Federated Hermes, Inc.

Good morning, everybody, and welcome to Federated Hermes Incorporated Q2 2023 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 phone keypad. Please note this conference is being recorded. I will now turn the conference over to your host, Raymond Hanley, President of Federated Investors Management Company. Raymond, over to you.

Good morning and welcome. Thanks for joining us today. 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 Saker Nasebi, who is the CEO of Federated Hermes Limited, and Debbie Cunningham, our Chief Investment Officer for the Money Markets. During today's 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 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, and good morning, all. I will review Federated Hermes' business performance, and Tom will comment on our financial results. Looking first at equities, assets were down $637 million to $83 billion, due largely to net redemptions of $828 million, partially offset by market gains of about $115 million. Even so, we saw Q2 positive net sales in 15 equity strategies, including Asia X Japan, MDT large cap growth, MDT mid cap growth, and international leaders. Now, the strategic value dividend domestic strategy had Q2 net redemptions of $700 million compared to net sales of $727 million in the first quarter. As we have talked about before, this strategy is outcome-driven and is benchmark agnostic. It seeks a high and rising stream of dividend income from high-quality companies. Over the last 10 years, ended June 30, it has returned on average 7.4%. To make the point, the strategy returned 8.5% in 2022, compared to a loss of over 18% from the S&P 500, and thereby ranked in the top 1% of its Morningstar assigned category of large cap value for this 2022 performance. Year to date, however, through June of 23, it has a negative return of 5.3% compared to the S&P 16.9% gain, and that ranked it in the 99th percentile of its assigned category. This year, the market, as you know, has been led by a small group of technology companies that are largely outside of this strategy's objectives, as they either pay no dividends or have a low dividend yield. The top yielding quintile of stocks in the S&P 500 are underperforming the bottom yielding quintile by nearly 40% to date. Now, this strategy would benefit if investors rotate back into cheaper, high-yielding defensive stocks. Looking at our equity performance overall compared to peers and using Morningstar data for the trailing three years, at the end of the second quarter, 50% of our equity funds were beating peers and 29% were in the top quartile of their category. For the first three weeks of Q3, combined equity funds and SMAs had net redemptions of $310 million. Now turning to fixed income. Assets decreased slightly in the second quarter to $87.4 billion. Fixed income funds and SMAs had Q2 net sales of $454 million, while fixed income institutional separate account net redemptions of $526 million were driven by regular cash flows from a large public entity. Within funds, our flagship Core Plus strategy total return bond fund had Q2 net sales of about $1 billion. Core Plus and other fixed income SMA strategies added $207 million of Q2 net sales, while net redemptions of about $354 million occurred in the three ultra-short funds. The ultra-short Net redemptions were down from $1.2 billion in the prior quarter. Just as a note, total AUM and ultra-shorts are about $5.4 billion here at mid-July. We had 15 fixed income funds with positive net sales in the second quarter, including, of course, total return bond fund and SDG engagement high yield fund. Regarding performance, At the end of the second quarter and using Morningstar data for trailing three years, 49% of our fixed income funds were beating peers and 16% were in the top quartile of their category. For the first three weeks of Q3, fixed income funds and SMAs had net positive sales of 20 million. In the alternative private markets category, Assets increased by $428 million in Q2 compared to the prior quarter, reaching $21.6 billion. The increase was due to FX impact, partially offset by net redemptions and distributions. We have the final close of PEC 5, the fifth vintage of our private equity co-invest fund in June, reaching $486 million in commitments, which exceeded our $400 million target. Commitments came from existing PEC Series investors, as well as new investors from Europe and South Korea. Federated Hermes GPE has a 22-year track record of making co-investments, having committed $4.5 billion across 278 global co-investments as of March of 23. We continue to market Horizon 3, the third vintage of our Horizon series of private equity funds. Horizon 3 has commitments of a little over a billion dollars through the second quarter. We are also in the market with the Hermes Innovation Fund, which is the second vintage of our private equity innovation fund, the first vintage of our real estate debt fund, and the first vintage of our nature-based solutions fund. Now, we began the third quarter with about $5 billion in net institutional mandates yet to fund, both into funds and separate accounts. These wins are diversified across fixed income, equity, and private markets. Fixed income expected net additions total $2.5 billion, This includes wins in active cash, short credit, corporates, high yield, and core plus. Approximately 1.3 billion of total net wins is expected to come into private market strategies. This includes private equity, direct lending, and absolute return credit. About 1.2 billion of total net wins is expected to come into equity strategies, including biodiversity, global emerging markets, MDT mid-cap growth, and global equity. Moving to money markets. We reached record highs for money market fund assets of $364 billion and total money market assets of $509 billion. The second quarter presented a challenging environment for managing money market strategies as the debt ceiling crisis significantly impacted short-term debt markets. Despite this challenge, money market strategies continued to benefit from favorable market conditions for cash as an asset class, higher yields, elevated liquidity levels in the financial system, and favorable yields compared to bank deposits. As short-term interest rates peak, we expect market conditions for money market strategies will be favorable compared to both direct markets and bank deposit rates. Looking at flows in money funds in the second quarter, we saw good activity from products geared to the retail customers of financial intermediaries. Institutional product flows were challenged by the aforementioned debt crisis, direct security yields, and the regular June corporate tax period. Now, the SEC, as you know, recently adopted new rules for money market funds. We continue to study these rules to assess their impact. We were pleased to see that swing pricing was not included and that the ability to use a reverse distribution mechanism was included as an option in the remote possibility that negative yields were to occur. We were also pleased that the SEC agreed with our recommendation to remove temporary redemption gates and the link between weekly liquidity asset thresholds and liquidity fees, which we believe created an incentive for investors to redeem sooner in periods of market stress and prevented the manager from using as much liquidity as was available. The inclusion of mandatory redemption fees subject to certain conditions in institutional prime and muni funds presents a challenge for fund advisors and investors. We have approximately $11 billion in third-party institutional assets in institutional prime and muni funds that we believe could shift to alternative products that we offer, including our private prime fund and government money market funds. It's worth noting that institutional prime and muni funds already have fluctuating net asset values and that there is an exception or carve out for so-called de minimis impact based on the hypothetical selling of a strip of securities that may occur on the rare days when we have a 5% redemption trigger. We will be talking with our institutional clients over the coming months on this topic. We believe that these investors will continue to use the institutional prime and muni funds at least into late next year when the new rules take effect. Our estimate of money market mutual fund market share, including subadvised funds, was 7.2% at the end of the second quarter, down from 7.4% at the end of the first quarter. Now, looking at recent asset totals as of a few days ago, Managed assets were approximately $707 billion, including $510 billion in money markets, $84 billion in equities, $89 billion in fixed income, $22 billion in alternative private markets, and $3 billion in multi-asset. Money market mutual fund assets were $365 billion. Thank you. Tom, financials.

