Q1 2024 Federated Hermes Inc Earnings Call

Yes.

Operator: Greetings. Welcome to the Federated Hermes, Inc. Q1 2024 Analyst Call and Webcast. At this time, all participants are in a listen-only mode. A 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.

Speaker Change: Greetings and welcome to the Federated Hermes, Inc. Q1, 2024 analyst call and webcast at this time all participants are in a listen only mode.

Speaker Change: A 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.

Raymond J. Hanley: Good morning, and welcome to our call. Leading today's call will be Chris Donahue, CEO and President of Federated Hermes, and Tom Donahue, Chief Financial Officer. And joining us for the Q&A is Debbie Cunningham, Chief Investment Officer for The Money Market. During today's call, we may make forward-looking statements, and we want to note that Federated Hermes' actual results may be materially different from 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.

Raymond J. Hanley: Good morning, and welcome to our call leading today's call will be Chris Donahue, CEO, and president of Federated, Hermes and Tom Donahue, Chief Financial Officer and.

Joining us for the Q&A is Debbie Cunningham, Chief investment officer for money markets.

Speaker Change: 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.

Speaker Change: Please review the risk disclosures in our SEC filings.

Speaker Change: <unk> can be given as to future results and Federated Hermes assumes no duty to update any of these forward looking statements Chris.

John Christopher Donahue: Chris?

John Christopher Donahue: Thank you, Ray. Good morning, all. I will review Federated Hermes' business performance, and Tom will comment on our financial results. We ended the first quarter with record assets under management of $779 billion, driven by record money market assets of $579 billion. Looking at equity. Assets increased by $866 million from year-end, reaching $80.2 billion, due to market gains of $4.9 billion, partially offset by net redemptions of $3.4 billion, and an FX impact of about negative $567 million.

John Christopher Donahue: Thank you Ray.

John Christopher Donahue: Oh, I will review Federated Hermes business performance, Tom will comment on our financial results.

John Christopher Donahue: We ended the first quarter with record assets under management of 779 billion driven by record money market assets of 579 billion.

Speaker Change: Looking at equities.

Speaker Change: It increased by 866 million from year end, reaching 82 billion due to the market gains of $4 9 billion, partially offset by net redemptions of $3 4 billion.

Speaker Change: The FX impact of about negative $567 million.

John Christopher Donahue: The strategic value dividend domestic strategy had Q1 net redemptions of $1.3 billion when you combine it with the fund and the SMA, and a comparable number in the fourth quarter was $2.2 billion. We did see positive net sales in 12 equity fund strategies, including MDT mid-cap growth, MDT large-cap growth, and U.S. SMID equity funds. The MDT strategies showed accelerated sales and net sales in the first quarter and here in the first part of the second quarter, particularly in the growth phase.

Speaker Change: The strategic value dividend domestic strategy had Q1 net redemptions of $1 3 billion when you combine it with the fund and SMA.

Speaker Change: And the comparable number in the fourth quarter was $2 2 billion.

Speaker Change: We did see Q1 positive net sales and 12 equity fund strategies, including MDT mid cap growth MDT large cap growth and U S smid equity funds.

Speaker Change: The MDT strategies have shown accelerated sales and net sales in the first quarter and hear the first part of the second quarter, particularly in the growth space.

John Christopher Donahue: Looking at our equity performance at the end of the first quarter and using Morningstar data for the trailing three years, 56% of the equity funds were beating peers, and 36% were in the top quartile of their category. Now, for the first three weeks of Q2, Combined Equity Funds and SMAs had net redemptions of $428 million. Turning now to Fixed Income.

Speaker Change: Looking at our equity performance at the end of the first quarter end using Morningstar data for trailing three years, 56% of the equity funds were beating peers and 36% were in the top quartile of their category.

Speaker Change: Now for the first three weeks of Q2 combined equity fund and SMA had net redemptions of $428 million.

Speaker Change: Turning now to fixed income.

John Christopher Donahue: Assets increased by about $1.4 billion in the first quarter to $96.3 billion, with fixed income separate accounts reaching a record high of $51.8 billion. The growth was driven by net sales of $1.2 billion, and fixed income funds had first quarter net sales of $565 million. The fourth quarter was basically negative, minus $988 million.

Speaker Change: Assets increased by about one 4 billion in the first quarter to $96 3 billion.

Speaker Change: With fixed income separate accounts, reaching a record high of 51 point.

Speaker Change: 8 billion.

Speaker Change: The growth was driven by net sales of $1 2 billion.

Speaker Change: Fixed income funds at first quarter net sales of $565 million.

Speaker Change: Fourth quarter was basically negative minus $988 million.

John Christopher Donahue: Fixed income SMA for Q1 net sales were $441 million, and fixed income institutional separate accounts had net positive sales of $182 million. We had 21 fixed income funds with positive net sales in the first quarter, including total return bond funds. The Ultra Short Fund, Government Altered Short Bonds, and Total Return Bond ETF, our new offer. Regarding performance, at the end of the first quarter and using, again, Morningstar data for the trailing three years, 40% of our fixed income funds were beating peers, 17% were in the top quartile of their category.

Fixed income SMA for Q1, net sales had $441 million and fixed income institutional separate accounts had net positive sales of $182 million.

Speaker Change: We had 21 fixed income funds with positive net sales in the first quarter, including total return Bond fund.

Speaker Change: Also short bond.

Speaker Change: Government Ultrashort bond and total return bond ETF, our new offering.

Speaker Change: Regarding performance at the end of the first quarter and using again Morningstar data for trailing three years.

Speaker Change: 40% of our fixed income funds were beating peers, 17% were in the top quartile of their categories.

John Christopher Donahue: For the first three weeks of Q2, Combined Fixed Income and SMA had net redemptions of $218 million. In the Alternative Private Market category, assets decreased by $86 million in the first quarter from year-end to $20.5 billion, due mainly to a negative FX impact of over $200 million, partially offset by market value increases of over $100 million and net sales of $21 million. We are in the market with Horizon 3, the third vintage of our Horizon series of global private equity funds. Horizon 3 closed on commitments of $1.05 billion through the first quarter.

Speaker Change: For the first three weeks of Q2, combined fixed income and SMA had net redemptions of $218 million.

Speaker Change: In the alternative private market category.

Speaker Change: Assets decreased by $86 million in the first quarter.

Speaker Change: From year end to 25 billion due mainly to negative FX.

Speaker Change: FX impact.

Speaker Change: Of over $200 million, partially offset by market value increases of over $100 million and net sales of $21 million.

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

Speaker Change: Horizon III closed on commitments of $1 5 billion through the first quarter.

John Christopher Donahue: The Hermes Innovation II Fund, the second vintage of our Pan-European Growth Equity Innovation Fund, is also in the market, and we're in the market with the first vintage of our UK Nature Impact Fund. We began the second quarter with about $1.9 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. Approximately $1.5 billion of net total wins is expected to come from the private market strategy.

Speaker Change: The Army's innovation to fund the second vintage of our Pan European growth equity Innovation Fund is also in the market.

Speaker Change: And we're in the market with the first vintage of our UK nature impactful.

Speaker Change: We began.

Speaker Change: The second quarter was about $1 9 billion in net institutional mandates yet to fund into both funds and separate accounts.

Speaker Change: These wins are diversified across fixed income equity and private markets.

Speaker Change: Approximately one 5 billion of net total wins is expected to come into private market strategies.

