Federated Hermes Q4 2024 Earnings Report

Federated Hermes EPS Results

• Actual EPS: $1.04
• Consensus EPS: $0.96
• Beat/Miss: Beat by +$0.08
• One Year Ago EPS: N/A

Federated Hermes Revenue Results

• Actual Revenue: N/A
• Expected Revenue: $417.63 million
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

Federated Hermes Announcement Details

• Quarter: Q4 2024
• Date: 1/30/2025
• Time: After Market Closes
• Conference Call Date: Friday, January 31, 2025
• Conference Call Time: 9:00AM ET

Federated Hermes (NYSE:FHI) is a publicly owned investment manager. Through its subsidiaries, the firm provides its services to individuals, including high net worth individuals, banking or thrift institutions, investment companies, pension and profit sharing plans, pooled investment vehicles, charitable organizations, state or municipal government entities, and registered investment advisors. Through its subsidiaries, it manages separate client-focused equity, fixed income, balanced and money market mutual funds along with separate client-focused equity, fixed income, money market, and balanced portfolios. Through its subsidiaries, the firm invests in the public equity and fixed income markets across the globe. It invests in growth and value stocks of small-cap, mid-cap, and large-cap companies. The firm makes its fixed income investments in ultra-short, short-term, and intermediate-term mortgage-backed, U.S. Government, U.S. corporate, high yield, and municipal securities. It employs both fundamental and quantitative analysis to make its equity investments. Federated Hermes, Inc. was founded in 1955 and is based in Pittsburgh, Pennsylvania with additional offices in New York City and London, United Kingdom.

Federated Hermes Q4 2024 Earnings Call Transcript

Presentation

[Operator]

Greetings. Welcome to the Federated Hermes Inc. Q4 2024 Analyst Call and Webcast. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation.

[Operator]

Please note this conference is being recorded. I will now turn the conference over to your host, Ray Hanley, President of Federated Investors Management Company. You may begin.

[Raymond Hanley, President at Federated Hermes]

Thank you, Holly. Good morning and welcome to our call. Leading today's call will be Chris Donahue, Chief Executive Officer and President of Federated Hermes and Tom Donahue, Chief Financial Officer. Joining us for the Q and A are Saker Nasevi, who is the CEO of Federated Hermes Limited and Debbie Cunningham, the Chief Investment Officer for our money markets. During today's call, we will make forward looking statements and we want to note that Federated Hermes actual results may be materially different than the results implied by such statements.

[Raymond Hanley, President at Federated Hermes]

Please review the risk disclosures in our SEC filings. No assurance can be given as to future results and Federated Hermes assumes no duty to update any of these forward looking statements.

[Chris Donahue, President & CEO at Federated Hermes]

Chris? Thank you, Ray. Good morning. I will review Federated Hermes business performance and Tom will comment on our financial results. We ended 2024 with record assets under management of $830,000,000,000 driven by record money market assets of 630,000,000,000 dollars Now looking first at equities, assets decreased by $4,200,000,000 from Q3 due mainly to net redemptions of $2,500,000,000 and FX impact of $1,300,000,000 As mentioned last quarter, net redemptions included $1,500,000,000 from a sub advised fund that was internalized by the fund sponsor.

[Chris Donahue, President & CEO at Federated Hermes]

Q4 saw further improvement in flows from strategic value dividend strategies, both domestic and international. These strategies had Q4 net redemptions of $222,000,000 in the funds and SMA combined compared to $779,000,000 in Q3. Through January 24, these strategies have had net sales of $139,000,000 We also saw continued solid performance of flow results from the MDT Fundamental Quant Strategies in Q4, capping off a strong year. MDT Strategies topped $13,000,000,000 in assets at year end, up 70% from year end 'twenty 3. MDT Fund and SMA strategies had $3,400,000,000 in net sales in 2024, up from $411,000,000 in 2023.

