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Federated(FHI) - 2025 Q2 - Earnings Call Transcript

2025-08-01 14:02

Financial Data and Key Metrics Changes - The company ended Q2 with record assets under management of $846 billion, an increase driven by gains from equity strategies [3] - Equity assets increased by $8.1 billion or 10% from the prior quarter, with Q2 equity net sales of $1.8 billion representing an organic growth rate of just under 9% [3] - Total revenue for Q2 increased slightly from the prior quarter, primarily due to higher revenue from more days in the quarter and revenue related to the Rivington acquisition [13] - Total Q2 carried interest and performance fees were $1.4 million compared to $5.9 million in the previous quarter [13] Business Line Data and Key Metrics Changes - MDT equity strategies had net sales of $3.8 billion in Q2, up from $3.3 billion in Q1 [4] - Fixed income assets decreased by about $800 million or 1% in Q2, mainly due to net redemptions of $2.4 billion [5] - In the alternative private markets category, assets increased by $1.3 billion or 7% in Q2, primarily due to FX rates and net sales of $231 million [6] - Money market fund assets reached a record high of $468 billion, increasing by $3.1 billion in Q2 [10] Market Data and Key Metrics Changes - The company's estimate of money market mutual fund market share was about 7.11% at the end of Q2, up slightly from 7.1% at the end of Q1 [12] - Managed assets as of recent days were approximately $854 billion, including $642 billion in money markets, $91 billion in equities, and $98 billion in fixed income [13] Company Strategy and Development Direction - The company is actively participating in the development of tokenized money market funds and digital asset infrastructure, exploring opportunities for innovation in the digital assets arena [10][11] - The acquisition of Rivington Energy Management Limited enhances the company's private markets platform by adding project development expertise in the energy transition sector [7] - The company is focused on acquisitions, particularly in the private markets space, and is looking for opportunities to expand its portfolio [48] Management's Comments on Operating Environment and Future Outlook - Management views the tokenization of money market funds as incremental to the traditional money fund business, emphasizing the importance of daily liquidity at par for customers [20][22] - The company expects ongoing innovation and growth in the digital asset space, with a commitment to exploring new distribution methods for its products [11][28] - Management noted that while there is excitement around stablecoins, the actual assets are not yet substantial, indicating a cautious approach to growth in this area [55] Other Important Information - The company completed a share repurchase of approximately 1.5 million shares for about $64.5 million and approved a new program for an additional 5 million shares [15] - The effective tax rate for Q2 was 26.1%, with expectations for the rate to be in the 25% to 28% range for 2025 [14] Q&A Session Summary Question: Update on stablecoin tokenization and its impact on traditional money fund business - Management sees it as incremental, with new customers and opportunities, but emphasizes the need for daily liquidity at par [20][22] Question: Growth in stablecoins and its implications for money market funds - Management believes the current stablecoin market is concentrated and that the Genius Act will provide more definition on backing stablecoins, which could lead to increased supply [35] Question: Capacity concerns for MDT mid and small cap products - Management does not expect any capacity issues for the funds at this time, indicating robust methodologies [40] Question: Capital return priorities and M&A opportunities - The company prioritizes acquisitions as the best use of cash and is actively exploring opportunities in the private markets [48] Question: Tokenization's potential to expand the money market fund industry - Management believes it is too early to estimate the size of growth from tokenization, viewing it as an additional distribution method [56]