2023, and using morning Star data for the trailing three years, 31% of our fixed income funds were beating peers at 11% were in the top quartile of their category.

For the first three weeks of Q1 combined fixed income funds and SMA had net sales of $105 million.

And the alternative and private markets category.

Assets increased by $214 million in Q4 from the prior quarter to 26 billion due mainly to positive FX impact partially offset by market decreases.

We are in the market with horizon III, the third vintage of our Horizon series of global private equity funds.

And as previously announced horizon III has closed on commitments of 100.15 billion through year end.

Hermes Innovation fund two is also in the market. This is the second vintage of our Pan European growth private equity innovation front.

We had our first close in 2003 in August for approximately $100 million Europe and we're also in the market with the first vintage of our UK nature impact.

We began 2024 with about $3 1 billion in net institutional mandates yet to fund into both funds and separate accounts.

Thomas R. Donahue: These wins are diversified across fixed income equity and private markets.

About $1 9 billion.

Net total wins is expected to come into private market strategies, including private equity.

Direct lending.

Thomas R. Donahue: And unconstrained credit.

Thomas R. Donahue: Fixed income expected net additions totaled about $850 million with wins in the ultra short short duration high yield.

And sustainable investment credit.

About $340 million of the net total wins is expected to come into equity strategies, including bio equity global equity Jim switches.

The emerging markets ideas.

And MDT small cap core.

Moving to money markets. We recently marked 50 years of innovation and successful management of money market funds as we launched the first run to ever use the term money market on January 16th of $19 74.

At year end 2023, we reached record highs for money market fund assets of 406 billion.

Money market separate account assets of 154 billion in total money market assets of $560 billion.

Total money market assets increased by 83 billion or 17% during 2003 and by 35 billion or 7% in the fourth quarter.

Money market strategies continue to benefit from favorable market conditions for cash as an asset class elevated liquidity levels in the financial system and attractive yields compared to cash management alternatives, such as bank deposits and more recently direct <unk>.

<unk> and money market instruments, such as T bills and commercial paper.

In the expected upcoming period of declining short term rates, we believe that market conditions for our money market strategies will continue to be favorable compared to direct market rates and bank deposit rates.

Our estimate of money market mutual fund market share, which includes sub advised funds was about seven 4% at the end of 'twenty three up from about seven 3% at the end of the third quarter last year.

Now looking at recent asset totals as of a few days ago.

Managed assets were approximately 764 billion.

Including $568 billion in money markets.

78 billion in equities 95 billion in fixed income.

$20 billion in alternative private markets and $3 billion in multi asset.

Money market mutual fund assets were at $406 billion.

Yes.

Thanks, Chris.

Total revenue for Q4 decreased $11 2 million from the prior quarter due mainly to lower average equity assets.

And lower total carried interest in performance fees.

This was partially offset by higher average money market assets.

Total Q4 carried interest and performance fees were $9 7 million.

Compared to $14 9 million in Q3.

Q4 operating expenses decreased by $12 3 million from the prior quarter due mainly.

To lower compensation expense related to carried interest in consolidated vehicles and lower incentive compensation expense.

Advertising expense increased in Q4 due to the launch of our new campaign.

The other operating expense line item decreased mainly due to the impact of FX.

Looking ahead to Q1 certain seasonal factors will impact results. The impact of fewer days is expected to result in about $4 million in lower operating income all else being equal.

In addition, based on our early assessment.

Compensation and related expense is expected to be higher than Q4, primarily.

Two.

$8 million of seasonally higher expense for stock compensation payroll taxes and base pay increases.

We also expect to have higher incentive compensation expense.

Of course, all of these items will vary based on multiple factors.

Ali we would like to now open the call up for questions.

Certainly.

This time, we will be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue.

You May press Star two if you would like to remove your question from the Q4.

For participants using speaker equipment and may be necessary to pick up your handset before pressing the star keys.

One moment, please while we poll for questions.

Your first question for today is coming from Ken Worthington with Jpmorgan Chase.

Hi, good morning, Thanks for taking the question.

Maybe setting, particularly high level for you Chris.

I'd like to ask you about strategy over the next three to five years. So maybe starting what are the top two or three goals you have for the company and then can you talk about your expectations for some of the businesses.

In particular I'm curious about what your goal is for the ESG franchise and the strategy there and then the outlook and goals for the money market fund and the alternatives business.

Okay, let's go in reverse on.

On the ESG.

We're doing more work in order to tag various excuse me ESG features through actual financial information and financial segments. This is not ready for prime time.

But it's a way to show the flu and see that we have on this subject.

And further defend the integration of ESG concepts into the various funds where these are features have been integrated as part of the risk reward analysis, and we continue that with that unabated.

We also continue in new European Spector to do with the clients want which is to have a.

Stable funds that are going on beyond the regular fiduciary duty concepts that we have here in the U S.

So we are remaining where we were on that we also believe that this will very much help on the risk reward analysis.

Across the board.

So we continue to go forward with that on the money market funds.

Remember that over 50 years, we've had this strategy of keeping the money funds are alive and well.

And they work on the basis of higher highs and higher lows overall of that timeframe.

And our dedication to it in terms of arguing with the FCC are dealing with the realities of the marketplace have been well rewarded.

These money market funds into the future. We will continue to serve as ballast for the ship of FHA, which it has done to date, noting that when there are.

Variations in the marketplace the money market funds prove the viability of a differentiated franchise for all seasons, and we continue to maintain that and don't forget that as the money supply is now back up that is really the engine of <unk>.

Money is going into money funds. So we think that it is a permanent good.

Long term.

Business.

And.

And in terms of our top goals.

For various enterprises, the one way to look at the way we internally view.

Growth in various fears is simply double or more in five years, that's not going to happen on the money funds, but thats certainly what we would establishes the goals for fixed income equity and especially private markets.

As I've said to this group before the private markets as.

Has the potential to be bigger than the.

The fixed income and equity enterprise that we already manage here.

And we have a lot of good things going on that on the on that side of the business now mind, you, it's less than $20 billion.

But nonetheless.

It is they are all good records the real estate is excellent the private equity is excellent the private credit is excellent and we're working on.

The.

On the on the infrastructure deal now there are other structures that we have to get right.

And those are we like to provide the investment management, we are indifferent as to what the structure is so now you see me mentioning about the ETF for total return Bond fund.

We have some more plans to add another handful onto our ETF.

Offerings and the ideas are to make a full complement of ETF offerings as we go forward and that will be.

A big move for us in the future don't forget these are active Etfs and the active Etfs are only about 6% of the total ETF market. So we think there is plenty of room to grow in those areas I'm sure I'll skip some of the other great goals that we have but don't forget we're spending tons of money.