[Chris Donahue, President & CEO at Federated Hermes]

These strategies had about $1,200,000,000 in net sales in Q4, up from $837,000,000 in Q3. Through January 24, these strategies have had net sales of $862,000,000 During the second half of twenty twenty four, we expanded the MDT product set by launching 4 active ETFs and a new collective fund. These funds have assets of approximately $424,000,000 as of January 24. We have had net sales in 14 equity fund strategies during Q4, including MDT Mid Cap Growth, MDT Large Cap Growth, U. S.

[Chris Donahue, President & CEO at Federated Hermes]

SMID Equity Usage Fund, MBT All Cap Core and the U. S. Strategic Dividend ETF. Looking at our equity fund performance at the end of 'twenty four and using Morningstar data for trailing 3 years, 56% of our equity funds were beating peers and 36% were in the top quartile of their category. For the 1st 3 weeks of Q1, combined equity funds and SM Mays on the equity side had net sales of 542,000,000 dollars Now turning to fixed income.

[Chris Donahue, President & CEO at Federated Hermes]

Assets decreased by about $2,100,000,000 in the 4th quarter, due mainly to market valuations of about 1,000,000,000 and net redemptions of about $950,000,000 Fixed income funds had Q4 sales of $308,000,000 Fixed income separate accounts had Q4 net redemptions of $1,300,000,000 due mainly to redemptions from a large public entity that has regular sizable inflows and outflows. We had 16 fixed income funds with net sales in the 4th quarter, led by total return bond fund and the government ultra short fund. Regarding performance at the end of 'twenty four and using Morningstar data for trailing 3 years, 45% of the fixed income funds were beating peers, 18% were in the top quartile of their category. For the 1st 3 weeks of Q1, combined fixed income funds and SMAs had net redemptions of 28,000,000 dollars In the alternative private markets category, assets decreased by $1,800,000,000 in the 4th quarter, mainly due to the impact of FX rates, dollars 1,200,000,000 and net redemptions which included approximately $547,000,000 related to the previously discussed senior portfolio manager departure in mid-twenty 24. Now we are in the market with our European Direct Lending III, the 3rd vintage of our European Direct Lending Fund.

[Chris Donahue, President & CEO at Federated Hermes]

To date, we've closed on approximately $350,000,000 Target raised $750,000,000 For information, EDL 1 raised about $300,000,000 EDL 2 raised about $640,000,000 We're also in the market with the Federated Hermes GPE Innovation Fund II, the 2nd vintage of our Pan European Growth Private Equity Innovation Fund. To date, we closed on approximately 110,000,000 dollars The target raise is $300,000,000 and the first vehicle raised $240,000,000 We're also working on the European Real Estate Debt Fund, a new pooled European Debt Fund, targeting Q1 first close and planning to continue to market in 2025. Overall target $300,000,000 We're also launching the private equity, Global Private Equity Co Invest Fund, the 6th vintage of the PEX series. Target raised $500,000,000 and PEX 1 to 5 raised approximately $400,000,000 to $600,000,000 dollars in each fund. Now, we began 2025 with about $3,700,000,000 in net institutional mandates yet to fund into both funds and separate accounts.

[Chris Donahue, President & CEO at Federated Hermes]

Equity's expected net additions totaled $1,600,000,000 with wins in Growth MDT and Global Equity. Approximately $1,500,000,000 of net total wins is expected to come into private market strategies, including wins in private equity and direct lending. Fixed income expected net additions total about $616,000,000 with wins in ultra short duration and sustainable investment grade credit and government bonds. Now moving to money markets. We reached another record high for money market fund assets at the end of 'twenty 4, namely 462,000,000,000 dollars and total money market assets of the aforementioned $630,000,000,000 Total money market assets increased by about $37,000,000,000 in Q4 as money market funds added $21,000,000,000 and money market separate accounts added $16,000,000,000 Market sentiment around short term interest rates indicates a higher for longer view, which is conducive for growth in money market strategies.