John Christopher Donahue: The wins include private equity, direct lending, and trade finance. Outflows include some areas in absolute return credit. On the fixed income side, we expect net additions of about $866 million, with wins in ultra-short, short-duration, high-yield, sustainable, investment-grade, and multi-sector. We do have some offsetting losses in high yield.

Speaker Change: The wins include private equity direct lending trade finance.

Outflows include some areas in absolute return.

Speaker Change: Absolute return credit.

Speaker Change: On the fixed income side, we expect net additions of about $866 million.

With wins in Ultrashort short duration high yield sustainable investment grade and multi sector.

Speaker Change: We do have some offsetting losses in high yield.

John Christopher Donahue: For equities, we have $233 million in wins to fund, offset by about $700 million of known redemption. Moving to Money Markets. In Q1, we reached another record high for money market fund assets, money market separate account assets, and total money market assets. As mentioned at the beginning of my remarks, total money market assets increased by 19 billion dollars during the first quarter from year end. 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 like bank deposits and direct investments in money market instruments like T- In the long-expected period of declining short-term interest rates, we believe that market conditions for money market strategies will continue to be favorable compared to direct market rates and bank deposits.

Speaker Change: For equities, we have $233 million in wins to fund.

Speaker Change: Offset by about $700 million of known redemptions.

Speaker Change: Moving to money markets in Q1, we reached another record high for money market fund assets money market separate account assets.

Speaker Change: And total money market assets as mentioned at the beginning of my remarks.

Speaker Change: Total money market assets increased by $19 billion during the first quarter from year end.

Speaker Change: 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 like bank deposits in direct investments in money market instruments like <unk>.

Speaker Change: Bills in commercial paper.

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

Thomas Robert Donahue: Our estimate of money market mutual fund market share, including sub advised funds, was about 7.35% at the end of the first quarter, down slightly from about 7.40% at the end of 2023. Looking at recent asset totals as of a few days ago, managed assets were approximately $775 billion, including $579 billion in money markets and $77 billion in equity. $96 billion in fixed income, $20 billion in alternative private markets, and $3 billion in multi-asset. Money Market Mutual Fund assets stood at $414 billion.

Speaker Change: Our estimate of money market mutual fund market share, including sub advised funds was about 7.35% at the end of the first quarter down slightly from about 7.41% at the end of 2023.

Speaker Change: Looking now at recent asset totals as of a few days ago.

Speaker Change: Managed assets were approximately 775 billion.

Including $579 billion in money markets.

Speaker Change: 77 billion in equities 96 billion in fixed income.

Speaker Change: $20 billion alternative private markets and $3 billion in money.

Speaker Change: In multi asset.

Speaker Change: Money market mutual fund assets stood at 414 billion Tom.

Thomas Robert Donahue: Tom?

Thomas Robert Donahue: Total revenue for Q1 increased $4.9 million from the prior quarter due mainly to higher average money market assets increasing revenue by $13.2 million. $7 million and higher average equity and fixed income assets increasing revenue by $7.2 million, partially offset by fewer days, reducing revenue by $5.8 million and lower carried interest and performance fees, reducing revenue by $9.3 million. Total Q1 carried interest and performance fees were $400,000, compared to $9.7 million in Q4.

Thomas Robert Donahue: Thanks, Chris.

Thomas Robert Donahue: Total revenue for Q1 increased $4 9 million from the prior quarter due mainly to higher average money market assets, increasing revenue by 13 point.

Thomas Robert Donahue: $7 million and higher average equity and fixed income assets, increasing revenue by $7 2 million.

Thomas Robert Donahue: Partially offset by fewer days, reducing revenue by $5 8 million.

Thomas Robert Donahue: And lower carried interest and performance fees, reducing revenue by $9 3 million.

Thomas Robert Donahue: Total Q1 carried interest and performance fees were 400000 compared to $9 7 million in Q4.

Thomas Robert Donahue: Q1 operating expenses increased by $8.9 million from the prior quarter, due mainly to higher compensation expense, primarily from incentive compensation, and Payroll Tax, increasing expenses by $13.7 million, partially offset by lower compensation from carried interest in consolidated vehicles of $4.6 million. Distribution expense increased due mainly to higher average assets, partially offset by fewer days. Advertising expense decreased in Q1 due to the timing of our advertising campaign.

Thomas Robert Donahue: Q1 operating expenses increased by $8 9 million from the prior quarter due mainly to higher compensation expense primarily from incentive compensation.

Thomas Robert Donahue: And payroll taxes.

Thomas Robert Donahue: Increasing expenses by $13 7 million.

Thomas Robert Donahue: Partially offset by lower compensation from carried interest in consolidated vehicles, a $4.6 million.

Thomas Robert Donahue: Distribution expense increased due mainly to higher average assets, partially offset by fewer days advertising expense decreased.

Thomas Robert Donahue: Q1 due to the timing.

Thomas Robert Donahue: Our advertising campaign.

Thomas Robert Donahue: The effective tax rate was 27.9% in Q1, up slightly from 26.6% in Q4. We expect the tax rate to be in the 26% to 28% range throughout 2024. The tax rate incorporates a valuation allowance on certain foreign deferred tax assets. At the end of Q1, cash and investments were $559 million. Cash-in investments, excluding the portion attributed to non-controlling interests, was $487 million, as announced in the press release

The effective tax rate was 27, 9% in Q1 up slightly from $26 six in Q4.

Thomas Robert Donahue: We expect the tax rate.

Thomas Robert Donahue: We expect the tax rate to be in the 26% to 28% range throughout 2024.

Thomas Robert Donahue: The tax rate incorporates a valuation allowance on certain foreign deferred tax assets.

Thomas Robert Donahue: At the end of Q1 cash and investments were $559 million.

Thomas Robert Donahue: Cash and investments excluding the portion of it attributed to Noncontrolling interest was $487 million.

Thomas Robert Donahue: As announced in the press release.

Thomas Robert Donahue: Federated Hermes Board declared a dividend of $1.31 per share to be paid on May 15, 2024. The dividend includes a $1.00 per share special dividend and a $0.31 quarterly dividend. This marks our sixth... Special Dividend since 2008. The quarterly dividend increased by 10.7%, and the dividend is considered an ordinary dividend for tax purposes. The dividend and the repurchase of 1.1 million shares in Q1 represent important additional measures intended to increase shareholder value.

Thomas Robert Donahue: Federated Hermes Board declared a dividend of $1 31 per share to be paid on May 15, 2020 for the dividend includes a $1 per share special dividend and a 31 cent quarterly dividend. This marks our six special dividends since 2000 and <unk>.

Thomas Robert Donahue: Accordingly dividend increased by 10, 7% and.

Thomas Robert Donahue: And the dividend is considered an ordinary dividend for tax purposes.

Thomas Robert Donahue: The dividend and the repurchase of $1 1 million shares in Q1 represented important additional measures intended to increase shareholder value.

Thomas Robert Donahue: The Special Dividend is expected to reduce Q2 EPS by about 1.5 cents per share due largely to the exclusion of dividends paid on unvested restricted shares from net income under the two-class method of computing earnings per share. Holly, that completes our prepared remarks, and we'd like to open the call up now for questions, certainly.

Thomas Robert Donahue: The special dividend is expected to reduce Q2 EPS by about one five cents per share due largely to the exclusion of dividends paid on unvested restricted shares.

Thomas Robert Donahue: Net income under the two class method of computing earnings per share.

Speaker Change: Alrighty that completes our prepared remarks, and we'd like to open the call up now for questions.

Speaker Change: Certainly at 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.