On technology, and then not have goals on getting that right.

Would be a mistake.

Okay, great. Thank you and then maybe for Debbie Chris called out the attractive yield in money market funds versus direct markets. So can you talk about the dynamics here and impact the P. P. P. Q T in the pivot and what that sort of has on the outlook for the money market business.

Sure I think what it does mostly is.

Yes.

Take that to the direction of flows and increase it more towards the institutional side.

It doesn't take away the retail side that has certainly been the driver of the flows in 2022 and 2023.

But I think it emphasizes more the institutional side and that is because in the context of what's been happening from.

A pivot perspective with the yield curve itself as well as expectations.

From Q T standpoint.

<unk> seen what has been over the course of the last 18 months, a fairly steep money market yield curve turn into something that's relatively flat from a prime perspective, and relatively inverted from two months out on the on the government side and ultimately that means that the instant.

Traditional buyer of cash <unk>.

<unk> of cash in some way.

He is going to go out of the securities market, where they've been for the last 18 months and into something that holds onto the yield a little bit longer and that lend in most instances the money market side and so our outlook is very positive with regard to flowers and.

Somewhat of a shift that occurs based on 2022, and 23 being mostly retail into institutional coming a lot from that.

24, being institutionally driven.

Great. Thank you very much.

<unk>.

Your next question is coming from Adam Beatty with UBS.

Alright, Thank you and good morning.

Wanted to follow up on your most recent comments and get some additional thoughts around retail behavior, obviously strong flows year over the year as rates have gone up.

I'm still seeing you know articles in the press about folks with quote unquote high yield savings accounts that are paying 10 or 20 bps. So that suggests you know maybe more retail and nurture them.

Then some might've suppose I just wanted to get your thoughts around you know how long a tail how much of a time lag there might be you know with continuing inflows in retail and maybe even strengthening and then on the on the back side of maybe some rate cuts how sticky that money might be in your money market funds. Thank you.

Sure.

And let me just start with a little bit of a history lesson and if you go back prior to the financial problems in 2008 deposits at that point.

A little over eight trillion dollar area. They ran up to something that was close to 20 changed just under 20 trillion during the zero rate environment that started from a 2008 standpoint really continued through the pandemic, let's just a year and a half or so 2016.

In 2017.

Higher rates.

Ultimately deposit product, we doubled not because of the attractiveness of the yield but because there really wasn't any yield in the marketplace and the concern wise.

On the safety perspective, they thought I think retail trains went into deposits in that environment, what <unk> seen over the course of the last year and a half has been a small reversal of that which is why I'm not saying that the retail trade is done.

Certainly, it's not surprising that with money funds, increasing $1 two trillion in the past year deposits, Inc are decreasing one trillion.

Those two numbers, our equator bulk having said that there are still 17 trillion lashed in deposits out there many of which as you note are in 10 2030 basis point camps from a payment perspective, so the expectations would be that that trade continues certainly when you look at deposit betas from.

The E banking perspective for their deposit products. They have been loads to increase with markets as as rates are increasing but have been very quick to decrease now I'm not sure that that will be the case at this point and this and this and this scenario again.

Haven't gone up very far to begin with but in all cases, I think the retail trade has been awakened and it will continue I think it will be a notch basic led by the institutional trade in 2024 about certainly will be a factor that continues to contribute to the flows in this market.

That's great perspective, thank you Debbie.

And then just wanted to turn to compensation, particularly around incentives Tom gave some guidance around <unk> and the step up there, but just wanted to reminder, on you know kind of what drives incentive comp Rio recently, we've had you know pretty strong markets, obviously very strong asset growth in our in the money market funds and separate account.

But you know, but also some outflows in some of the long term funds. So if you could just put some context around what really drives incentive comp. Thank you.

Yes of course.

Yes, we recalibrate for the year so.

And I did say, we expect that.

Incentive topline to go up for the year and kind.

Kind of break it down in the sales group. They are paid based on how sales go.

Operator: Greetings. Welcome to the Federated Hermes, Inc. Q4 2023 Analyst Call and This time, all participants are in English. A question and answer session will follow the formal presentation. If anyone should require operator assistance, please call 1-866-433-4332 or call 1-866-433-4332, and then press star zero on your telephone.

In the investment management side of things there primarily.

Compensated on performance.

And then.

The operation side is on how well the company does so we expect to continue to grow we expect.

Operator: Please note this conference is being held. I will now turn the conference over to your host, Ray Hanley, President of Federated Investors. Good morning and welcome. Leading today's call will be Chris Donahue, Federated Hermes CEO and President, and Tom Donahue, Chief Financial Officer. After some brief remarks, we'll open up for Q&A, and participating in the Q&A will be Saker Nusseibeh, who is the CEO of Federated Hermes Limited, and Debbie Cunningham, the Chief Investment Officer for MoneyMarkt. Going forward, we will make forward-looking statements, and we want to note that our actual results may be materially different from the results implied by such statements. Please review our risk disclosures and our SEC filings. No assurance can be given as to future results, and Federate Army assumes no duty to update any of these forward-looking statements. Chris?

Pretty good sales and were expecting the investment performance to uptick so that's why I come in and we expect the company earnings to grow so that's why.

I'm, saying I expect the comp to go up.

Got it appreciate it thanks very much.

Okay.

Your next question for today is coming from Bill Katz with TD Cowen.

Great. Thank you very much just a couple of questions. This morning first of all thank you for taking the question.

Just just to push back a little bit on sort of the money market dynamic.

How how sticky is the benefit to the institutional argument if ultimately the fed funds does go down the path and get equilibrium between the T Bill.

Direct market and money markets, let's say a year from now so there's just more transitory in scope or you think that there are higher highest here just given the structure of the market.

Thank you, Ray, and good morning. I will review Henry and Hermie's business performance, and Tom will comment on the financial results. We had solid asset growth in Q4, ending with record assets under management of $758 billion, driven by record money market assets of $560 billion. Now, we look first at equity. Assets were up about $2 billion from Q3 to $79.3 billion due to combined market gains and FX impact of $6.7 billion, but partially offset by net redemptions of $4.7 billion.

Bill first of all welcome back and.

My answer to that is higher highs and higher lows at Debbie is closer to the Ah <unk>.

The market on that and I'll, let her comment.

Certainly bill.

How sticky I think very sticky ultimately.

Institutional investors generally have more options than the retail investor does but once a trend has begun given what market did you make in response to what market conditions are it stays for a while so you know.

Thomas R. Donahue: We did see Q4 positive net sales in 11 equity strategies, including MDT large-cap growth, MDT mid-cap growth, and international small-mid price. Looking at our equity fund performance compared to peers and using Morningstar data for the trailing three years, at the end of the year, 48% of our equity funds were beating peers, and 24% were in the top quartile in their category. For the first three weeks of Q1, combined equity funds and FMAs had net redemptions of $319 million.