[Chris Donahue, President & CEO at Federated Hermes]

Higher rates support a positive view of cash as an asset class. Money market strategies in this environment have attractive yields compared to alternatives like bank deposits and direct investments in T bills and commercial paper. Our estimate of money market mutual fund market share, which includes our sub advised funds, was about 7.22% at the end of 'twenty four, down slightly from about 7.32% at the end of Q3. Now looking at recent asset totals as of a few days ago, managed assets were approximately $839,000,000,000 including $634,000,000,000 in money markets, dollars 83,000,000,000 in equities, dollars 100,000,000,000 in fixed income, dollars 19,000,000,000 in alternative private markets, and $3,000,000,000 in multi assets. Money market mutual fund assets were at $455,000,000,000 Tom?

[Thomas Donahue, VP, Treasurer, CFO & Director at Federated Hermes]

Thanks, Chris. Total revenue for Q4 increased $16,200,000 or 4% from the prior quarter, due mainly to $5,300,000 of higher revenue from equity assets and $5,100,000 of higher revenue from money market assets. Q4 revenues were reduced by $1,700,000 in waivers related to additional fund proxy costs compared to $5,900,000 in fund proxy costs recorded in Q3. Total Q4 carried interest and performance fees were $4,800,000 compared to $3,500,000 in Q3, approximately $3,200,000 of the Q4 fees were offset by nearly the same amount of compensation expense. The Q4 sub advised account redemption that Chris mentioned occurred mid quarter and impacted Q4 revenues by about $627,000 The impact in Q1 and future quarters will be about $1,500,000 per quarter.

[Thomas Donahue, VP, Treasurer, CFO & Director at Federated Hermes]

Q4 operating expenses increased by $17,500,000 from Q3, due mainly to $13,800,000 of FX related expense increases in the other expense line item as the pound weakened versus the dollar. Compensation and related expense was up slightly from Q3 as higher incentive compensation was largely offset by lower severance expense. Advertising and promotion expense increased due mainly to the timing of our advertising campaign spend. The Q4 tax rate of 25.4% was lower than the expected range. We expect the tax rate to be in the 26% to 28% range for 2025%.

[Thomas Donahue, VP, Treasurer, CFO & Director at Federated Hermes]

At the end of the year, cash and investments were 641,000,000 dollars Cash and investments excluding the portion attributable to non controlling interest was $588,000,000 Now looking ahead to Q1, certain seasonal factors will impact results. Based on Q4 average asset levels, the impact of fewer days is expected to result in about $9,200,000 in lower revenues and about $2,000,000 of lower distribution expenses. In addition, based on an early assessment, compensation and related expense is expected to be higher than Q4, due primarily to about $7,000,000 of seasonally higher expense for stock compensation and payroll taxes. Of course, these items and others, including incentive compensation, will vary based on multiple factors. Holly, we would like to open the call up for questions now.

[Operator]

Certainly. At this time, we will be conducting a question and answer session. Your first question for today is from Patrick Davitt with Autonomous Research.

[Patrick Davitt, Partner at Autonomous Research]

Hey, good morning, everyone.

[Patrick Davitt, Partner at Autonomous Research]

I'm going

[Patrick Davitt, Partner at Autonomous Research]

to start with a higher level question on the money market fund market share, excluding the SMAs. It feels like the SMAs are kind of making up what looks like a little bit of market share loss on the fund side. Could you speak to maybe any trends that are going on that would kind of explain why some of the other large money fund complexes say at the banks or even other large asset managers like BlackRock are seeing so much higher fund flows, mutual fund flows than you guys. I appreciate that the SMAs are making up for that, but I'm just curious what dynamics you're seeing there that maybe we can't see from our position. Thank you.

[Chris Donahue, President & CEO at Federated Hermes]

I'll talk a little bit, Patrick, then Debbie will offer some comments. The first thing is I went back and looked over our market share data for the last 3 years that we've been giving you every quarter. And you average all those numbers and it turns out to be between 7.33% and 7.32%. So looking at it over 1 quarter where we were at 10% less. Okay.

[Chris Donahue, President & CEO at Federated Hermes]

Yes, you could say that's loss of market share. We don't lose any clients in the process. And you see the ebb and flow of big amounts of money from clients. So I don't have any worries about losing market share. I'll let Debbie give you a better pulse of the marketplace response.