Operator: 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 keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it 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 from Bill Katz with T.D. Cowan

Speaker Change: You May press Star two if you would like to remove your question from the queue.

Speaker Change: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys, one moment, please while we poll for questions.

Speaker Change: Your first question for today is from Bill Katz with TD Cowen.

William Raymond Katz: Great, thank you very much. Good morning everybody. Good morning all. Maybe this is a big picture question on capital return. I certainly appreciate your balance sheets are in very good shape, and you generate a tremendous amount of cash flow. How are you thinking about just..., buyback in a broader sense, just given where the stock is trading versus the efficacy of the special dividend, then what does that signal in terms of M&A and independence?

William Raymond Katz: Great. Thank you very much good morning, everybody.

William Raymond Katz: Good morning, gentlemen, good morning, all maybe just a big picture question on capital return and certainly appreciate your balance sheets in very good shape and you generate a tremendous amount of cash flow. How are you thinking about just buyback in a in a broader sense, just given where the stock is trading.

William Raymond Katz: Versus the efficacy of the special dividend and then how does that signal in terms of M&A.

Thomas Robert Donahue: Thank you.

Speaker Change: Independents. Thank you.

Thomas Robert Donahue: Yeah, Bill, it's Tom. So we've looked at all three. M&A, special dividends, and buybacks. And we think that, as we've said for a long time, our first choice is to do M&A where we find it, because we like the returns and we like our, you know, our track record on M&A. So that's the first thing that we would like to do.

Thomas Robert Donahue: Yes, Bill it's Tom.

Thomas Robert Donahue: So we've looked at all all three.

Thomas Robert Donahue: M&A special dividends and buybacks and we think that.

Thomas Robert Donahue: As we've said for a long time, our first choices to do M&A, where we find it and because we like the returns and we like what our track record on M&A. So that's the first thing that we would like to do.

John Christopher Donahue: As we looked at our balance sheet and looked at the stock price, we determined to obviously pay a special dividend and don't think that paying that dividend, given our capital position and our availability under Revolver, does anything to diminish our financial flexibility. And yet, we're earning money in our business, and we don't think that the earnings are reflected in the share price. So adding value by paying a dividend to the shareholders is something we think is appropriate, and we also believe in continuing to purchase the shares given where the price is and where we think the company is going to go.

Thomas Robert Donahue: As we looked at our balance sheet and looked at the stock price.

Thomas Robert Donahue: He did.

Thomas Robert Donahue: Determined to obviously pay a special dividend and don't think that that paying that dividend given our capital position and our availability under our revolver does anything to diminish our financial flexibility.

Thomas Robert Donahue: And yet we're earning the.

Thomas Robert Donahue: Money in our business and we don't think that the earnings are reflected in the share price, so getting adding value by paying a dividend to the shareholders. We think is appropriate and we also believe in continuing to purchase shares given given where the prices and where we think the company.

Thomas Robert Donahue: Is going to go.

John Christopher Donahue: And Bill, if I could add, we're very proud of the circle or the three things that Tom mentioned, acquisitions, dividends, and share repurchases. And since you were along with us going public back in 1998, that's been over $6 billion that's been returned to shareholders. So we have a long-term view of that. To get more current, as we mentioned on the call last time, we would love to be able to expand some of those businesses that we have at Hermes, like the real estate business in Singapore. We are convinced when we look at the cash flow that we have the continual flexibility to do whatever we want, whenever we want.

Thomas Robert Donahue: Grow too.

Thomas Robert Donahue: And Bill if I could add we're very proud of the.

William Raymond Katz: Circle are the three things that Tom mentioned acquisitions dividends and share repurchases and since you are along with growing public back in 98, that's been over $6 billion has been returned to shareholders. So we have a long term look at that.

Speaker Change: To get more current as we mentioned on the call last time, we would love to be able to expand some of those businesses that we have at Hermes like.

Speaker Change: The real estate business.

Speaker Change: In the United States and that would attract our attention in terms of an acquisition. If we could find something that was oh worthy.

Speaker Change: So we are convinced when we look at the cash flow that we have the continual flexibility to do whatever we want whenever we want.

William Raymond Katz: Okay, that's helpful. And then just a couple of housekeeping items.

Speaker Change: Okay. That's helpful. And then just a couple of housekeeping items can you remind me of what the comp payout rate is against both the carry related performance our revenues as well as just performance revenues and then the clarification on your pipeline that the $1 9 billion is that gross or net.

Thomas Robert Donahue: Can you remind me of what the comp payout rate is against both the carry-related performance revenues as well as just performance revenues? And then, clarification on your pipeline at $1.9 billion. Is that gross or net of the known outflows? Thank you.

Speaker Change: Of the known outflows. Thank you.

Thomas Robert Donahue: So, Bill, there's not a defined payout ratio, but if you look at the portion attributed to the carried interest vehicles that is offset directly in comp has been somewhere around two-thirds of our total carry amount, and there's no comparable number for performance fees. And then in terms of the... Pipeline, your question was?

So bill.

Speaker Change: There is not a defined payout ratio, but if you look at them.

William Raymond Katz: The portion of distributed to the carried interest vehicles that is offset directly and comp has been somewhere around two thirds of our total.

William Raymond Katz: Carry amount and there is no comparable number on performance fees.

William Raymond Katz: And then in terms of the.

William Raymond Katz: Pipeline your question was.

Thomas Robert Donahue: 1.9 is net? It is a net number, yes. We always report net known wins offset by any known redemptions coming up.

William Raymond Katz: One nine is net it is a net number yes, we always report net.

William Raymond Katz: None.

William Raymond Katz: Wins offset by any known redemptions coming up.

William Raymond Katz: Okay, so to clarify, there's no comp payout against performance fees?

William Raymond Katz: Okay. So to clarify there is no comp payout against performance fees.

Thomas Robert Donahue: Not in any formulaic way like there is with certain of the carried interest is passed directly through.

William Raymond Katz: Not in any formulaic way like there is with which certain element certainly.

William Raymond Katz: Certain of the carried interest is passed directly through <unk>.

Thomas Robert Donahue: And that's 65%, so I'll make sure I track that correctly.

Speaker Change: And that 65% so to make sure I tracked that correctly. Okay. Thank you very much.

Thomas Robert Donahue: It's roughly been 65%. That can vary as well. Thank you.

Speaker Change: It's roughly six.

5% of that can vary as well.

Speaker Change: Thank you.

Speaker Change: Okay.

Patrick Davitt: Your next question for today is from Patrick Davitt with Autonomous Research.

Speaker Change: Your next question for today is from Patrick Davitt with Autonomous research.

John Christopher Donahue: First question, for the last few quarters, you've talked about the money fund opportunity shifting from retail to institutional as the Fed pauses and then cuts. So with 17 trillion still sitting in deposits, could you give an update on how those more institutional money fund pipelines and discussions are looking? And in that vein, what is your confidence that we should still expect the usual second half seasonal pop in those flows, despite what's already been an unusually strong start to the year? Thank you.

Patrick Davitt: Hey, good morning, everyone.

Okay.

Patrick Davitt: First question for the last few quarters, you've talked about the money fund opportunity shifting from retail.

Patrick Davitt: To institutional as fed pauses in cuts so with 17 trillion still sitting in deposits could you dig in on how those more institutional money fund pipelines and discussions are looking and in that vein. What is your confidence that we should still expect the usual second half seasonal pop in those flows despite what's already been an unusually strong.

Speaker Change: <unk> start to the year. Thank you I'm going to let Debbie comment in a minute, but a delay in the reduction of interest rates.

