Federated Hermes (FHI) Q3 Earnings call transcript Oct 25, 2024

Federated Hermes, a leading asset management company, recently held its Q3 2024 earnings call, revealing insights into its business performance and strategic initiatives. The call, led by President Raymond Hanley, provided a comprehensive overview of the company's financial health, market position, and growth prospects.

Record Assets Under Management and Strategic Performance

Federated Hermes reported a record $800 billion in assets under management as of Q3 2024, attributing this growth to money market assets of $593 billion and record fixed income assets of $100 billion. The company's strategic value dividend strategies, such as MDT Mid Cap Growth, MDT Large Cap Growth, MDT All Cap Core, and U.S. SMID Equity UCITS fund, experienced net sales of $5.7 billion in Q3, marking a significant increase from the previous quarter. The strategic expansion of the MDT product set, including the launch of four new active ETFs and one collective investment trust, has bolstered the company's growth opportunities in domestic and international markets.

Money Market Strategies and Market Conditions

The call highlighted the favorable market conditions for money market strategies, with money market fund yields continuing to be attractive compared to the direct market and bank deposit rates. Federated Hermes reported a record high for money market fund assets of $440 billion, reflecting the company's strong market position in this sector. However, the company acknowledged challenges in managing money market flows, particularly in relation to the volatility in SOFR rates, which have led to shifts in assets between direct markets and money funds.

Fixed Income and Equity Performance

In the fixed income segment, Federated Hermes reported net sales of $1.4 billion, driven by the Total Return Bond Fund, ETF, and collective investment fund. The company's fixed income separate accounts also saw significant growth, driven by institutional multi-sector strategies and the Core Plus SMA strategy. The performance of fixed income funds was strong, with 37% of funds beating peers and 18% in the top quartile of their category. In the equity segment, 59% of equity funds were outperforming peers and 41% were in the top quartile of their category.

Private Markets and Expansion

Federated Hermes has been actively expanding its presence in private markets, with the launch of the Federated Hermes GPE Innovation Fund II, European Direct Lending III, and European real estate debt fund. The company is targeting a first close for the European real estate debt fund in Q1 2025, signaling a strategic focus on private market growth opportunities.

Regulatory Environment and Money Market Funds

The call addressed the impact of the SEC's money market fund reform rules, which took effect in October 2024. Federated Hermes reported a resilient performance in its prime funds, with assets growing by 25% over the year. The company attributed this success to its commitment to maintaining and enhancing its money market offerings, even amidst regulatory changes.

Market Outlook and Investment Strategies

Looking ahead, Federated Hermes remains optimistic about market conditions, with a focus on capitalizing on growth opportunities across equity, fixed income, and alternative private markets. The company's strategic initiatives, including product enhancements and expansion into new markets, position it well for future growth.

Challenges and Competition

The earnings call also acknowledged the challenges facing the asset management industry, including competition and regulatory changes. Federated Hermes remains committed to navigating these challenges, leveraging its strong market position and strategic initiatives to drive growth and deliver value to its clients.

Conclusion

Federated Hermes' Q3 2024 earnings call underscored the company's robust financial performance, strategic growth initiatives, and resilience in navigating market challenges. With a focus on expanding its product offerings and capitalizing on growth opportunities across asset classes, Federated Hermes is well-positioned to maintain its market leadership and drive value for its clients.