In a what I'll call flat to inverted or declining rate environment, youre going to see institutional investors.

In a product that has more duration associated with it now institutional investors in a zero percent rate environments ultimately be can't became more.

More measured about how their cash was put into play in the market. They created buckets essentially from a cash perspective operating cash which is very short term overnight type needs.

And then what would be strategic cash and core cash depending upon transactions and maybe longer term needs.

Thomas R. Donahue: Now turning to Fixed Income, assets increased by about $5.1 billion in Q4 to $94.9 billion, with fixed income separate accounts reaching a record high of $51 billion. 6th Income Institutional Separate Accounts had net sales of $1.4 billion, led by corporates, multi-sector, and multi-sector. Fixed Income SMA, at two for gross sales and net sales of $896 million and $584 million, respectively. Fixed income funds had net redemptions of about $988 million in Q4, and they have had slightly positive net sales for the first three weeks of January.

All of their firms and ultimately in a declining and.

Stable environment, almost all of that cash becomes part of the sort of the money market franchise. It's only when you start to see interest rates start to go back up then it becomes a little bit more transitory in the context of our strategic and operating trying to capture those higher yields for us.

Longer.

The yields for a longer period of time. So it is ultimately something that we've kind of seen as a trend in the flows overtime.

And unexpected.

The last rising rate environment of 16, 17, and 18, we sleep we saw that we saw it similarly change on a net decline during COVID-19.

But our expectations are that there is nothing really that drive us and there is no different products in the marketplace that would drive different dynamics in this current cycle.

Thomas R. Donahue: We had 12 fixed income funds with positive net sales in the fourth quarter, including the High Yield Bond Collective Investment Trust and the Sterling Katz Plus Fund. Additionally, we launched an actively managed ETF in the fourth quarter that uses a process similar to the core strategy of our total return bond fund. Regarding performance at the end of 2023 and using Morningstar data for the trailing three years, 31% of our fixed income funds were beating peers, and 11% were in the top quartile of their category. For the first three weeks of Q1, combined fixed income funds and FMAs had net sales of $105 million.

Okay. Thank you and Chris Thanks for the well wishes good to be back just one follow up I don't know if it's the soccer or for Tom just sort of wondering as Youre, a private market business continues to get a bit larger and you are building. Some more performance fees <unk> carry opportunities is the way to help us understand how much you have in terms of carry eligible AUM or how to think.

About trying to monitor or track for performance fees, it's becoming a bigger number and it's not that much transparency versus some of your peers. Just wondering if you could help us triangulate to how to think that through thank you.

Yes.

I understand your dilemma there.

We've tried to give out the numbers in the past and we know that we cannot predict it.

And we've kind of said hey, here's here's the range of what the performance fees has been over the past.

Thomas R. Donahue: In the Alternative and Private Markets category, assets increased by $214 million in Q4 from the prior quarter to $20.6 billion due mainly to positive FX impacts partially offset by market decreases. We are in the market with Horizon 3, the third fund of our Horizon series of global private equity funds. As previously announced, Horizon 3 has closed on commitments of $100.05 billion through year-end.

And we're willing to do that again, we're just not willing to go out and say how much.

It is going to come each quarter or for the year, So I'm not really giving you much.

The guidance there.

As sector.

Soccer I don't know if you have a follow up to my non answer so no other other than other than to.

To reiterate what you just said, Tom and maybe too.

The other difference about our private markets businesses.

We're building a very diversified private market business, which makes us.

Thomas R. Donahue: Hermes Innovation Fund II is also in the market. This is the second vintage of our pan-European growth private equity innovation fund. We had our first close in 2003 in August for approximately 100 million euros.

So we carry.

Four months feeds from our private equity and yeah, that's comparable to other private equity players for example, if.

If you take a real estate, where we also have performance fees that is there is some of that has to do with renting out of the buildings wonder if any place, making some has to do with achieving targets.

Thomas R. Donahue: And we're also in the market with the first vintage of our UK Nature Impact Fund. We began 2024 with about $3.1 billion in net institutional mandates yet to be funded into both funds and separate accounts. These wins are diversified across fixed income, equity, and private markets. About $1.9 billion of net total wins is expected to come from private market strategies, including private equity, direct lending, and Unconstrained Credit. Fixed income expected net additions total about $850 million with wins in the ultra-short, short-duration, high-yield, and sustainable investment credit. About $340 million of the net total wins is expected to come into equity strategies including bioequity, global equity, GEMS, which is The Emerging Markets Ideas blog and MDT Small Cap Corps. Moving the money, Mark.

And then all the strategies. We have also some of the performance fees I'm afraid it's not much help the other thing we can say to you is the historical numbers you can look at what they look like.

We can't predict whether we win performance fees over time or not that is not right. The proper that looks at our track record and then we're growing our private market business, which implies.

The future growth, obviously, assuming that we hit our performance luggage, which is something we cant guarantee so I'm afraid not much help other than to tell you. It's just the nature of our business.

Okay, well that's right. Thank you.

[laughter].

Your next question is coming from Kenneth Lee with RBC capital markets.

Hey, good morning, Thanks for taking my question.

In terms of the equity outflows in the quarter was there anything to call out there any changes in mandates that you saw.

One comment I would make on those.

If you just.

It's getting less worse, let's put it that way and the way I would phrase that is that if you look at the strategic value dividend fund.

Thomas R. Donahue: We recently marked 50 years of innovation and successful management of money market funds as we launched the first fund to ever use the term money market on January 16th, 1974. At year-end 2023, we reached record highs for money market fund assets of $406 billion, money market separate account assets of $154 billion, and total money market assets of $560 billion. Total money market assets increased by $83 billion, or 17%, during 2003 and by $35 billion, or 7%, in the fourth quarter.

And.

Sure they were pretty good sizable redemptions for the whole year in October and were about negative $3 50 in November they were negative $2 80 in December they were negative $2 50, and so far. This this year. They are negative about 30 or 35 this month.

And so it's declining or what's going on there well what's going on there is that.

Some of the clientele is wanting to go out into the market more a little more risk on and they see the beauty of a product that does just what it says, namely a dividend product with growth of dividend.

Thomas R. Donahue: Money market strategies continue to benefit from favorable market conditions for cash as an asset class, elevated liquidity levels in the financial system, and attractive yields compared to cash management alternatives such as bank deposits and, more recently, direct investments in money market instruments such as fee bills and commercial papers. In the expected upcoming period of declining short-term rates, we believe that market conditions for money market strategies will continue to be favorable compared to direct market rates and bank deposit rates. Our estimate of the money market mutual fund market share, which includes sub advised funds, was about 7.4% at the end of 23, up from about 7.3% at the end of the third quarter last year.