[Deborah Cunningham, Executive VP & Chief Investment Officer of Money Markets at Federated Hermes]

Thanks, Chris. And I apologize if there's any background noise. But ultimately, I agree 100% with everything that Chris just said. The market share loss is not a loss in the context of clients. It may just be some large flows at year end, which is one of our most volatile times of the year.

[Deborah Cunningham, Executive VP & Chief Investment Officer of Money Markets at Federated Hermes]

What I would say in kind of defense of that position is that generally speaking, the Q1 of every year on a cyclical basis tends to be the worst from a mutual fund flow basis. And we're not seeing that this year. Now maybe that will change. We're only 1 month into the Q1. But ultimately, we think that's a very positive trend.

[Patrick Davitt, Partner at Autonomous Research]

Helpful. And then as a quick follow-up, obviously rebuilding a fairly large cash balance, stock price has been range bound, but you've ratcheted down the repurchase quite a bit. So maybe update us on how you're thinking about repurchases through the lens of the range bound price and now much higher cash balance again?

[Thomas Donahue, VP, Treasurer, CFO & Director at Federated Hermes]

Well, Patrick, looking backwards, ratchet down, okay, we were buying the stock as it was going up. And then right as soon as we weren't allowed to buy anymore, the stock went down. And these are all fit into our models of which tell us that because of our belief in the growth of the firm, the price is still significantly undervalued. So we have to do 2 things, look at it on a high level and say, should we be buying stock? The answer to that is yes.

[Thomas Donahue, VP, Treasurer, CFO & Director at Federated Hermes]

And then we get every day to get to decide, okay, is today better to buy or tomorrow better to buy? And I think that's really how we would characterize the quarter, which I don't really view ratcheted down, and we expect to buy in 2025.

[Operator]

Your next question is from Ken Worthington with JPMorgan.

[Analyst]

Hi, good morning. Thanks for taking my question. This is Michael Chell. I'm in for Ken today. I just wanted to follow-up on the money market discussion.

[Analyst]

You called out the change in rate backdrop in your opening remarks, higher for longer rates. And I guess, do you envision flows strengthening from here for your money fund business? And I think that you called out the start of the year seems to be strong on the mutual fund side. And so I guess I'm just trying to understand or better appreciate how you envision the money fund business here and the higher for longer backdrop as well as maybe some of your ultra short products as well, which seem to make up a considerable portion of the business? Thanks.

[Chris Donahue, President & CEO at Federated Hermes]

Once again, we'll double team that answer. I'll go first. When you have rates as they are and going down and having a better relationship to the deposit rates, we believe the retail trade continues to be a very, very good trade. The institutional trade is available for institutions that are doing things not exactly for getting the extra basis point. So to us that means we still have a positive attitude about the money fund business.

[Chris Donahue, President & CEO at Federated Hermes]

To an owner operator, even though the rates didn't drop so fast that you created a big push for institutional business even though that didn't happen. To an owner operator, this is still a great time for money funds because they are a great advantage in the marketplace. That's why I said it gives a lot of credence to cash as an asset class. And remember, and I've said this before, if you have a 5 handle, it's total Nirvana. If you have a 4 handle, it's delightful on a money fund.

[Chris Donahue, President & CEO at Federated Hermes]

At a 3 handle, the clients are still quite sanguine about being there. But the war is still between the advisor who's worried about missing out and trying to convince the customer to maybe move up. Then you have in the marketplace a lot of people recognizing that cash deserves more than a 10 or 20 or 100 basis point type return and that comes from a lot of factors, competitive, legal, regulatory, etcetera. So that sets a good stage for our business. Debbie?

[Deborah Cunningham, Executive VP & Chief Investment Officer of Money Markets at Federated Hermes]

I wholeheartedly agree. I think maybe a couple of things to add with regard to that. When you look at the expected terminal rate in the current environment versus where it was 6 months ago in the second in the latter half of twenty twenty four, it's 50 basis points higher. It's substantially higher. And the expectations with what might happen from an inflationary standpoint, the stickiness of it from a growth standpoint with the new administration's policies, I think, again, allow us to be very comfortable that the nirvana maybe doesn't start to happen again.

