Federated Hermes, Inc.

Greetings. Welcome to a Federated Hermes Third Quarter 2020 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. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to your host, Ray Handley, President of Federated Investor Management Company. Thank you. You may begin.

Good morning and welcome. Leading today's call will be Chris Donahue, Federated Hermes CEO and President, and Tom Donahue, Chief Financial Officer. And joining us for the Q&A are Sacher Nasebi, who is the CEO of the International Business of Federated Hermes, and Debbie Cunningham, the Chief Investment Officer for the Money Market Group. 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. We invite you to 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?

Thank you, Ray. Good morning, all, and thank you for listening. I will review Federated HERMI's business performance, and Tom will comment on our financial results. We continue to grow and expand our EOS at Federated HERMI's engagement activities. During Q3, our staff level of engagers and other specialists reached 65, up from 60 at the end of Q2, and our assets under advice reached $1.2 trillion up from $1.1 trillion in the second quarter. Now looking at our equities business, assets closed the quarter at $80 billion, up from $77 billion at the end of Q2, as market values continued to recover, adding $4.3 billion, offset partially by net redemptions of $1.4 billion. While overall net sales of combined equity funds and separate accounts were negative, we saw positive net sales in a number of strategies. We had 16 equity funds with net sales in the third quarter, led by Kauffman Small Cap and the SDG Engagement Equity USIT Fund. Other funds include Global Equity ESG, Impact Opportunities, International Small Mid Company, and global small-cap equity. Using Morningstar data for the trailing three years, at the end of the third quarter, 24% of our equity funds were in the top quartile and two-thirds were above median. Looking at the strategic value dividend strategy, its objective is to provide a high and growing dividend income stream from high-quality companies. The domestic fund's 12-month distribution yield was 4.4%, which ranked in the second percentile of its Morningstar assigned category at the end of the third quarter. The domestic strategic value dividend strategy had combined mutual fund and SMA outflows of $1.4 billion in the third quarter, down from $1.6 billion in the second quarter. While recent market characteristics have not favored our low volatility, high dividend strategy, we believe that our continued focus on the core goal of providing higher than market dividend yield from high quality business assets will resonate with investors over the long term, especially in a low rate environment. Q4 results through October 23rd show combined fund and SMA net redemptions at about $190 million. Now turning to fixed income. Assets reached another record high of nearly $80 billion at the end of Q3, up over $6 billion or 9% from Q2. The third quarter growth was driven by strong net sales of about $5 billion. our broad array of solid fixed income strategies were well positioned to meet market demand. We had 23 fixed income funds with net sales in the third quarter. The multi-sector total return bond and short intermediate total return bond funds combined for about $1.2 billion of Q3's net fund sales. Ultra-short strategies had about $1.1 billion of net fund sales, and high yield added just over $400 million of net fund sales. Corporates, high yield, multi-sector, government, and municipal bond funds all had net sales, as did our fixed income SMA strategies. Across sectors, short duration strategies were in demand and also drove the fixed income separate account net sales. At quarter end, using Morningstar data for the trailing three years, we had 26% of our fixed income funds in the top quartile and 50% were above median. We began Q4 with about $1.5 billion in net institutional mandates yet to fund, mostly in fixed income. Moving to money markets. The Q3 asset decrease of $25 billion was mostly from money market funds, which decreased from Q2's record high and, to a lesser extent, seasonal declines in separate account assets. Money market fund asset decreases were attributed to corporate clients using cash to pay down debt or spend on their businesses and the use of cash by government entities among other factors. Our money market mutual fund market share, including subadvised funds at quarter end, was nearly unchanged from the prior quarter at 8.1%. Taking a look now at recent asset totals, managed assets were approximately $614 billion, including $430 billion in money markets, $81 billion in equities, $81 billion in fixed income, $18 billion in alternative, and $4 billion in multi-assets. Money market mutual fund assets were $322 billion. Overall, we continue to function well through the challenges of COVID. Upwards of 95% of our employees are successfully working from home, leveraging progress from years of technology investments and strong culture. We recently communicated that we are delaying a significant return to our office for U.S. employees until mid-February, and our decisions about when to return more employees to our offices will be informed by conditions and not the calendar. We have emphasized that working together in our office is vital to Federated Hermes culture and it facilitates collaboration, allows impromptu conversations, and promotes personal interactions that build camaraderie and creativity. Culture means community, collaboration, and cooperation, and it's best accomplished in the office, in my opinion. We would lean on wanting people to come back to the office when it's proper to do so. Tom?