And the people who are.

Selling it understand that that's what it is so.

That's one observation that I would make.

Gotcha very helpful. There and just one follow up if I may.

Given the meaningful share repurchases in the quarter wondering if you could just give us any updated thoughts around our outlook for a potential M&A acquisitions, especially in this environment. Thanks.

Yes.

This is Tom.

Yes, we bought shares and we continue to think that.

We will be active during that.

In terms of M&A.

We have our group out there active.

They're working on some things we're always interested in the roll ups, we're interested in money funds.

We're looking at a little more actively.

In Europe, as maybe we will be able to to buy some roll up type things there.

Now, looking at recent asset totals as of a few days ago, managed assets were approximately $764 billion, including $568 billion in money markets and $78 billion in equity. $95 billion in fixed income, $20 billion in alternative private markets, and $3 billion in multi-asset. Money Market Mutual funds assets were at $406 billion, huh? Thanks for... Total revenue for Q4 decreased $11.2 million from the prior quarter due mainly to lower average equity assets and lower Total Carried Interest and Performance Fees. This is partially offset by higher average money market assets. Total Q4 period interest and performance fees were $9.7 million compared to $14.9 million in Q3. Q4 operating expenses decreased by $12.3 million from the prior quarter mainly due to lower compensation expense related to shared interest in consolidated vehicles and lower incentive compensation expense. Advertising expense increased in Q4 due to the launch of our new campaign, while the other operating expense line item decreased mainly due to the impact of FX.

And then as we've talked before in the private markets.

We've.

Put some efforts in to see what we can.

Purchase in the U S to complement our U K team.

And there's nothing to announce or talk about specifically, though.

Okay.

Gotcha very helpful. There. Thanks again.

Okay.

Your next question is coming from Dan Fannon with Jefferies.

Yes, Dan.

The private markets money has a longer runway than the other wins that we've talked about so that's really will take.

Up to two years to fund and be fee, earning and that's typically.

We get commitments and then depending on the strategy when the money is actually drawn down and investing that's when it would become an actual flow move out of the pipeline move into the flow numbers when it becomes fee, earning but that typically happens over a longer time frames.

Equity and fixed income or more a couple of quarters. The private markets is out a year or two and the private markets part of that $1 9 billion is about half.

Looking ahead to Q1, certain seasonal factors will impact results. The impact of fewer days is expected to result in about $4 million in lower operating income, all else being equal. In addition, based on our early assessment, compensation and related expense is expected to be higher than Q4, primarily due to about 8 million of seasonally higher expense for stock compensation, payroll taxes, and base pay increases. We also expect to have higher incentive compensation expense. Of course, all these items will vary based on multiple factors. Holly, we would like to now open the call to questions. Certainly. At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone speaker. This confirmation tone will indicate that your line is open. You may press star 2 if you would like to remove your question from the line for purchase. It may be necessary to pick up your handset before pressing the button.

And a bunch of the other is a direct lending and unconstrained credit and that comes in faster and maybe sacher has a timing on that that would be more illuminating.

So the difference thank you christel differences things.

It seems like.

Direct lending and so on we'd expect to come in within two quarters normally if it's being committed.

Thomas R. Donahue: We are as soon as we that we haven't been we stopped drilling at and investing and that is different is as you've heard.

From things like private equity with its horizon or private equity group, which has a longer time horizon.

When we do and we haven't announced any at this stage when we do large real estate deal funding up that does tend to think about the year as well. So that's the best guidance that I can give at this stage the direct lending suddenly quite Boston. So is in good shape.

And the average fee rate of that backlog roughly.

It varies.

Go ahead go ahead soccer.

No no I was going to exactly the same. So there is there is on the strategy and it's very hard to.

Operator: One moment, please, while we poll for questions. Your first question for today is coming from Ken Worthington with JPMorgan. Hi, good morning.

To give you and I know you guys like guidance and install them, but it is very hard to give because it varies on the strategy.

The private equity side, you really particular problems like with you with the base fee and then a percentage of the performance fees for example, all the strategies with the.

Thomas R. Donahue: Thanks for taking the question. Maybe starting at a particularly high level for you, Chris, I'd like to ask you about strategy over the next three to five years. So maybe to start, what are the top two or three goals you have for the company? And then can you talk about your expectations for some of the businesses? In particular, I'm curious about what your goal is for the ESG franchise and the strategy there, and then the outlook and goals for the money market fund and the alternatives business. Okay, let's go in reverse.

Different kinds of structures, performing skus and a different kind of basically so I'm afraid because all alternative private market business is still very it's very difficult to give a singular number like you do for equities or fixed income it just depends from sensitivity.

Okay, and then just as a quick follow up on the AD campaign that drove <unk> a bit higher is that a is that an ongoing or what's a reasonable run rate for ad spends.

In 'twenty four.

Yeah Dan.

Thomas R. Donahue: On the ESG... We're doing more work in order to tag various ESG features to actual financial information and financial statements. This is not ready for prime Time, but it's a way to show the fluency that we have on this subject and further defend the integration of ESG concepts into the various funds where these features have been integrated as part of the risk-reward analysis. And we continue with that unabated.

I'd look at the whole year of 'twenty three.

As the guidance and then.

I expect we're going to do more than 23.

But I wouldn't use Q4 as a run rate I would take the whole 23 and <unk>.

Divided it up and when exactly we're going to run the campaigns, we're still working on but I would add a little bit to 20 threes number.

Great. Thank you.

Thomas R. Donahue: We also continue, in the European sphere, to do what the clients want, which is to have sustainable funds that go beyond the regular fiduciary duty concepts that we have here in the U.S. So we are remaining where we were on that. We also believe that this will very much help with risk-reward analysis across the board.

Your next question is coming from Brian Bedell with Deutsche Bank.

Great. Thanks, good morning folks.

Thanks for all the answers to these questions.

Pretty interesting a couple.

Expansions from prior comments that maybe Debbie will start with the money market fund side just.

Again, a great color on the dynamics, there, but do you have a sense of what the addressable market might be.

For for Federated inflows.

Thomas R. Donahue: So we continue to go forward with that. On the money market front... Remember that over 50 years ago.

Into money market funds coming from things like T bills and should we be thinking of.

Thomas R. Donahue: We have had the strategy of keeping the money funds alive and well, and they work on the basis of higher highs and higher lows over all that time frame, and our dedication to it in terms of arguing with the SEC and dealing with the realities of the marketplace has been well rewarded. These money market funds will, in the future, continue to serve as ballast for the ship of FHI, which they have done to date, noting that when there are variations in the marketplace, these money market funds prove the viability of a differentiated franchise for all seasons. And we continue to maintain that.