John Christopher Donahue: I'm going to let Debbie comment in a minute, but a delay in the reduction of interest rates... if the Fed actually starts to lower interest rates. And everybody's guess is as good as mine. Everybody can read everything they want. In fact, I rely on Debbie's estimate of that. Debbie? and The New York Times.

Speaker Change: <unk> keeps the money fund trade alive on the retail basis very strong <unk>.

Speaker Change: And when you look at the as I mentioned in my remarks, when you look at the marketplace in terms of what rates are even on commercial paper in T bills and things like that it's still a decent trade its not.

Speaker Change:

Speaker Change: Big trade that we talked about but that was always dependent upon when as and if the fed.

Speaker Change: Actually starts to lower interest rates and everybody's guess is as good as mine everybody can read everything they want in fact I rely on Debbie estimate of that Debbie.

Speaker Change: Okay.

Debbie: Thanks, Chris and similarly speaking the longer rates are where they are today at a five and quarter to five 5% target rate the better off we are from both a flow standpoint, and expectations stand point and honestly, an overall return standpoint compared to other are there other.

Deborah Ann Cunningham: Thanks, Chris. And similarly speaking, the longer rates are where they are today at the five and a quarter to five and a half percent target rate, the better off we are from both a flow standpoint and expectations standpoint, and, honestly, an overall return standpoint compared to other factors in the marketplace. So it's not a bad thing to delay it. What it does delay, however, is broader participation in the flows from the institutional side.

Debbie: There are other factors in the marketplace. So it's not a bad thing to delay it what it does delay however is the broader participation.

Debbie: Participation in the flows from the institutional side and again going back to what Chris mentioned at one point. It started when the curve was fairly inverted and even in the liquidity and the money market side of the curve.

Deborah Ann Cunningham: And again, going back to what Chris mentioned, at one point, it started when the curve was fairly inverted. And even on the liquidity and the money market side of the curve, you saw, especially on the Treasury side, inversions of 100 basis points and expectation that over the next year, the Fed would be cutting that amount. But that's no longer the case.

Debbie: You saw especially on the Treasury side, you know in versions of the 100 basis point to an expectation that over the next year. The fed would be cutting that amount that's no longer the case and ultimately that means that.

Deborah Ann Cunningham: And ultimately, that means that, you know, institutional customers who have the capability of not only being in direct Treasuries but direct commercial paper, which is a positively sloped curve at this point and has never really been much of a negative, continue to be in those direct securities. Now, that will change unless something, unless history doesn't repeat itself. And, you know, there's always the possibility of that. But the likelihood, in our estimation, is very small.

Debbie: Institutional customers, who have the capability of not only being indirect treasuries by check direct commercial paper, which is a positive slope curve at this point and have never really been much negative continue to be in those direct securities now that will change unless something unless history doesn't repeat itself and you know theres always the possibility of that.

Debbie: But the likelihood in our estimation is very small we think this is just a very big positive in the context of continuing that that that's terrain.

Deborah Ann Cunningham: We think this is just a very big positive in the context of continuing the strength in the retail flow. And when you mentioned the $17 trillion that are still there from a deposit perspective, I think about 40% of that is in non-interest-bearing deposits. So that's just fertile ground for additional converters into what we believe is the better cash management product.

Debbie: In the retail flow and when you mentioned the 17 trillion that are still there from a deposit perspective, I think about 40% of that is in noninterest bearing deposits. So that's just fertile ground for additional additional converters into what we believe is a better cash management products.

Speaker Change: Helpful. Thanks.

Patrick Davitt: A quick follow-up on the capital return question. Should we think about the kind of decline from 4Q to 1Q as partially driven by the special dividend and, through that lens, maybe a return to the more elevated levels once that passes in terms of the repurchase? Thank you. Well, Patrick, we...

Speaker Change: Quick follow up on the capital return question should.

Should we think about the.

Speaker Change: The the kind of decline from <unk> to <unk> as partially driven by the special dividend.

Speaker Change: And through that lens, maybe a return to the more elevated levels once that passes in terms of the repurchase. Thank you.

Thomas Robert Donahue: Well, Patrick, we look at it every day, run our models, and determine what we're going to buy and, of course, factor in, as we talked before, the M&A and, you know, buying a million shares looked like a pretty decent purchase for the quarter, and we thought it made sense. Where's the price going, and is it too low from our perspective, which kind of tells us, and where we think the growth is going, tells us whether to uptick from there or downtick from there. But that's not really giving you exactly what you asked for. That's how we look at it.

Speaker Change: Well, Patrick we look at it every day run or run our models.

Speaker Change: And determine what we're going to buy and of course factor in as we've talked before the M&A and <unk>.

Speaker Change: Buying 1 million shares.

Speaker Change: It looked like a pretty decent purchase in the quarter and we thought it thought it made sense, whereas the price going.

Speaker Change: And is it too low from our perspective, which kind of tells us and where we think the growth is growing credit tells us to uptick from there or downtick from there, but thats not really giving you exactly what you asked for.

Speaker Change: So that's how we look at it.

Kenneth Brooks Worthington: Your next question for today is from Ken Worthington at J.P. Morgan.

Speaker Change: Thank you.

Speaker Change: Your next question for today is from Ken Worthington with JP Morgan.

Kenneth Brooks Worthington: Hi, good morning. Thanks for taking the questions.

Kenneth Brooks Worthington: Hi, good morning, Thanks for taking the questions.

Kenneth Brooks Worthington: And maybe just maybe first trade web announced the acquisition of ICD, which follows Blackrock acquisition of cash matrix.

John Christopher Donahue: First, TradeWeb announced the acquisition of ICD, which follows BlackRock's acquisition of Cash Matrix. How prominent are these platforms or portals in money market fund distribution, and how fast is the use of these platforms growing? And then, as we tie it into you, what portion of your money market fund sales come through these portals?

Kenneth Brooks Worthington: How prominent are these platforms are portals and money market fund distribution and how fast is the use of these platforms growing and then as you tied into U what portion of your money market funds sales come through these portals.

John Christopher Donahue: So, the portals... have been a long-term growing use, and I don't know what our percentage of assets coming through portals is, but just about every one of the clients on the institutional side that are corporate is using various portals, and, uh... I don't have more information on how we break down. As you know, we break our information down by institutional and, quote, retail, which is basically a broker-dealer, but I don't know the numbers by what comes through what platform.

Kenneth Brooks Worthington: So the portals.

Kenneth Brooks Worthington: They have been a long term.

Kenneth Brooks Worthington: Growing.

Kenneth Brooks Worthington: And I don't know what our percentage of assets coming through portals is but just about every one of our clients on the on the institutional side that our corporate are using various portals and.

Speaker Change: I don't have more information on how we breakdown as you know we break our.

Speaker Change: Information down by institutional and retail.

Speaker Change: Retail, which is basically a broker dealer.

Speaker Change: But I don't know the numbers.

Speaker Change: By what comes through what platform.

Speaker Change: Okay.

John Christopher Donahue: Okay, maybe to add to that for just a second, on the platform side, from a trading perspective, for instance, with TradeWeb, which I think was maybe the beginning part of your question, we have very little, less than 5% of what we do on those types of platforms. But it is not a very large portion of the business compared to other channels.

Speaker Change: Maybe maybe to add to that for just a second on the on the platform side from a trade perspective for instance, with trade lab, which I think was maybe at the beginning part of your question.

Speaker Change: We have very little less than 5% and what we do on those types of platforms. We are much more of a voice to voice type of trading.

