Federated(US:FHI)2023-10-27 23:52Financial Data and Key Metrics Changes - Federated Hermes reported record assets under management (AUM) of $715 billion, with money market assets reaching $525 billion, indicating solid asset growth in Q3 2023 [4][18] - Total revenue for Q3 decreased by $30.6 million from the prior quarter, primarily due to lower carried interest and performance fees, which were $14.9 million compared to $39.4 million in Q2 [20] - Operating expenses decreased by $33.6 million from the prior quarter, attributed to lower compensation related to carried interest and performance fees [21] Business Line Data and Key Metrics Changes - Equity assets decreased by $5.7 billion to $77.3 billion due to market losses and net redemptions, with Q3 net redemptions of $2.4 billion [5] - Fixed income separate accounts reached a record high of $47.2 billion, with net sales of $3.8 billion driven by institutional mandates [14] - Money market mutual fund assets were at $385 billion, contributing to the overall money market assets of $525 billion [18] Market Data and Key Metrics Changes - The money market mutual fund market share increased to approximately 7.3% at the end of Q3, up from 7.2% at the end of Q2 [12] - Fixed income funds had net redemptions of about $684 million, while fixed income SMAs had record gross and net sales of $572 million and $320 million, respectively [8][9] Company Strategy and Development Direction - The company is focused on expanding its fixed income and private market strategies, with expected additions totaling about $3.1 billion in fixed income and $1.5 billion in private market strategies [11] - Federated Hermes is actively pursuing inorganic growth opportunities, with a strong appetite for acquisitions, particularly in the alternative markets and private equity sectors [42][86] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the demand for money market funds as interest rates peak, anticipating increased institutional flows [27][30] - The company remains cautious about predicting future performance due to uncertainties in the market and the economic environment [84] Other Important Information - The company has initiated a new $5 million share buyback program, marking its 16th buyback initiative [43] - Cash and investments at the end of Q3 totaled $554 million, with $486 million available [22] Q&A Session Summary Question: Outlook for money market assets in the context of rates - Management expects institutional flows to increase as rates peak, with retail side performing well due to attractive yields [27][30] Question: Why not do more stock repurchases given available cash? - Management indicated a willingness to repurchase shares but emphasized the need for strategic timing [41][43] Question: Are investors over-indexed to cash? - Management noted uncertainty among retail clients, suggesting they may hold more cash than expected, but lacked specific statistics [49] Question: Timing of unfunded pipeline and investor profile - Management indicated that discussions with investors are challenging, but core shareholders remain optimistic due to solid yields [78] Question: Forward thoughts on G&A expenses - Management expects G&A expenses to remain stable, with potential increases tied to asset growth [81]