The two.

2019 and into 2020 as as a general proxy for that or do you think the addressable market is larger now could see bedroom.

I think on a percentage basis using the eight than.

16% to 19 timeframe.

Experience there is probably a good one obviously.

That goes up with the markets increase but on a percentage basis sort of in the high teens I think that's probably.

Something that.

Were expecting let's say.

Okay.

Okay. That's helpful and then just back on the private markets.

Triangulating some answers.

Thomas R. Donahue: And don't forget that as the money supply is now back up, that is really the engine of monies going into money funds. So we think that it is a permanent, good long-term business, and um... In terms of top goals for various enterprises, the one way to look at the way we internally view growth in various spheres is simply double it all in five years. Now, that's not going to happen on the money fund, but it's certainly what we would establish as the goal for fixed income equity and especially private markets.

Back to Chris's first answer in that sector, who answers on this.

In terms of.

And so if you think about infrastructure in energy transition and I know you. Obviously you have the infrastructure fund I.

In the U K and nature based fund as well, but.

The market for these particular assets are growing very substantially and you've got to.

Great brand name and good track record.

I guess, what's your view on really scaling that up kind of dramatically more than you are now is it a capacity constraint do you need to acquire more teams.

Or do you feel like you have the infrastructure in place and it's something that you can really start launching funds on them and going after that market which are dramatically.

Thomas R. Donahue: And as I've said to this group before, the private market has the potential to be bigger than the fixed income and equity enterprise that we already manage here. And we have a lot of good things going on that side of the business. Now, mind you, it's less than $20 billion, but nonetheless, they all have good records.

I'll take a swing at pitch versus and then sacrosanct or a follow up when we originally bought the Hermes enterprise there was a lot of work that needed to be done.

In order to gain proper control of all of those private market entities and all of the structures.

The next thing that needed to be done, which we needed to make it a viable open market tight operation Gen.

Thomas R. Donahue: The real estate is excellent, the private equity is excellent, the private credit is excellent, and we're working on, um, the, uh... Uh... Now, there are other structures that we have to get right, and those are, we like to provide the investment management; we are indifferent as to what the structure is, so now you see me mentioning the ETF or Total Return Bond Fund. We have some more plans to add another handful to our ETF offerings, and the idea is to make a full complement of ETF offerings as we go forward. And that will be a big move for us in the future. Don't forget, these are active ETFs, and active ETFs are only about 6% of the total ETF market. So we think there's plenty of room to grow in those areas. I'm sure I skipped some of the other great goals that we have, but don't forget, we're spending tons of money on technology, and not to have goals for getting that right would be a mistake.

Generally in the old days it was a single client and if the client called you answered the question and it wasn't a platform for doing things. So over the last couple of years, we have been working on those two things that had to get right.

And we're still working on some of the things on the on the infrastructure in particular on those subjects. So there's internal things that have to happen. The next thing that happens as I say, we're in the market, it's repeat the sounding joy of sales.

We had a great sales conference in London in person last week, we have our global sales conference coming up next week.

Coming out of Pittsburgh, it'll be virtual but.

The point is that it.

It's now time.

For the sales are to take over and <unk> in the marketplace and I'll, let saker I'll make some comments as well.

That's what Chris just said.

Thomas R. Donahue: We are we were doing some work, particularly on the infrastructure side.

Great, thank you. And then, maybe for Debbie, Chris called out the attractive yield of money market funds versus direct markets. So can you talk about the dynamics here and the impact of PPP, QT, and the pivot and what that sort of has on the outlook for the money market? Sure, I think what it does mostly is take the direction of flows and increase it more towards the institutional side, but it doesn't take away the retail side that has certainly been the driver of the flows in 2022 and 2023. But I think it emphasizes more the institutional side, and that is because in the context of what's been happening from, you know, a pivot perspective with the yield curve itself, as well as expectations from a QT standpoint, you've seen what has been, over the course of the last 18 months, a fairly steep money market yield curve turn into something that's, you know, relatively flat from a prime perspective and relatively inverted from two months out

We hope to finish and we were in the marketplace nature is a new endeavor, where we all seen as very much the innovators.

And we're hoping for more sales with that now what I would say in general about the old Hermes franchises as follows which is everything we did we did because we thought we could enhance returns not just because it was trendy or it was the theme of the moment and that is true all of the transition. So we are very much involved.

And looking at ways that we.

We could.

Invest.

And the whole theme of energy transition across the board in various ways and then there is strategy is not just by the market and benefits our clients and the process. The differences when we do something we do it right we kind of.

Go fall slows that makes sense to do it.

Which is we make sure that given the right place and getting back to something that Chris said right at the beginning of the school I think what differentiates us as an enterprise.

From others.

I think it's a differentiator is that the way that we approach whether it's integrating ESG.

The risk return profile.

It's thinking about domestic funds, whether it's launching the nature Pandit we've launched we do so thoughtfully.

And I think with stronger foundations, because we believe.

And ultimately, that means that the institutional buyer of cash securities, of cash in some way, is going to go out of the securities market where they've been for the last 18 months and into something that holds on to the yield a little bit longer, and that would, in most instances, be money market funds. So, our outlook is very positive with regard to flows and somewhat of a shift that occurs based on 2022 and 23 being mostly retail and institutional coming a lot from 24 being institutionally driven. Thank you very much.

The strong foundations will will bring the rewards and the sales will happen. When this is the time when we hope to smoke rewarding seeing the rewards.

And do you feel you have the internal capacity.

To execute that strategy right now or is it.

Think a bolt on M&A would would accelerate that.

Thomas R. Donahue: Well.

So let's put the question. This way first we have the choice to do it right now we would love some bolt ons, Tom has talked of before about how we could accelerate the real estate efforts place building Sacher mentioned it on this call already as a viable thing in the United States.

Your next question is coming from Adam Beattie, with you. Thank you. Good morning.

But we're not hot to trot in something like that right now we would love to do it.

I just wanted to follow up on that, your most recent comments, and get some additional thoughts around retail behavior, obviously, strong flows over the year as rates have gone up. But I'm still seeing articles in the press about folks with, quote-unquote, high-yield savings accounts that are paying 10 or 20 bips, so that suggests maybe more retail inertia than some might have supposed. I just wanted to get your thoughts around how long a tail, how much of a time lag there might be with continuing inflows into retail, and maybe even strengthening, and then on the back side of maybe some rate cuts, how sticky that money might be in your money market funds. Sure, and let me just start with a little bit of a history lesson.

So, yes bolt ons would be good but they aren't mutually exclusive just because youre looking for a bolt on or would do it doesn't mean that you don't have the choice to be able to get to the future anyway.