John Christopher Donahue: And just to add to that, the open architecture is a key part of those portals, I guess obviously, but we don't expect any change in our business, for example, as a result of the ICT transaction.

Speaker Change: Trading firm, we feel like we get better execution, we feel like we're.

Better received from a content and expectation standpoint, and this you know kind of in years, that's a little bit more when there are special things that comes into the market. We feel like that helps us from a positioning perspective to be able to be part of those you know a lot.

Kenneth Brooks Worthington: Great, thank you. Then maybe on strategic value dividend, that product sort of has been in outflow, maybe even elevated outflows for a couple quarters. I think the pitch in that fund is sort of income paid monthly and maybe some defensiveness. Has the value proposition for strategic value changed in the higher rate environment? And maybe if not, what's sort of driving the elevated redemptions that we've seen there?

Speaker Change: More.

Speaker Change: More esoteric types of products that come to the market that is not that the market norm.

Speaker Change: I'd say the market norm is probably over 50%, but it's mostly indicative of smaller players not the larger players I think most larger players like to have that relationship and the voice to voice contact that that is that you know that the way that we operate are our trading business from an S. H from an FHA standpoint as far as the.

John Christopher Donahue: Well, unfortunately, one of the things driving Elevator Redemptions is its artificial inclusion in the wrong Morningstar, in any category in Morningstar. That fund simply does what it does, and it's going to return a 4-plus percent return and have a 4-percent-plus increase in dividends from the companies that it buys. So, you know, when we go through that fund, when you look at that fund on the name basis, you know, you've got to evaluate whether that word value should really be in there under those rules, so that's going to be looked at.

Speaker Change: Portal distributions.

Speaker Change: For our money market funds and we are on basically all of the portals that are out there so to the extent that the portals continue and maybe they consolidate to some degree from a from from it from an ownership perspective, we're not looking at that is problematic. It again is it just I I agree I don't know that.

Speaker Change: The percentage.

Speaker Change: That that Chris was mentioning as well, but it is not a very large portion of the business compared to other other channels.

Speaker Change: And just to add to that the open architecture is a key part of those portals I guess, obviously, but we don't expect any change in our business. For example, as a result of the ICD trends.

John Christopher Donahue: So that is a very, very, very unique fund. One of the challenges with that fund is that when it is at the very, very top of the Morningstar category, which doesn't really tell you what it does, then it gets assets in. And people think that's the kind of fund it is, but it's not exactly like that. It is, the way I described it, a dividend and dividend growth fund. Now, higher rates, like you're saying, that is a factor, but don't forget that this fund specifically allows some FAs to step out of the yield curve a little bit or step into the market a little bit and not leave, not go all in.

Speaker Change: Great. Thank you.

Speaker Change: Maybe on strategic value dividend that product sort of has been an outflow maybe even elevated outflows for a couple of quarters I think the pitching that fund is sort of income paid monthly and maybe some defensive mess has the value proposition for strategic value changed in the higher rate environment.

Speaker Change: And maybe if not what's sort of driving sort of the elevated redemptions that we've seen there.

Speaker Change: Well Unfortunately, one of the things driving the elevated redemptions as is.

Speaker Change: Artificial inclusion in the wrong Morningstar in in any category and Morningstar that funds simply does what it does.

Speaker Change: And it's going to return four plus percent return and have 4% plus increase in dividends.

Speaker Change: By the companies that have five so.

Speaker Change: When we go through that fund when you when you look at that fund on the names basis.

John Christopher Donahue: And so, we still see gross sales in that fund, but as I mentioned, the nets are still negative, although they are, as the kids like to say, less worse this quarter than the prior quarter. Thank you very much.

Speaker Change: You've got to evaluate whether that word value should really be in there under those rules. So that's going to be looked at so that is a very very very unique fun. One of the challenges with that fund is when it is at the very very top of the Morningstar category, which doesn't really tell you what it does.

Speaker Change: Then it gets assets in and people think that's the kind of fund it is but it's not exactly like that it is the way I described it a dividend and dividend growth fund now in higher rates like you are saying consistently that is a factor, but don't forget that this fun specifically allow.

Brian Bertram Bedell: Your next question for today is from Brian Bedell with Deutsche Bank.

Speaker Change: <unk>, some assays to step out the yield curve, a little bit or step into the market a little bit.

Brian Bertram Bedell: Thanks. Good morning.

John Christopher Donahue: Thanks for taking my questions. Maybe just going back to the money fund and the environment, and thanks for your comments on that, both Chris and Debbie. If you had to choose an environment that you think would be best for just the money market business from an inflow perspective, say over the next one to two years, do you think a gradual easing cycle, even if it's delayed, would be better, or a more stagflationary environment, not to say that that's the environment we're going to be in, but a stagflationary environment, say closer to the Just in that type of environment, how would you compare that with the gradual easing cycle for the money fund? Brian, thank you.

Speaker Change: And not leave.

Speaker Change: Not go all in.

Speaker Change: And so.

Speaker Change: We still see gross sales in that fund, but as I mentioned.

Speaker Change: The nets are still negative although they are as the kids like to say less worse this quarter than the prior quarter.

Speaker Change: Okay. Thank you very much.

Speaker Change: Your next question for today is from Brian Bedell with Deutsche Bank.

Brian Bertram Bedell: Oh, Thanks, good morning for thanks for taking my questions maybe.

Maybe just go back to them the money fund and the environment and thanks for your comments are both Christian Debbie on that if you had to choose and environment that you think would be best for just the you know the money market business from an inflow perspective.

Speaker Change: I'd say over the next next one to two years do you think a gradual easing cycle, even if it's delayed.

Speaker Change: Would would be better or you know are you more stagflationary environment not to say that that's the environment, we're going to be in but a stagflation environment. So you know closer to the 19 seventies 19, eighties, where you know the fed cannot cut the growth is limited.

Speaker Change: Multiples, yeah my might be lower.

Speaker Change: Just in that type of environment, how would you compare that with the gradual easing cycle.

John Christopher Donahue: I'll answer that first, then I'll let Debbie give a more technical and marketplace answer. My answer is that since money market funds are the eighth wonder of the world, they're always a wonderful product. And we've gone through 50 years of these cycles, and people always need their cash taken care of. And we always gain more clients and don't lose clients.

Speaker Change: Brian. Thank you I'll answer that first and then I'll, let you give debbie let Debbie give them more technical and marketplace. The answer my answer is that since money market funds are the eighth wonder of the world. There are always a wonderful product and Uganda, we've gone through 50, some years of the <unk>.

Speaker Change: <unk> and people always need their cash taken care of and we always gain more clients and don't lose clients specifically, though the main thing to me in terms of environment for the money fund is the word measured so if it's measured up that means slow and deliberate if it's <unk>.

John Christopher Donahue: Specifically, though, the main thing to me in terms of an environment for money funds is the word measured. So if it's measured up, that means slow and deliberate. If it's measured down, that means slow and deliberate. Measured is always better as an environment for money funds. Right now, because we have an open retail trade and can look forward to a stronger institutional trade, it's almost nirvana for money funds.

Speaker Change: Asia down that means slow and deliberate measured as always better as an environment for the money funds right now because we have an open retail trade and can look forward to a stronger institutional trade, it's almost nirvana for money funds Debbie.

John Christopher Donahue: Debbie?