Thank you, Chris. As described in the press release, Q2 results included two transactions that impacted results for a combined loss net of tax of $800,000. The transactions include a sale by a shareholder in one of our private equity funds of a portion of their investment to a third party and a restructuring of one of our infrastructure funds. We continue to manage both funds. Total revenue for Q2 increased $51 million from the prior quarter due mainly to an increase of $38 million in carried interest and performance fees, of which $25.9 million is from carried interest revenue from consolidated carried interest vehicles that was offset mainly by compensation expense. Retained carried interest and performance fees increased by $12.1 million from the prior quarter. Total Q2 performance fees and carried interest were $39.4 million. All other revenue increased by $13.1 million, or 3%. Due mainly to higher average money market assets bringing in $11.6 million of revenue, and an additional day in the quarter bringing in $4.6 million of revenue, partially offset by lower average equity assets reducing revenue by $2.5 million. Q2 operating expenses increased $37.8 million from the prior quarter due mainly to $25.7 million of compensation expense from the consolidated carried interest vehicles and from $9.8 million due to the restructuring of the infrastructure fund recorded in other expense. All other expenses increased by $2 million or 1%. The $23 million increase in compensation and related expense from Q1 included the $25.7 million in consolidated carry interest vehicle compensation and $1.4 million in severance partially offset by 4.1 million of lower incentive compensation expense. The increase in professional service fees from Q1 was due mainly to higher legal and consulting fees. The increase in advertising and promotional from the prior quarter is mainly due to the timing of certain conference and advertising spending. The effective tax rate was 27.4 for the quarter, The Q2 rate was impacted by the restructuring of the infrastructure fund, which included the purchase rights to receive future carried interest. This purchase and related expenses were not deductible for tax purposes. As a result, our effective tax rate was higher this quarter compared to our expected rate of 24 to 26% for 2023. At the end of Q2, cash and investments were $521 million, of which about $459 million was available to us. Jenny, we would like to now open up the call for questions, please.

