Release Date: July 26, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Federated Hermes Inc (FHI, Financial) ended the second quarter with record assets under management of $783 billion, driven by record Money Market assets of $587 billion.
- The company saw positive net sales in 11 equity strategies, including MDT large-cap growth, MDT mid-cap growth, and International Leaders Fund.
- Money Market strategies continue to benefit from favorable market conditions, with total Money Markets assets increasing by $8 billion in the second quarter.
- Federated Hermes Inc (FHI) is in the market with new private equity and direct lending funds, indicating ongoing expansion in private markets.
- The company expects net additions of about $835 million in fixed income, with wins in ultra-short and short duration, sustainable investment-grade credit, government bond, and emerging market debt.
Negative Points
- Equity assets decreased by $2.3 billion from Q1 due to net redemptions of $3.3 billion.
- Fixed income assets decreased by about $1 billion in Q2, with net redemptions in both fixed income funds and separate accounts.
- The company faced a $66.3 million non-cash intangible asset impairment charge, impacting operating expenses.
- Federated Hermes Inc (FHI) experienced significant redemptions due to the departure of a UK-based senior portfolio manager.
- The alternative private markets category saw a decrease of about $400 million in Q2, mainly due to net redemptions in the unconstrained credit fund.
Q & A Highlights
Q: With expectations of the Fed cutting rates soon, are you seeing increased conversations with institutional clients about money fund flows?
A: J. Christopher Donahue, CEO, noted that while it's hard to detect movement before it happens, they remain confident about long-term progress based on past rate cuts. Deborah Cunningham, CIO, added that while discussions are ongoing, actual movement typically starts after the first rate cut.
Q: How are you approaching share repurchases given the current stock price?
A: J. Christopher Donahue, CEO, stated that they expect to be active in share repurchases, believing the stock is undervalued.
Q: There seems to be a shift towards smaller cap equity funds. Are you seeing this trend in client conversations?
A: J. Christopher Donahue, CEO, acknowledged a hint of this trend, noting that smaller cap funds, especially MDT strategies, are seeing positive performance and client interest.
Q: Can you explain the impairment charge related to Hermes?
A: Thomas Donahue, CFO, explained that the impairment was due to significant redemptions in certain products and a senior PM departure. Despite this, they remain excited about the global opportunities and integration of Hermes.
Q: How do you view the potential impact of higher yields on client cash in wealth management channels?
A: J. Christopher Donahue, CEO, believes that higher yields being advertised by banks could benefit money market funds, as clients may seek better returns, which money funds currently offer.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
