Federated Hermes, Inc.

Greetings and welcome to Federated Hermes Q2 2020 Analyst Call and Webcast Conference Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn this conference over to your host, Mr. Raymond Hanley, President of Federated Investor's Management Company. Thank you. You may begin.

Good morning and welcome. Leading today's call will be Chris Donahue, CEO and President of Federated Hermes, and Tom Donahue, Chief Financial Officer. And joining us for the Q&A are Sacher Nasebi, CEO of the International Business of Federated Hermes, and Debbie Cunningham, our Chief Investment Officer for MoneyMarkets. During the call, we may 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. Please review the risk disclosure in our SEC filings. No assurance can be given for future results, and Federated Hermes assumes no duty to update any of these forward-looking statements. Chris?

Thank you, and good morning, all. I will review Federated Hermes' business performance, and Tom will comment on our financial results. We continue to make progress establishing our brand as the leading provider of active responsible investment management driven by the combination of strong fundamental analytical capabilities and the multi-sector insights provided by the EOS at Federated Hermes engagement operation. EOS assets under administration were 1.1 trillion at the end of the second quarter. and we expanded the EOS staff of engagers and specialists to 60 during the second quarter. Now recently, the international business of Federated Hermes was assessed by Real Impact Tracker, which certifies institutions most committed to impact, and we achieved the highest score in the history of its certification. As a result, the firm has joined Real Impact Tracker's certified community for which only around five to 10% of fund managers are eligible to qualify. Real Impact Tracker identified our firm as the leader in creating impact throughout its operation, investment process, corporate engagement, and policy and advocacy. In particular, the firm's philosophy and approach to stewardship was highlighted as the model for other firms looking to improve their active ownership. In addition and separately, the United Nations PRI just awarded the domestic portion of Federated Hermes with an overall A rating for our annual responsible investing assessment. The international business of Federated Hermes received an A-plus rating. Now turning to our equities business. Assets closed the quarter at $77 billion. up from 68 billion at the end of the first quarter as market values rebounded by just under 11 billion, offsetting net redemptions of 2.7 billion. While the overall net sales of combined equity and separate accounts were negative, the 2.7 billion I just mentioned, we saw positive net sales in a number of strategies. We had 12 equity strategies with net sales in the second quarter led by Kauffman Small Cap. Other equity funds with net sales in the second quarter included Global Equity ESG, Global Small Cap Equity, MDT All Cap Core, and the SDG Engagement Equity Fund. Using Morningstar data for the trailing three years at the end of the second quarter, Thirty percent of our funds, nine out of 30, were in the top quartile, and two-thirds, 20 of 30, were above median. Looking at the strategic value dividend strategy, its objective, as you recall, is to provide a high-growing dividend income stream from quality companies. The domestic fund's 12-month distribution yield was 4.4 percent which ranked it in the second percentile of its Morningstar assigned category at the end of the second quarter. The SMA's strategy's gross weighted average dividend yield was 5.26 at the end of the second quarter. The domestic strategic value dividend strategy had combined mutual fund and SMA outflows of 1.6 billion in the second quarter, compared to 461 million of outflows in the first quarter. Q3 results through July 24th show combined fund and SMA net redemptions of just over 200 million. Dividend stocks were soundly out of favor during Q2's cyclical risk on tech led rally. The best performing market sectors were lower dividend paying consumer discretionary and information technology type stocks. Low beta underperformed high beta, high yielding stocks underperformed low yielding, and high quality underperformed the lowest quality. While the second quarter market characteristics were not conducive to our low volatility, high dividend strategy, we believe that our continued focus on the core goals of providing higher than market dividend yield from high quality business assets will resonate with investors over time, especially given the outlook for lower rates over an extended period of time. And recall that even during these net redemption times, Through July 24th, the gross sales of the strategic value dividend and SMA strategy were just about $3.5 billion, showing there is active life in the strategy. Now, turning to fixed income. Assets reached a record high of $73 billion at the end of the second quarter. driven by over $6 billion in net sales and nearly $2 billion of market gains in the quarter. Bond market conditions changed dramatically from the lows in March, and our broad array of solid fixed income strategies were well positioned to meet investor demand. We had 23 fixed income funds with net sales in the second quarter. High-yield funds led the net sales with over $2 billion. Multi-sector bond strategies also had solid net sales, led by $300 million in total return bond fund, and also drove strong results in separate accounts. Corporates, international global, government, municipal bond funds all had net sales as did our fixed-income SMA strategies. Across sectors, short-duration strategies were also in demand. At quarter end, using Morningstar data for the trailing three years, we had eight funds, which is 24 percent in the top quartile, and 18 funds, which is 53 percent in the top half. Moving to money markets. Assets increased about $6 billion in the second quarter to a record high of $458 billion, with growth in money market funds of about $8.7 billion partially offset by seasonal declines in separate account assets of $2.4 billion. Money market assets reached a high of $483 billion in late May, in advance of tax payments, usage of CARE funds, and other uses of cash. Our money market share, including the subadvised funds at quarter end, was 8.1 percent, down fractionally from 8.8 percent at the end of the first quarter. Now, taking a look at recent asset totals and movements, Managed assets were approximately $629 billion, including $452 billion in money markets, $80 billion in equities, $75 billion in fixed income, $18 billion in alternative, and $4 billion in multi-assets. The money market mutual fund assets were $339 billion. In terms of flows third quarter through July 24th, equity funds and SMAs were negative $240 billion. Fixed income funds and SMAs were positive $756 billion. By the subtraction method, we were $565 million to the positive so far in the third quarter. Now, as we begin the third quarter, we begin with about $1 billion in net institutional mandates yet to fund, and most of those are in fixed income. Now, an overall comment as relates to COVID. We have continued to function well throughout these challenges. We are fully operational. Our technology resources have enabled us to have upwards of 95% of our employees successfully working from home. The portfolio management teams are connecting regularly and managing well through challenging market conditions. Our regional consultants and other sales and customer service personnel are staying connected to their clients. And while we continue to hire and onboard new employees in the second quarter, We do look forward to the time when we can come together in person in our facilities. Now for the financials, we'll turn to Tom. Thank you, Chris.