No problem. At this time, we are opening the floor for questions. If you would like to ask a question, please press star 1 on your phone keypad. A confirmation tone will indicate your line is in the queue. You may press star 2 if you would like to remove your question from the queue. For anyone using speaker equipment, it may be necessary to pick up your handset before you press the keys. Please pause a moment whilst we poll for any questions. Thank you. Your first question is coming from Daniel Fannin of Jefferies. Daniel, your line is live.

Thanks. Good morning. So I wanted to start with just money market flows and understand your comments that as rates stabilize or peak, you expect to see those flows pick up. But also just want to contrast that to what we're hearing just broadly about fixed income flows also picking up when that occurs. So how do you think investors and the balance between what bond funds and money market funds are going to look like as we or allocations are going to trend as we get towards you know, more of that peak rate or lower rates potentially dynamic.

Daniel, I'll comment on the bond fund portion, and I'll let Debbie add on the money market portion. So our franchise, the Core Plus franchise total return bond, has over $18 billion in it, and it is a great bucket to have a very good story over the long term. And so as we're looking at the fixed income market, that is a big allocation almost no matter what is going on in the marketplace. And therefore, we are winning mandates where that is a core position and how people are feeling is a little different than a core allocation. And so we're winning in that space. If you talk to the FAs, they are somewhat reticent to go into the market full bore, even though you've seen some changes along those lines with market performance. And so they are quite sanguine about a core position in a core plus fund that has this kind of record. And I'll let Debbie comment on the money market portion, and then I'll draw them back together after her comments.

Thanks, Chris. So from the money market side of the equation, much of the growth that we have seen so far has come from the retail side of the market. And that's simply because compared to bank deposit rates where they were for a lot of the zero rate environment, money market funds are now paying much more attractive market rate of return. For institutional buyers, however, they have the ability generally to be able to be in direct markets specifically. So buying direct commercial paper, buying direct CDs. And as the market has increased, they have been purchasing direct market securities such as those in order to pick up the yield, the higher yield more quickly. Many market funds operate with a lag, maybe 25 to 30 days, depending upon what our weighted average maturities are. Once markets peak or plateau in this case, and even then, even more so when they start to go down the other side, the opposite occurs for the institutional investor, where they come into those funds that actually lag the market and therefore stay at that higher rate for a longer period of time. So generally, that's when we would see institutional markets and the institutional flows pick up while retail will be maintained at that point. So it comes from two different sources, the retail side as money is coming off of zero and very attractive versus bank deposits. And then once rates plateau and start to go down even marginally, it comes from the institutional side. And these are generally cash managers, cash management flows. It doesn't include what Chris was talking about those flows that, you know, ultimately may, may make their way back to the longer side of the fixed income markets or even the equity markets for that matter. Chris, back to you.

Okay. Thanks. And, and so what, what's really going on here is it's in almost independent decisions. In addition to filling out a core position, um, Those FAs that are willing to lengthen duration like the product. The product does a very good job of capturing alpha on the downside and on the upside. And if you look at its three-year rolling returns over 72 periods, about 90-some percent of the time, this fund beats the competitors and the bench. And so it's a very solid product. And others are consolidating managers and doing other things like that. And that's why you're seeing these strong flows into the total return bond fund category.

Okay, thank you. That's helpful. And then I was hoping to clarify some of the dynamics within the carried interest in the quarter. I think you mentioned a restructuring of the infrastructure fund. So, and I believe something else I might have missed it, but if you could just talk about specifically what happened and then the understanding what the impact was that carried interest in comp. But I believe there was, is that partly why the elevated legal costs as well? I just want to make sure we looking at the kind of normalized expense levels exiting, you know, kind of the second quarter would be helpful.

Yeah, okay, Dan. That's why we put that kind of specific thing in the press release, you know, under financial summary, but just to talk about it. So we have the Horizon product, which has a long-term large private equity investor was looking to exit some of their position. And we worked on this for a long time. and they were able to complete the transaction, sell their position to somebody else, and importantly, we still are managing it. So it's just we're managing it for somebody else. That triggered the carry from the gains that they got by selling it, which triggered the carry of which we get some of it, we being the Inc., and which the managers get some of it, which is why it is compensation. So, you know, that standalone by itself, that would have been a, you know, a positive contribution to earnings. So the second transaction was in our infrastructure business where we kind of looked at it and realized that we needed to update it to more satisfy the existing investors and to transfer it into a better structure to grow it in the future. And what that did was triggered, carried interest from the past that we were able to recognize. The reason why we were able to recognize it, the reason why we didn't recognize it before was because there was a clawback. Once we restructured it, the clawback ends, and therefore we recognized it. And what we also had to do was went out and got a fair market value of the carry for the people who get the carried interest, and we had to take that as an expense. By the way, that was not a comp expense, even though it's paid to the employees and it shows up in the other line. Now both those things, and we continue to manage that portfolio too. And I think it's important for Sacher, if he wants to make any follow-up comments on those businesses.