Okay.

Fair enough. Thank you.

Your next question is coming from John Dunn with Evercore.

Yeah.

Thank you.

For the fixed income franchise, how do you think that you know the next phase of the rates picture affects you guys.

Like you should be a beneficiary, what what are like the big puts and takes are for that.

Major product areas.

Well there are several there I'm going to start off with Muni and.

And if you go back prior to the financial problems in 2008, deposits at that point were in the little over $8 trillion area. They ran up to something that was close to $20 trillion, just under $20 trillion, during the zero-rate environment that started from a 2008 standpoint and then really continued, you know, through the pandemic with just a year and a half or so, 2016 and 17, of higher rates. So, ultimately, deposit products doubled, not because of the attractiveness of the yield, but because there really wasn't any yield in the marketplace. And the concern was, from a safety perspective, they thought, you know, I think retail trades went into deposits in that environment.

Thomas R. Donahue: The record here in terms of the performance of both the funds and the SMA has been excellent.

And we're seeing increased interest there, including in CW Henderson in terms of.

Them grow growing assets under management, so as people look for bigger yields that's one place to go and other places our core strategy. Obviously total return bond fund and the core SMA, where the the records are simply outstanding and that's why we did the the ETF with that.

Type of strategy.

Sooner or later.

The excellent history and are opportunistic.

High yield.

You know gets gets more and more <unk>.

Visibility, it's all a question now of which companies you own and whether you own the ones that are having a lot of trouble refinancing and we think we do a good job on the on their credit analysis there.

What you've seen over the course of the last year and a half has been a small reversal of that, which is why I'm not saying that the retail trade is done. Certainly, you know, it's not surprising that, with money funds increasing $1.2 trillion in the past year, deposits are decreasing $1 trillion, that those two numbers are equatable. Having said that, there's still $17 trillion left in deposits out there, many of which, as you know, are in the $10, $20, $30 basis point camp from a payment perspective. So, the expectations would be that that trade continues. Certainly, when you look at deposit betas from a banking perspective for their deposit products, they have been loath to increase with markets as rates are increasing, but they have been very quick to decrease.

So.

If you then say, okay, well what about across the spectrum of maturities and you look at it you've got a money funds or micro shorts, the ultra shorts. The intermediates all without the spectrum, we have reliable solid product that when people want to really gauge and ladder their fixed income approach.

We have the answers and we are very helpful to them win when they want to do that so the fixed incomes.

Our franchise is.

Very strong and I think very very well set up for the future.

Gotcha, and then as we seem to be going into a more normal environment over the course of 'twenty four.

Now, I'm not sure that that will be the case at this point. In this scenario, given that prices haven't gone up very far to begin with, but in all cases, I think the retail trade has been awakened, and it will continue. I think it will be matched, basically, by the institutional trade in 2024 but certainly will be a factor that continues to contribute to the flows in this market. That's a great perspective. Thank you, Debbie.

What's kind of the outlook for Hermes strategies, specifically both.

Now in the U S and the U K retail and institutional.

I'll, let <unk> take a swing at that one.

Thank you so if you break it down.

And Oh equity.

Equity franchise and in the UK.

We have a large exposure to emerging markets. That's that's an exposure that's been somewhat out of favor as you know if you look at the performance all the.

And then I just wanted to turn to compensation, particularly around incentives. Tom gave some guidance around 1Q and a step up there. But just a little reminder of kind of what drives incentive comp. Recently, we've had pretty strong markets, obviously very strong asset growth in money market funds and separate accounts, but also some outflows in terms of long-term funds. So if you could just put some context around what really drives incentive comp. Thank you. Yeah, Adam.

Emerging markets, particularly China versus the rest of the world in terms of why we have two kinds of strategies. One is an outstanding over the strategy, which are which we have a we run here and another one by separate team, which is one of the best performing values packages now I'll convention is at some stage things.

So attractively valued that we'll see some more inflows and as we see more inflows this year come back, particularly with the general environment worldwide.

Of course, we recalibrate for the year. So, and I just say, you know, we expect that percent of the top line to go up for the year. And, you know, to kind of break it down in the sales group, they are paid based on how sales go.

Thomas R. Donahue: Imagine that I started cases would put more assets into those strategies.

Have all the.

But the franchise is the domestic ones of biodiversity.

The impact and so on and we would expect people to continue to want to allocate so if we look at our fixed income team. Our teams continued to see good demand as you've seen from our release, we expect that those will continue so I'm happy with that and direct lending we've already covered.

In the investment management side of things, they're primarily concentrated on performance. And then, you know, the operation side is about how well the company does. So we expect it to continue to grow. We expect, you know, pretty good sales, and we're expecting the investment performance to uptick. So that's why I come in, and we expect the company earnings to grow. So that's why, you know, I'm saying I expect the comp to go up. Got it. I appreciate it. Thanks very much.

And we've already talked about the pipeline, which is very strong.

Uh-huh alternative market.

<unk> franchises.

So none of this is a prediction, obviously because you cant predict.

That's how I would imagine the markets too.

To behave as we move forward in this market environment because of the soft market environment for the last couple of years.

Thanks very much.

Your next question for today is coming from Bill Katz on TV. Great. Thank you very much.

We have reached the end of the question and answer session and I will now turn the call over to Ray Hanley for closing remarks.

Just a couple of questions this morning. First of all, thank you for taking the question. Just to push back a little bit on sort of the money market dynamic, how sticky is the benefit to the institutional argument if, ultimately, the Fed funds rate does go down, follow the path, and get equilibrium between the T-bill, direct market, and money markets, let's say, a year from now?

Raymond J. Hanley: Thank you Holly and that concludes our call and we thank you for joining us today.

Thank you. This does conclude today's conference and you may disconnect. Your lines at this time. Thank you for your participation.

Okay.

So is this more transitory in scope, or do you think that there are higher highs here just given the structure of the market? So Bill, first of all, welcome back, and my answer to that is higher highs and higher lows. Debbie is closer to the market on that, and I'll let her comment. Certainly, Bill. You know, how sticky?

I think very sticky. Ultimately, institutional investors generally have more options than the retail investor does, but once a trend is begun given what the market, in response to what market conditions are, it stays for a while. So, you know, in what I'll call a flat to inverted or declining rate environment, you're going to see institutional investors in a product that has more duration associated with it. Now, institutional investors in the 0% rate environment ultimately became more, you know, more measured about how their cash was put into play in the market. They created buckets, essentially, from a cash perspective, operating cash, which is, you know, very short-term overnight-type needs, and then what would be strategic cash and core cash, depending upon transactions and maybe longer-term needs of their firm.