[Deborah Cunningham, Executive VP & Chief Investment Officer of Money Markets at Federated Hermes]

I'm not a believer of a tightening later in the year, although there are some in the market that are. But the delightful aspect of it, I think, is still there. And ultimately, when you have additional users that have come into the market over the course of the last 2 plus years, they're not leaving. And more than likely, they're going to increase their balances because their own cash is increasing from a standpoint of their balance sheet and what they're receiving with a good economic backdrop to have invested in this asset class. So our outlook continues to be maybe not percentage growth that exceeds what we saw in 2023 2024, but certainly continued substantial growth in the sector.

[Analyst]

Great. Thanks for all that color. If I could just switch gears for a second, I just want to touch on ESG and your very sustainable or sustainability front. I mean, with seemingly less focus on kind of broader ESG products in recent years and maybe even more so now, can you just kind of remind us and talk through how some of your ESG and sustainability products like Global Equity or Global ESG and various impact funds might be positioned in the market in the years ahead? Thanks.

[Chris Donahue, President & CEO at Federated Hermes]

I will talk about that from the point of view of the acquisition and a broader element than the questions you're asking. Sakur and Nasevi will comment on those funds. When we did the Hermes acquisition back in 2018, we had already decanted through a lot of good legal work that you can say yes to fiduciaries while using ESG so long as you are focused on the risk reward and the returns to the underlying investor. And therefore, we continue doing that because these are good tools, additional information and analysis that assist portfolio managers and teams in making investment decisions. And this is what we still believe.

[Chris Donahue, President & CEO at Federated Hermes]

Now I'll let Saker comment on some of the funds that you mentioned.

[Saker Nusseibeh, CEO - Federated Hermes Limited at Federated Hermes]

Thank you, Chris. So just to reiterate an essential point about how one uses the terms. At the old Hermes, which is Federated Hermes Limited, we have always used ESG as a factor as part of our sustainability study to help us achieve better financial return in the long term. Now we also live in a different part of the world with different market expectations and different requirements. And there are some people in Europe who also want specific funds, which are not just aiming for outright returns, but aiming for specific outcomes.

[Saker Nusseibeh, CEO - Federated Hermes Limited at Federated Hermes]

We do not consider these to be mainstream ESG funds. We consider these to be semantic funds. Then going back to answering your question, as far as the main funds, global ESG, for example, that continues to do well and it continues to see interest from clients because ultimately clients either are buying it because performance is good or because they want to double materiality, which for them is important. If you look at the same thing in our fixed income funds, the SDG fixed income fund continues to see interest. If you look at the thematic funds, these have ebbs and flows depending on what the advisers in Europe are advising the clients to go into funds and of course are affected with the risk on risk off element.

[Saker Nusseibeh, CEO - Federated Hermes Limited at Federated Hermes]

The lack of the strength of flows, we've seen this come back, but in the last year or so had more to do with the risk off sentiment in Europe than it did with the funds specifically. So as far as we're concerned, the funds are doing exactly what the clients want. They're giving back the returns exactly as the clients want, and they abide by what the regulators want both here and in the U. S. Because they are fulfilling the fiduciary duty of trying to achieve the best financial outcome with the exception of very specific thematic funds sold in Europe for specific outcomes.

[Operator]

Your next question for today is from Dan Fannon with Jefferies.

[Trevor Dodds, Equity Associate at Jefferies]

Hi, this is Trevor Dodds on for Dan. For my first question, can you speak to the priorities of spending in 2025 and where it's different from last year and how we should think about the rate of growth for those investments?

[Chris Donahue, President & CEO at Federated Hermes]

Sure. I think I've already addressed comp at least for the Q1 compensation because of the payroll and bonus and recalibrating incentive comp, at least Q1 wise and into the future there. If things are going great, we'll be paying more there. Same thing on the distribution side, we reflected that less days in Q1 will knock that down a little bit, but that's on an asset basis from the Q4. If and we expect to raise more assets, the distribution line will go up.

