Federated(US:FHI)2022-01-28 17:31Financial Data and Key Metrics Changes - Federated Hermes ended 2021 with record long-term assets under management of $221 billion, including $98 billion in fixed income and $23 billion in alternative private markets [4] - Gross sales of long-term strategies reached nearly $70 billion, a 14% increase from 2020, while net sales nearly doubled to just under $9 billion [5] - Total revenue for Q4 was down 2% from the prior quarter due to lower average equity assets and higher money market fund waivers [24] Business Line Data and Key Metrics Changes - In equities, fund flows were negative in Q4 with outflows of about $1.7 billion, but positive net sales were seen in 18 equity strategies [6][7] - Fixed income net sales in Q4 were just under $500 million, driven by high yield and multisector strategies, despite some fund redemptions [10] - Alternative private markets saw net sales of over $200 million, with significant contributions from unconstrained credit and private equity [14][15] Market Data and Key Metrics Changes - Money market assets increased by about $34 billion in Q4, benefiting from seasonal trends and ongoing liquidity growth [17] - The market share of money market mutual funds rose to 7.4% at the end of the year, up from 7.2% in Q3 [18] - Managed assets totaled approximately $651 billion, with $436 billion in money markets and $90 billion in equities [23] Company Strategy and Development Direction - The company is focusing on providing clients with research and thought leadership on asset classes that perform well in inflationary periods, emphasizing dividend income and value strategies [7][8] - Plans for growth include launching additional ETF offerings and expanding the private markets business [12][31] - The company aims to continue investing for growth while managing the realities of inflation [31] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the recovery of fee waivers and anticipated a significant decrease in negative impacts from waivers following Fed rate hikes [26][27] - The company expects to see a similar pattern of initial outflows followed by growth in money market funds as rates rise [52][84] - Management highlighted the importance of the EOS advisory business in enhancing brand value and client relationships [70][72] Other Important Information - Cash and investments at the end of 2021 were $427 million, with $145 million used for stock repurchases [32] - The company is considering long-term debt financing of approximately $300 million to support share repurchases and acquisitions [33] Q&A Session Summary Question: Fee waiver guidance assumptions - Management clarified that the asset level used for guidance was as of January 21st, with expectations of a steepening yield curve [35][36] Question: Confidence in rapid waiver recovery - Management explained that various factors, including asset composition and market dynamics, influence waiver recovery timelines [41] Question: Outflows from short and ultrashort bond funds - Management noted that NAV declines in certain products led to outflows, despite expectations for increased interest in these funds in a rising rate environment [45][46] Question: Impact of swing pricing on institutional prime funds - Management expressed concerns about the implications of swing pricing, emphasizing that it could lead to significant client dissatisfaction [42][87] Question: Demand for money market fund products - Management indicated that historical patterns suggest initial outflows followed by growth in money market funds as rates rise [52][84] Question: Capital allocation priorities - Management confirmed ongoing share repurchases and the exploration of long-term financing options to support growth initiatives [57][58]