Deborah Ann Cunningham: I like that word, Chris. Nirvana is one that I use quite often, and I agree wholeheartedly. From a future expectations environment standpoint, measured is good, which is effectively your first scenario, Brian, where interest rates go down in a measured and orderly fashion, as expected. The key, I think, to that scenario is it's, again, a perfect type of scenario for gathering cash and keeping the cash very diversified amongst different players, different investor bases, not to the zero percent level, which was where it stood for a very long period of time Now, the angst in the market then did not, as Chris mentioned, result in money funds losing everything. It is the eighth wonder of the world.

I like that word Chris Nirvana is one that I use quite often and I agree wholeheartedly from a future expectations environment standpoint measured is glad which is effectively.

Speaker Change: Your first scenario, Brian where interest rates go down.

Speaker Change: In a measured and orderly fashion expected the curve is predictive of such declines the key I think to that scenario is it's it's again a perfect type of scenario for gathering cash and keeping the cash very diversified amongst different players different.

Speaker Change: If you're an investor bases, but the key is that it goes to what I'm going to call. It maybe the 3% level.

So 100 basis points above where the target inflation rate is.

Speaker Change: Not to the zero percent level, which is where it stood.

Speaker Change: For a very long period of time, and and just caused more angst now the angst in the market that did not as Chris mentioned.

Speaker Change: Result in money funds, losing everything it's the it is the ATM under the World. However, that's the worst environment you can come up with in the Stagflationary environment. Your second sort of scenario. That's not you know, it's a slow growth environment within placing creeping up to some degree that's not something that's really too.

Deborah Ann Cunningham: However, that's the worst environment you can come up with. In a stagflationary environment, your second, you know, sort of scenario, that's not, you know, it's a slow growth environment with inflation creeping up to some degree. That's not something that's really too problematic for us either. It's maybe not nirvana, but either one of those scenarios works, with the first one being preferred and what we think at this point is the expected.

Problematic for us either its maybe not nirvana that either one of those scenarios works with the first of all I'd be.

Speaker Change: The preferred at what we think at this point is the expected now with that with that start date being moved out when Chris started asking me that question. A we were in the first half of the year now we're in the second half of the year and I hate to get you know specific more specific Oh and I'm forced to my most recent has taken us from June to July to September for Us.

Deborah Ann Cunningham: Now, with that start date being moved out, you know, when Chris started asking me that question, we were in the first half of the year. Now, we're in the second half of the year, and I hate to get, you know, specific or more specific when I'm forced to. My most recent has taken us from June to July to September for a start date. And could there be a scenario where it doesn't start, where the declining rate environment doesn't start at all in 2024? I think the answer is potentially yes.

John Christopher Donahue: And could there be a scenario where it doesn't start with a declining rate environment environment doesn't start it all in in 2024 I think the answer is potentially yes.

Speaker Change: Oh, that's that's great perspective.

Brian Bertram Bedell: you can just give some commentary around how you see that playing out for the year, particularly seasonally. Obviously, compensation is typically seasonally high in 1Q. We did have a shift down in office and occupancy all year last year, so just wanted to understand if the current run rate is rebased. Stay there, and then maybe some commentary on advertising throughout the year.

Speaker Change: Oh, Thank you can I move to our expenses for Tom just you have to expense discipline and very good.

Speaker Change: Maybe if you can just give some commentary around how you see that playing out for the year, but particularly seasonally.

Speaker Change: Obviously compensation typically seasonally high in <unk>.

Speaker Change: And then we did have a a shift down in office and occupancy all year last year. So I'm just wanting to understand is if I'm at its current run rate as is rebased and.

Just stay there and then just maybe on a commentary on advertising should be correct here.

Thomas Robert Donahue: Okay, Brian, you're right, Q1, the, well, for Q2, and I'm not really talking about the whole year, but payroll taxes were higher and the bonus restricted stock was higher in Q1, so we would expect that to go down in Q2, but of course, benefits and base go up. But I would expect for Q2, with all else being equal, i.e. not getting carried interest or the related comp that comes with that, the cop line would be down a little bit.

Speaker Change: Okay Brian.

Speaker Change: Youre right.

Speaker Change: Q1.

Speaker Change: Uh huh.

Speaker Change: While for Q2.

Speaker Change: And I'm, not really talking about the whole year, but.

Speaker Change: At least your comp the payroll taxes were higher and the bonus restricted stock were higher in Q1. So we would expect that to go down in Q2, but of course benefits and base go up but I would expect for Q2.

Speaker Change: Not with all else being equal I E not getting carried interest or the related cost that comes with that that the top line would be down.

Speaker Change: A little bit.

Brian Bertram Bedell: You mentioned the office and occupancy rates, and that came down because we got out of an office space in London, and so now we're kind of at the going rate there, so I wouldn't expect much change there. The distribution line, of course, if AUM goes up, that's going to go up, and we're happy with that going up when AUM goes up. On the systems and communications side, we would expect that to tick up as our tech spending continues to tick up.

Speaker Change: The.

Speaker Change: You mentioned, the office and occupancy and that came down because we.

Speaker Change: Got out of.

Speaker Change: Office space in London, and so now we're kind of at the going rate there. So I wouldn't expect much change there.

Speaker Change: The distribution of Port line of course.

Speaker Change: AUM goes up that's going to go up and we're happy with that going up when <unk> goes up.

Speaker Change: On the systems in communications side, we would expect that to tick up as.

Speaker Change: Our tech spending continues to tick up.

Brian Bertram Bedell: On the ads, you know, that's timing. What we've said for a long time is look at the whole year and, you know, when are we going to do our advertising programs? Well, we're starting one right here in the second quarter now. So that would, I expect, pick up in the second quarter also. And a year's comment on that would be that I would expect us to spend more in 24 than we did in 23, based on.

Speaker Change: On the ads, that's a timing what we've said for a long time is look at the whole year and when are we going to do.

Speaker Change: Our advertising programs well, we're starting one right here in the second quarter now so that would I expect pick up in the second quarter also.

Speaker Change: And a year comment on that would be that I would expect us to spend more in 'twenty four than we did in 'twenty three.

Speaker Change: Based on.

Brian Bertram Bedell: You know, the timing and us committing more there. T&E was a little low in Q1, and we expect that to go up in Q2, and I don't see much else on the other line items worth pointing out.

Speaker Change: The timing is committing more there.

Speaker Change: <unk> was a little low in Q1, and we expect that to go up in Q2.

Speaker Change: And I don't see much else.

Speaker Change: On the other line items worth pointing out.

Thomas Robert Donahue: That's a great call. Just on the comp line for the seasonal drop in 2Q, I think maybe to look more, is there a more normal year on that would be in 2022, where that was down about 6 million? We have that, in rough terms, a decent benchmark for that.

Speaker Change: That's great color just on the comp line for the seasonal drop into Q I think you maybe to look more into the more normal you're on that would be done in 2022 or is that was down about $6 million.

Speaker Change: And in rough terms, a decent benchmark for them.

Brian Bertram Bedell: The way I'd look at it is, right now, with all else being equal, we'd add about, or we'd take out about 3 million in expenses for Q2. That's about as far as it goes, and I'm going to put all the qualifiers on it with bonuses changing and carried interest changes, but all else being equal, that's what I'd knock it down by. Okay, great, great.

Speaker Change: The way I look at it is right now with all else being equal would add about where would take out about $3 million of expenses for Q2, that's about as far as I'm going to put all of the qualifiers on it with bonuses change in carried interest changes, but all else being equal that's going to knock it down.

Speaker Change: Hi.

Brian Bertram Bedell: Okay, great, great. Thank you very much.

Speaker Change: Okay, great great. Thank you very much.

Speaker Change: Okay.