[Chris Donahue, President & CEO at Federated Hermes]

On the systems and communication line, I would say we expect to have a step up there somewhere around on a quarterly basis about $3,000,000 and that would be into each quarter into the future and that's market data and technology spending related. And the rest of the areas, I really don't have much changed expectation. Of course, the other line, the infamous other line with FX, and remember we are hedging our expenses in London and so when we get the pound goes down, it doesn't really affect us because then we pay less pounds over for our expenses in London. So over a year basis, it doesn't we're hedged basically. I can't control the non operating line with our seat money and whether that goes up or down.

[Chris Donahue, President & CEO at Federated Hermes]

And the tax, I think we already addressed the tax line. The reason why it was up, I'm sorry, the reason why the tax rate was down a little bit was because the stock price was up. And so as we had vestings that caused the tax rate to go down, so that was a benefit.

[Trevor Dodds, Equity Associate at Jefferies]

Great. I appreciate the color there. And then for my follow-up, on alternative products, the overall market interest has been pretty strong. Are there certain areas of the firm you guys view as subscale? And what specific areas would you guys like to invest in or areas or regions?

[Chris Donahue, President & CEO at Federated Hermes]

Would you please repeat that? It got garbled.

[Trevor Dodds, Equity Associate at Jefferies]

Yes, yes. So on alternative products, the overall market interest has been pretty strong. What areas within the firm are due to subscale? And are there specific areas or regions that you guys are looking to expand?

[Chris Donahue, President & CEO at Federated Hermes]

Okay. Yes, there are a couple of areas that are interesting to us that are subscale. One would be infrastructure where we're interested in improving that situation. And then another one is in real estate where we don't do any of it in the U. S.

[Chris Donahue, President & CEO at Federated Hermes]

And we've talked about that on these calls for a number of times where we would be willing to expand to be able to do the kinds of things that Chris Taylor and his team have done on the U. K. Side, especially with Kings Cross, Paradise Circus and Birmingham and other places to do those kinds of regeneration projects in the U. S. So those would be 2 where I would say we'd love to get past or get greater size and activity.

[Chris Donahue, President & CEO at Federated Hermes]

The ones where even though we may be small like in direct lending, it's a couple of 1,000,000,000, but we still have great opportunities as I've mentioned. And on the PE side, we're looking at very good opportunities with the numbers that I mentioned. I don't have to go over them again. So we're pretty strong there. Another one depending on how you count it is trade finance, which is the short end of private credit.

[Chris Donahue, President & CEO at Federated Hermes]

And there's a lot of interest in that across the globe. I was out with clients in Hong Kong and Singapore 2 weeks ago and this is a very, very interesting opportunity on the trade finance side. And so that's another one where again it's about 2,000,000,000 dollars but we've got good records, good projects and good opportunities with clients.

[Trevor Dodds, Equity Associate at Jefferies]

Great. Thank you.

[Operator]

Your next question is from Robin Holby with TD Cowen.

[Robin Holby, Equity Research Associate at TD Cowen]

This is Robin Holby on for Bill Katz. And thank you for taking the question. Follow-up on the last private markets question. Just given capital markets activity is accelerating, what is your near term outlook for realizations in the portfolio? And when do you expect the fundraising with respect to the funds that you mentioned could start to offset these distributions?

[Robin Holby, Equity Research Associate at TD Cowen]

Thank

[Robin Holby, Equity Research Associate at TD Cowen]

you.

[Chris Donahue, President & CEO at Federated Hermes]

I'm

[Chris Donahue, President & CEO at Federated Hermes]

going to let Saker take a swing at that pitch.

[Saker Nusseibeh, CEO - Federated Hermes Limited at Federated Hermes]

Thank you, Chris. So the answer is we are distributing as we speak and raising assets as we speak. The whole point about having PEG6 following PEG1 to PEG5 is as PEG5 pays out, PEG6 comes in and raises new capital. It's the nature of capital markets. If you look at direct lending, we paid off Payback and actually I think making more than that and we're in exactly where we are in the cycle.