And ultimately, in a declining and stable environment, almost all of that cash becomes part of the, you know, sort of the money market franchise. It's only when you start to see interest rates start to go back up that it becomes a little bit more transitory in the context of, you know, strategic and operational trying to capture those higher yields for a longer period of time. So, it's ultimately something that, you know, we've kind of seen as a trend in the flows over time and expected. In the last rising rate environment of 15, 17, and 18, we saw that. We saw it similarly change on the decline during COVID, but our expectations are that there's really nothing really that drives it. There are no different products in the marketplace that would drive different dynamics in this current cycle.

Okay, thank you, and Chris, thanks for the well wishes. It's good to be back. Just one follow-up, I don't know if it's for Saker or for Tom, just sort of wondering, as your private markets business continues to get a bit larger and you are building some more performance fees and or carry opportunities, is there a way to help us understand how much you have in terms of carry eligible AUM or how to think about trying to monitor or track performance fees? It's becoming a bigger number, and there's not that much transparency versus some of your peers. I was just wondering if you could help us try and relate to how to think that through. Thank you. Yeah, it's, yeah, we, I understand your dilemma there. You know, we've tried to figure out the numbers in the past, and we know that we cannot predict them.

And we've kind of said, hey, here's the range of what the performance season's been in the past. And, you know, we're willing to do that again. We're just not willing to go out and say how much it's going to come each quarter or for the year. So I'm not really giving you much. The guy that's there. It's Saker.

Saker, I don't know if you have a follow-up to my non-answer. Sure, no. Other than to reiterate what you just said, Tom, and maybe to kind of explain, the other difference in our private market business is that we're building a very diversified private market business, which makes us different. So we carry performance fees from our private equity; you have that comparable to other private equity players, for example. But if you take our real estate, where we also have performance fees, that is varied. Some of it is to do with renting out the buildings when we finish placemaking, some of it is to do with choosing targets, and in other strategies, we have also similar performance fees. So I'm afraid it's not much help. The only thing we can say to you is, here are the historical numbers; you can look at what they look like. We can't predict whether we will win performance features this time or not.

That is not right and proper, but it looks at our track record. And then we're growing our private market business, which implies future growth, obviously assuming that we hit our performance targets, which is something we can't guarantee. So I'm afraid not much help other than to tell you who it is just the nature of our business. Okay, well, I tried.

Thank you. Cast, Your next question is coming from Kenneth Lee with RBC Capital News. Hey, good morning.

Thomas R. Donahue: Thanks for taking my question. In terms of the equity outflows in the quarter, was there anything to call out there, any changes in mandates that you saw? One comment I would make on those, um, if you just... It's getting less worse, let's put it that way.

Thomas R. Donahue: And the way I would phrase that is that if you look at the Strategic Value Dividend Fund, and Sure, there were pretty large redemptions for the whole year. In October, there were about negative 350. In November, there were negative 280. And in December, there were negative 250.

Thomas R. Donahue: And so far this year, they are negative, about 30 or 35 this month. And so it's declining. What's going on there?

Thomas R. Donahue: Well, what's going on here is that some of the clientele is wanting to go out into the market more, take a little more risk, and they see the beauty of a product that does just what it says, namely a dividend product with growth in dividends. And the people who are selling it understand that that's what it is. So that's one observation that I would make. Got you. Very helpful there. And just one follow-up, if I may. Given the meaningful share we purchased in the quarter, wondering if you could just give any updated thoughts around outlook for potential MA acquisitions, especially in this environment. Thanks. Yes, Ken, it's Tom.

Yeah, we bought shares, and we continue to think that we will be active in doing that. In terms of M&A, we have our group out there active, and we're working on some things. We're always interested in the roll-ups. We're interested in money funds. We're looking a little more actively in Europe, and maybe we'll be able to buy some roll-up type things there.

And then, as we've talked about before, in the private market. We've put some effort in to see what we can buy in the U.S. to complement our U.K. team. And, you know, there's nothing to announce or talk about specifically, though.

Gotcha. Very helpful there. Thanks again.

Your next question is coming from Ben Fannon with Jeff. Thanks, good morning. One more question on the alts business and the backlog, which I think was around $1.9 billion that you mentioned. Can you give us an expectation of what's a reasonable time to see that fund and or show up as a flow? And then what is the kind of average fee rate of that backlog?

Thomas R. Donahue: Yes, and the private market's money has a longer runway than the other wins that we talked about. So that really will take, you know, up to two years to fund and start earning revenue. And that typically, we get commitments, and then, depending on the strategy, when the money is actually drawn down and invested, that's when it would become an actual flow, move out of the pipeline, and move into the flow numbers when it becomes a fee earning asset. But that typically happens over a longer time frame.

Thomas R. Donahue: You know, equity and fixed income are more for a couple of quarters. The private market is out for a year or two. And the private market's part of that $1.9 billion is about half. And a bunch of the other is direct lending and unconstrained credit, and that comes in faster. And maybe Saker has some timing on that that would be more illuminating.

So the difference, thank you Chris, the difference is things like direct lending and so on, we'd expect to come in within two quarters, normally, if it's been committed, and we, as soon as we have it in, we start drawing it down and investing. And that is different, as you've heard, from things like private equity, whether it's Verizon or private equity growth, which has a longer time horizon. When we do, and we haven't announced any at this stage, when we do large real estate deals, funny enough, that does tend to take about a year as well. So that's the best guidance that I can give at this stage. But direct lending is certainly quite fast, and so is unconstrained lending, and the average fee rate of that backlog is roughly. It's very, uh, go ahead, go ahead, Saker. No, no; I was going to say exactly the same.

So it varies with the strategy, and it's very hard to give, and I know you guys like guidance and so on, but it is very hard to give because it varies with the strategy. The private equity strategy is really critical to private equity with a base fee and then a percentage of performance fees. For example, other strategies would have different kinds of structural performance fees and a different kind of base fee.

So I'm afraid because our alternative or private market business is so varied, it's very difficult to give a singular number like you do for equity with a fixed income. It just depends on the strategy. Okay, and then just as a quick follow-up, Tom, the ad campaign that drove 4Q a bit higher, is that ongoing, or what's a reasonable run rate for ad spend in 24? Good to see you again. I'd look at the whole year of 23, like the guys, and then, you know, I expect we're going to do more than 23, but, you know, I wouldn't use Q4 as the run rate. I'd take the whole 23.

I don't know when exactly we're going to run the campaign that we're still working on, but I'd add a little bit to 23's number. Great, thank you. Thank you. Your next question is coming from Brian Bedell with Deutsch.

Brian Bedell: Great. Thanks. Good morning, folks. Thanks for all the answers to these questions.