Speaker Change: Your next question is from Kenneth Lee with RBC capital markets.

Kenneth S. Lee: Your next question is from Kenneth Lee with RBC Capital Markets.

Kenneth S. Lee: Hey, good morning, Thanks for taking my question.

Kenneth S. Lee: Hey, good morning. Thanks for taking my question. Wondering if there's anything else to call out in terms of what was driving the equity net outflows in the quarter. And then perhaps one if you could just further expand with more details. You said that you were seeing accelerated sales in the MDT fund complexes, and I want to see some sentiment or demand around specific products within that area. Thanks.

Kenneth S. Lee: I was wondering if there's anything else to call out in terms of what was driving the equity net outflows in the quarter.

Kenneth S. Lee: And then perhaps I wonder if you could just further expand with more details you said that you were seeing accelerated sales in the MDT Fund complex I, just want to see some sentiment or demand around specific products within that area. Thanks.

John Christopher Donahue: Okay, on the MDT, we had gross sales of over a billion, net sales of over 500 million, bringing that franchise, the MDT franchise, SMA, and funds, and institutional altogether, to right about $10 billion. So that's a big franchise. Their performance has been outstanding. You can check it all out, one, three, and five-year excellent performance. And so that's what's behind that story.

Kenneth S. Lee: Okay on the on the MDT, we had gross sales of over 1 billion net sales of over 500 million, bringing that franchise the MDT franchise.

Kenneth S. Lee: SMA and funds and institutional altogether.

Kenneth S. Lee: To write about $10 billion. So that's a big franchise. Their performance has been outstanding you can check it all out one three and five year.

Kenneth S. Lee: Excellent performance and so that's.

Kenneth S. Lee: What's behind that story.

John Christopher Donahue: And that was an acquisition that we did back in 2006. And so this has been a long-term investment on Federated Hermes' part. In terms of what's driving other redemptions, we've already talked about the Strategic Value Dividend Fund on this call. The other one, of course, is COF.

Kenneth S. Lee: And that was an acquisition that we did back in Oh, six and so this has been a long term.

Kenneth S. Lee: <unk> on the Federated Hermes part in terms of what's driving other redemptions, we've already talked about the strategic value dividend fund on this call. The other one of course is Kaufman.

John Christopher Donahue: And what's happened there are some changes inside the portfolios, especially the big funds, to reduce the cash positions, change the percentage of biotech stocks, and if you look at the rankings of the three funds in that area over the last year, they're all right in the middle of the pack, 53, 44, 48 percentile on Morningstar over the last year. So that's an improvement over where they have been. And if you go one step further and take a look at the three-month numbers or first quarter for the Big Coffman Fund, they're now right at 50 percent.

Kenneth S. Lee: And.

Kenneth S. Lee: What's happened there has been some.

Kenneth S. Lee: Changes inside the portfolios, especially the Big fund.

To reduce the cash positions change the.

Kenneth S. Lee: Percentage on biotech stocks and if you look at the rankings of the three funds in that area over the last year Theyre, all right middle of the pack $53 $44 48.

Kenneth S. Lee: Percentile on Morningstar over the last year. So that's an improvement over where they have been and if you go one step further and take a look at the.

Kenneth S. Lee: Three months numbers or first quarter for the Big Kaufmann Fund there now right at 50% and if you look at the small cap fund.

John Christopher Donahue: And if you look at the Small Cap Fund, they're at 38 percent for the three-month, and that combines with Small Cap's top 10 percent over 10 years. The reason I mention this is that this is what builds the case for diminishing redemptions and, in fact, increasing sales. Interestingly enough, you still have meaningful growth in sales in all of those products that have, even have net redemptions. Another story to call out would be the SMID product run out of London with $150 million worth of positive flows in the first quarter as well. And, as I mentioned, there are a dozen funds with positives, but it's very hard to work against those large negatives of Kauffman and Strategic Value Dividend.

Kenneth S. Lee: There is 38% for the three months and that combines with small caps top 10% over 10 years.

The reason I mentioned those is.

Kenneth S. Lee: Is it this is what builds the case for diminishing redemptions and in fact, increasing sales interestingly enough you still have meaningful growth sales and all of those products that have even have net redemptions.

Kenneth S. Lee: Another story to call out would have been it would be the smid product run out of London with $150 million worth of positive flows in the in the first quarter as well and as I've mentioned there are a dozen funds.

Kenneth S. Lee: With positives, but it's very hard to work against those large negatives of Kaufman and strategic value dividend.

Kenneth S. Lee: I would add that when you look at the last couple quarters in growth, we've had, as a category, meaningful but diminishing net redemptions. We still have them in Q1, but in the early part of Q2, driven by the strength of MDT, we actually have positive net flows in growth as a category.

Kenneth S. Lee: Although I would add that when.

Kenneth S. Lee: When you look at the last couple of quarters and growth we've had as a category we've had.

Kenneth S. Lee: Meaningful, but diminishing net redemptions.

Kenneth S. Lee: We're still hasnt been in Q1, but in the early part of Q2, driven by the strength of MDT, we actually had positive.

Kenneth S. Lee: Net flows.

And growth as a category.

Kenneth S. Lee: Gotcha. Very, very helpful color there. That's all I had. Thanks again.

Speaker Change: Gotcha very very helpful color there that's all I had thanks again.

Daniel Thomas Fannon: Your next question for today is from Dan Fannon with Jeffreys.

Speaker Change: Your next question for today is from Dan Fannon with Jefferies.

Daniel Thomas Fannon: Thanks. Good morning. You mentioned several alternative products that you have in the market. I was just curious what the previous fund sizes were for the ones that are kind of in the second or third generation, and how you would think about the potential targets for these funds versus what you did previously.

Daniel Thomas Fannon: Hi, Thanks. Good morning, you mentioned several alternative products that you have in the market was just curious what the previous fund sizes were for the ones that are kind of in second or third generation and how you would think about the potential targets for these funds versus what you did previously.

John Christopher Donahue: Well, just to comment on the one we already closed was the PEC-5, and that was an increase from prior ones. It was in the $600 million range, and now we're starting to get organized on PEC-6. The Horizon Fund is larger at a billion plus, though I don't have the number in front of me for the prior one. This was the third iteration of that. So in general, they've gone up.

Speaker Change: Well just to comment on one we already closed was the <unk> five and that was an increase from the from the from prior.

Speaker Change: In the $600 million range and now we're starting to get organized on <unk> six.

Speaker Change: Horizon fund is larger.

Speaker Change: $1 billion, plus though I don't have the number in front of me for the prior one this was the third.

Speaker Change: Iteration of that.

Speaker Change: So in general they have gone up.

John Christopher Donahue: And it's been a tough year, even 18 months, of raising money in private markets, private equity in particular. So that's just an additional comment. I don't have the numbers either.

Speaker Change: And it's been a tough year, even maintain months of raising money in private markets private equity.

Speaker Change: In particular.

Speaker Change: So that's just an additional comment I don't have the numbers either.

Daniel Thomas Fannon: And just to follow up on a modeling question. So the tax rate, I think you're guiding to 26 to 28%. You haven't been there in several years, so I guess what's driving that higher as we think about the rest of this year? Yeah.

Speaker Change: Understood and just a follow up on the modeling question. So the tax rate I think you were guiding to 26% to 28%.

Speaker Change: You haven't been there in several years I guess, what's driving that higher as we think about the rest of this year.

Speaker Change: Yes.

Thomas Robert Donahue: Yeah, we don't get to deduct, or we have a valuation allowance in foreign... subsidiary. So, that's where we used to be able to deduct losses, and we can't do that anymore.