[Saker Nusseibeh, CEO - Federated Hermes Limited at Federated Hermes]

And of course, returning assets to the clients is a sign of success because it shows that we have made a success of whether it's in private equity, whether it's infrastructure, whether it's in direct lending. So returning assets to the client is a sign of success and then triggers more flows coming our way. So we're in the midst of the cycle and we're pleased with what we're seeing. And more importantly, our clients are pleased with what we're seeing and coming out to re up. A lot of the money that we raise are re ups from old clients across our strategies, which tells you we're in a good place.

[Saker Nusseibeh, CEO - Federated Hermes Limited at Federated Hermes]

I hope that answers the question.

[Operator]

Your next question for today is from John Dunn with Evercore ISI.

[John Dunn, Analyst at Evercore]

Thank you. Great to see strategic value dividend improving and flipping positive so far this year. But can you kind of contextualize how people think about that fund and the demand for it, given the backdrop of markets and rates?

[Chris Donahue, President & CEO at Federated Hermes]

Yes. The way people the way this product is presented is as a dividend fund with an idea towards growing dividends. A lot of times historically because this fund will be either at the top of the chart or the bottom of the chart because it doesn't belong in the class where the charts put it, people will tend to buy it because it's at the top of the chart, not for the right reason that it's a dividend fund looking for growth in dividends. One of the interesting things about the dynamic here is that even when the fund last year was in negative flows, The strategic dividend ETF was gaining traction. And so someone buying that particular aspect of strategic dividend shows you that they understand that it is a dividend fund.

[Chris Donahue, President & CEO at Federated Hermes]

So today, many of the people coming in are looking at this as a stepping stone into the market. You get a good yield and yet you do participate in the market. And if there's a broadening out, you get paid a dividend along the way. And so this fund is turning up pretty good numbers right now.

[John Dunn, Analyst at Evercore]

Got it. And then is there any kind of chunky institutional mandates you could point to that might be at risk? And then just more broadly, what areas of institutional are you worried could be at risk?

[Chris Donahue, President & CEO at Federated Hermes]

Well, the first thing is, on the institutional side, we're on a short leash everywhere, and so is everybody. Basically, even though the institutions say they're there for however long, they have the right to pull the money at any time for any reason or for no reason. So I can't say that we're not at risk anywhere. And but it's not like the kind of risk you're talking about where we're worried about losing something, but I'm going to let Ray talk about that for

[Raymond Hanley, President at Federated Hermes]

a second. Sure, John. When we give our pipeline numbers to the 3.8 that's net of any known redemptions coming through the institutional side, which could be in a separate account or in a fund, sometimes they're using funds and the known redemptions were very, very low this quarter. We have very we don't have really visibility to any material redemptions on the institutional side. Now as Chris says, I mean that can always change and then you have clients like we talked about the large public entity that on a regular basis, they may not tell us there's a redemption coming, but they have cash come in and they use cash and so you have those kind of swings.

[Raymond Hanley, President at Federated Hermes]

But at this point in terms of visibility, there's not anything material out there from an outflow standpoint. On the other hand, the inflow pipeline continues to build in particular for the MDT strategies, which have as noted in the remarks have really accelerated in terms of gross sales, net sales, asset growth getting strong. Institutional interests, they make up the big increase we had in our equity pipeline wins for the institutional side that was driven by MDT and we have a bunch of other ones that are bubbling around that aren't in that number yet that we're very optimistic about some of those being of good size.

[Operator]

We have reached the end of the question and answer session. And I will now turn the call over to Ray for closing remarks.

[Raymond Hanley, President at Federated Hermes]

Thank you, Holly. That concludes our call. Thank you for joining us today.

[Operator]

Thank you. This does conclude today's conference. You may disconnect your lines at this time. Thank you for your participation.

Participants

Executives

• Raymond Hanley, President
• Chris Donahue, President & CEO
• Thomas Donahue, VP, Treasurer, CFO & Director
• Deborah Cunningham, Executive VP & Chief Investment Officer of Money Markets
• Saker Nusseibeh, CEO - Federated Hermes Limited

Analysts

• Patrick Davitt, Partner at Autonomous Research
• Analyst
• Trevor Dodds, Equity Associate at Jefferies
• Robin Holby, Equity Research Associate at TD Cowen
• John Dunn, Analyst at Evercore