It's pretty interesting. Here are a couple of expansions from prior comments. So maybe, Debbie, we'll start with the money market fund side. Just, again, great color on the dynamics there, but do you have a sense of what the addressable market might be for federated inflows into money market funds coming from things like T-bills? And should we be thinking of 2019 into 2020 as a general proxy for that, or do you think the addressable market is larger now and we could see better inflows? You know, I think on a percentage basis, using the 16-19 timeframe, and the experience there is probably a good one.

Thomas R. Donahue: Obviously, you know, that goes up with the market increase, but on a percentage basis, you know, sort of in the high teens, I think that's probably something that, you know, we're expecting, let's say. Okay. Okay, and then to crack on the private markets, you know, triangulating some answers, you know, back to Chris's first answer and Zachary's couple answers on this. In terms of, just if you think about infrastructure and energy transition, and I know you obviously have the infrastructure funds and the UK nature-based funds as well, but the market for these particular assets is growing very substantially, and you've got a, you know, great brand I guess, what's your view on really scaling that up kind of dramatically more than you are now? Is it a capacity constraint?

Thomas R. Donahue: Do you need to acquire more teams? Or do you feel like you have the infrastructure in place and it's something that you can really start launching funds on and, you know, going after that market more? I'll give you a slanted pitch first, and then Saker will follow up.

Thomas R. Donahue: When we originally bought Hermes Enterprise, there was a lot of work that needed to be done in order to gain proper control of all of those private market entities and all the structures. The next thing that needed to be done was to make it a viable open market type operation. Generally, in the old days, it was a single client, and if the client called, you answered the question.

Thomas R. Donahue: And it wasn't a platform for doing things, so over the last couple of years, we have been working on those two things that had to get right, and we're still working on some of the things on the infrastructure, in particular on those subjects. So there's internal things that have to happen. The next thing that happens, as I say we're in the market, it repeats the sounding joy of sales. And we had a great sales conference in London personally last week. We have our global sales conference coming up next week coming out of Pittsburgh. It will be virtual, but the point is that it's now time for sales to take over and play squirrel in the marketplace.

Thomas R. Donahue: And I'll let Saker make some comments as well. Thank you, Chris. So, to add to what Chris has just said, we were doing some work, particularly on the infrastructure side, which we hope to finish, and we're in the marketplace. Nature is a new endeavor where we are seen as very much the innovators, and we're hoping for more sales of that. Now, what I would say in general about the old Hurley franchise is that everything we did, we did because we thought we could enhance returns, not just because it was spending or it was the theme of the moment, and that is true of the transition. So, we are very much involved in looking at ways that we could invest in the whole theme of energy transition across the board in various ways and in various strategies, not just the private market, and benefit our clients in the process. The difference is that when we do something, we do it right.

We kind of go far, slow, if that makes sense to you, in this sense, which is we make sure that we're in the right place. And going back to something that Chris said right at the beginning of this call, I think what differentiates us as an enterprise from others, not everybody, but I think it's a differentiator, is that the way that we approach, whether it's integrating ESG or risk return profiles, whether it's thinking about genetic funds, whether it's launching the Nature Fund that we've launched, we do so thoughtfully and, I think, with stronger And do you feel you have the internal capacity to execute that strategy right now, or do you think folks on M&A would accelerate that? Well, let's put the question in this way first; we have the toys to do it right now.

Thomas R. Donahue: We would love some Bulldogs. Tom has talked before about how we could accelerate the real estate efforts, place building. Saker mentioned it on this call already as a viable thing in the United States, but we're not hot to try something like that right now.

Thomas R. Donahue: We would love to do it. So yes, bulldogs would be good, but they aren't mutually exclusive. Just because you're looking for a hold on it doesn't mean that you don't have the tools to be able to get to the future anyway. Okay, great. Fair enough. Thank you. Your next question is coming from John Dunn with Everett. Thank you. For the fixed income franchise, how do you think that, you know, the next phase of the rates picture affects you guys? It seems like you should be a beneficiary.

Thomas R. Donahue: What are, like, the big puts and takes for the major product areas? Well, there are several there. I'm going to start off with Mewing.

Thomas R. Donahue: And the record here in terms of the performance of both the funds and the SMAs has been excellent, and we're seeing increased interest there, including in C.W. Henderson, in terms of them growing assets under management.

Thomas R. Donahue: So as people look for bigger yields, that's one place to go. Another place is our core strategy, obviously, the total return bond fund and the core SMAs, where the records are simply outstanding. That's why we did the ETF with that type of strategy.

Thomas R. Donahue: Sooner or later, the excellent history in our opportunistic high yield gets more and more visibility. It's all a question now of which companies you own and whether you own the ones that are having a lot of trouble refinancing, and we think we do a good job on the credit analysis there. So if you then say, okay, well, what about across the spectrum of maturity?

Thomas R. Donahue: And you look at it, you've got the money funds, the micro-shorts, the ultra-shorts, the intermediates, all the way out to the spectrum. We have reliable, solid products that when people want to really gauge and ladder their fixed income approach, we have the answers, and we are very helpful to them when they want to do that. So the fixed income franchise is very strong and I think it is very, very well set up for the future. Thank you for watching. I hope you enjoyed it. If you did, please subscribe to my channel. I would really appreciate it.

And I'll see you in the next video. And then, as we seem to be going into a more normal environment over the course of 24, what's the kind of outlook for Hermey's strategy specifically, both in the U.S. and the U.K. and retail and institutions? I'll let Saker take a swing at that one.

So if you break it down, in our equity franchise in the UK, we have a large exposure to emerging markets, but that's an exposure that's somewhat out of fashion.

As you know, if you look at the performance of emerging markets, particularly China, versus the rest of the world, it tells you why. We have two kinds of strategies there. One is an outstanding all-weather strategy, which we run here, and another is run by a separate team, which is one of the best-performing value strategies. Now, our contention is that, at some stage, things get so attractively valued that they will see some more inflows, and as we see more inflows this year come back, particularly with the general environment worldwide, we would imagine that asset allocators will put more assets into those strategies. We have other equity franchises, the thematic ones, biodiversity, impact, and so on, and we would expect people to continue to want to allocate.

If you look at our fixed income, our teams continue to see good demand, as you've seen from our release, and we expect that growth to continue. So I'm happy with that, and direct lending we've already covered, and we've already talked about the pipeline, which is very strong in our alternative market. So none of this is a prediction, obviously, because you can't predict, but that's how I would imagine the market to behave as we move forward in this market environment because of the tough market environment for the last couple of years. Thanks very much. We have reached the end of the question-and-answer session, and I will now turn the call over to Ray Hanley for closing. Thank you, Holly, and that concludes our call. We thank you for joining us today. Thank you. This does indeed conclude today's conference. And you may disconnect your lines at this time.

Thank you for your participation. Thank you. Thank you.