Speaker Change: We don't get to deduct.

Speaker Change: We have a valuation allowance and foreign subsidiary.

Speaker Change: So that's where we used to be able to deduct losses, and we can't do that anymore.

Speaker Change: Yes.

Daniel Thomas Fannon: I understand. Okay.

Speaker Change: That is what we get.

John Joseph Dunn: Your next question is from John Dunn with Evercore.

Speaker Change: Your next question is from John Dunn with Evercore.

Speaker Change: Okay.

John Joseph Dunn: Thank you. You guys touched on strategic value, dividend, and quant, but could you contextualize, you know, like the equity flow outlook?

John Joseph Dunn: Thank you.

John Joseph Dunn: You guys are.

John Joseph Dunn: You touched on.

John Joseph Dunn: <unk> trees value dividend and end clients.

John Joseph Dunn: Could you contextualize it.

John Joseph Dunn:

John Joseph Dunn: You know like the equity.

John Joseph Dunn: Well the outlook.

John Joseph Dunn: Yes.

John Joseph Dunn: So.

John Christopher Donahue: Equity always goes ups and downs, and we're looking for, as I mentioned... a lot bigger, better things coming out of the MDT franchise. And as I tried to plant the seeds, a rebound in the Kauffman enterprise, and if you look historically at Kauffman, when it has had some tough going, its springback is really a beautiful thing to behold, and Strat Val is going to continue to do what it does in terms of its investment activity.

John Joseph Dunn: Equity always goes in ups and downs.

John Joseph Dunn: And we are looking for as I mentioned.

John Joseph Dunn: A lot bigger better things coming out of the MDT franchise.

John Joseph Dunn: And as I tried to plant the seeds are rebound.

John Joseph Dunn: In the Kauffmann enterprise and if you look historically at.

John Joseph Dunn: At Kaufman.

John Joseph Dunn: When it has had some tough going it's spring back is is really a beautiful thing to behold.

John Joseph Dunn: And strapped valve is going to continue to do what it does in terms of its investment.

John Joseph Dunn: Activities. So those are the principal ones now.

John Christopher Donahue: So those are the principal ones. Now, that's why we mentioned having a dozen others that keep, that are positive, that give us other opportunities for growth on the equity side as well. In terms of the F.A.s, when you ask about context...

John Joseph Dunn: That's why we mentioned about having a dozen others that Keith.

John Joseph Dunn: That are positive.

John Joseph Dunn: That give us other opportunities for growth on the equity side as well.

John Joseph Dunn: In terms of the.

John Joseph Dunn: The <unk> when you ask about context.

John Christopher Donahue: The FAs, by and large, and this is obviously the business where we're calling on RIAs, broker-dealers, etc., there's a little debate between the FAA generally and the client. The client's perfectly happy at 5%.

John Joseph Dunn: The FAA is by and large and this is obviously the business, where we're calling on.

John Joseph Dunn: As broker dealers et cetera.

John Joseph Dunn: There's a little debate in between and between the FAA generally in the clients and clients perfectly happy at 5% the FAA wants to get into the market.

John Christopher Donahue: The FAA wants to get into the market, and we're seeing more movement in that market. Now, don't be thinking this is an avalanche or a catalyst or all that. But when we have, you know, $265 million of positive flows in... ultra-shorts coming off bigger negatives, and when we see more interest in micro-shorts... And when we hear the financial institutions talking about moving duration into one three-month or one three-year duration products, we're beginning to see more movement.

John Joseph Dunn: And we're seeing more movement into the market that don't be thinking this as an avalanche or a catalyst or all of that.

John Joseph Dunn: But when we have.

John Joseph Dunn: $265 million of positive flows in.

Ultra shorts coming off bigger negatives and when we see more interest in micro shorts and when we hear the FAA is talking about moving duration into one three months or one three year duration products. We're beginning to see more movement. This is not a total risk on trade.

John Christopher Donahue: This is not a total risk-on trade, but it sets the stage for getting closer. And when you look at the performance and the sales response on MDT, we're getting more newer clients into those mandates, and we think that is a good thing in terms of seed corn for the future as well.

John Joseph Dunn: But it sets the stage for getting closer.

John Joseph Dunn: And when you look at the performance in the sales response on MDT, we're getting more newer clients.

John Joseph Dunn: And of those mandates and we think that is a good thing in terms of seed corn for the future as well.

John Joseph Dunn: Right. And then maybe like the puts and takes on the fixed income side. Total Return Bonding. You know, great, but... Well, as we mentioned,

John Joseph Dunn: Right.

John Joseph Dunn: And then.

John Joseph Dunn: He likes to puts and takes on the fixed income side.

John Joseph Dunn: Our total return bond and you know.

John Christopher Donahue: Well, as we mentioned, the flows have been very solid, and that's why I mentioned the ultra shorts coming in. They're sort of an in-between product.

John Joseph Dunn: Great but.

John Joseph Dunn: Well as <unk>.

As we mentioned the.

John Joseph Dunn: The flows have been very solid and that's why I mentioned about the ultrashort coming in there sort of an in between product.

John Christopher Donahue: And what we present to clients is a solution both out of the yield curve and out of the risk parameters, and our people present solutions to clients, and they're very well able to compete with people who want to go all passive or things like that, and that's why we continue to have what amounts to robust sales in fixed income for exactly that reason. And remember that there's a huge fraction of our business, maybe half, maybe a little less than half, that's basically retirement-oriented, and the intermediaries are coming up with solutions for those clients over the long term that involve fixed income.

John Joseph Dunn: And what we present to clients is a solution both out the yield curve and up the risk parameters.

John Joseph Dunn: And our people present solutions to clients.

John Joseph Dunn: And they're very well able to compete with people who want to go all passive or things like that and Thats why we continue to have.

John Joseph Dunn: What amounts through robust sales in fixed income.

John Joseph Dunn: For exactly that reason and remember that there is a huge fraction of our business, maybe half maybe a little less than half this basically retirement oriented.

John Joseph Dunn: And the intermediaries are coming up with solutions for those clients over the long term that involve fixed income.

John Christopher Donahue: And so we've seen the assets move up, and we would certainly see that continuing. One that's sort of a hidden jewel at this point in the cycle is the high yield. Excellent long-term record. A big franchise here at Federated Hermes, a great marketplace reception, and that one goes in ebbs and flows as well based on the nature of the clients going risk-on. So we have a lot of buckets ready for when it starts raining money in other areas as well.

John Joseph Dunn: And so we've seen the assets move up.

John Joseph Dunn: And we would certainly see that continuing and.

John Joseph Dunn: One is sort of a hidden jewel at this point in the cycle is the high yield excellent long term records.

John Joseph Dunn: A big franchise here at Federated Hermes, a great marketplace reception.

John Joseph Dunn: And.

John Joseph Dunn: That that one goes and ebbs and flows as well based on.

John Joseph Dunn: The nature of the clients growing risk gone. So we have a lot of.

John Joseph Dunn: Buckets ready for when it starts raining money in other areas as well.

John Joseph Dunn: Okay.

Raymond J. Hanley: 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. Thank you.

Speaker Change: Thanks very much.

Speaker Change: 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.

Raymond J. Hanley: Thank you, Holly. That concludes our call. Thank you for joining us today.

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

Operator: This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.

Raymond J. Hanley: Yes.

Raymond J. Hanley: This concludes today's conference and you may disconnect. Your lines at this time. Thank you for your participation.