Sure. Thank you. So two things about this. One, if you think about the first transaction, it is actually a success because when you have a private market investor, they're technically in there for the long term. You want to ensure that they're for the long term. And you also want to make sure that if they need liquidity at some stage, they can find or we can help them find somebody else. And that's what we did. And that then triggers a realization of some of both for us and for the managers. The second one is different in the sense that the clients themselves wanted us to restructure the fund so that we can adapt it to what they want to do. And again, we kept the management of it. So the first key point is that we have control of the management of both. The second one is something like this gives an indication. This is neither a forecast nor it's just simply the numbers are the numbers, but it gives you an indication of how private markets work, which is there's a lot of the risk revenue that is generated within private markets that comes through these lumpy carry payments that happen over time, which we do not predict, but you can look at our past records and the notes attached to the press release and you can see the averages over time. And that's an integral part of how we do it. Now, we have established an incredibly strong reputation in all parts of private markets and private equities. The track record is outstanding. And that's partly why we managed to close our fund above expectations. In property, it's the same. In direct lending and so on. So it's a combination of us keeping clients, us actually expanding our client bases in many ways, and then realizing the carry, some of which goes to the managers, which is typical within private markets, and some of which comes to Inc., which is the house. So it gives you an insight, if you like, of how private markets works. and how attractive this business is because of its stickiness, its longevity, and the carried interest that you generate within it for us as well as for our clients.

So Dan, the last comment that I have is, you know, we put in the net, net, net on all these things, which I understand are complicated to figure out. And that's why we put in that, uh, You know, an after-tax impact was only $800,000 when you take all these transactions and all these millions of dollars. We kind of wanted to give you an indication that it wouldn't have impacted earnings too much. Well, $800,000, exactly.

Okay, thank you.

Thank you. Your next question is coming from Patrick Davitt of Autonomous Research. Patrick, your line is live.

Hey, good morning, everyone. So the press reported on some money fund fee cuts earlier in the month, but I think misrepresented the impact. So could you frame any immediate impact to the earnings model from those reported changes? And then more broadly, what exactly are the changes you made and any color on the reasoning for the new framework? Thank you.

Yeah, Patrick, it's Ray. We did in the beginning of May, the fund board approved a reduction in investment advisory fees on a group of our money funds. But as you indicated, there's no impact to our revenue because We already had long-standing advisory fee waivers, so this was not revenue that we were collecting. It may have been reported as such or indicated that. In addition, in the beginning of July, we launched 10 new share classes on three of our Treasury funds, and we did that to give clients additional product options and also to have some consistency when looking at our Treasury products compared to the government and and prime funds when you look at things like expenses and minimum investments and some other features. As a consequence of creating these new share classes, certain of them are priced at 15 basis points net of waivers. So that does represent on a new share class a lower net effective fee rate than what was previously available and you know that's kind of in line with moving in line with where some some of the competition funds are and again giving us consistency we already had that pricing option on the on the government side which is the the bigger category so those are the changes at a high level Debbie I don't know if you want to add anything to that

Yeah, I think just that we really don't expect it to be impactful in the assets in those products and any kind of shifts that might take place between share classes within a product. We expect to be modest at this point.

And the intention, of course, is to, regardless of shifting and if any of that occurs or when, when we undertake changes like this, our expectation is that they will be revenue enhancing. Got it. Thanks.

And as my follow-up, you're building a fairly nice cash balance and did a lot more repurchase in the second quarter than I think maybe your tone on the last call would have suggested. So should we be leaning more into repurchases as we think about our models for the second half now and now that your price is much lower than it was last quarter?

Yeah, Patrick. It's Tom. So we had the Russell. We got kicked out of the index in the Russell. And so we weren't sure what was going to happen there and wanted to be prepared. And then we also knew that the money market regulation was coming. And we weren't exactly sure what was going to happen there. And so looking into the future, the Russell was behind us. And we did buy shares during that period. We thought that there was lower price than was appropriate. So a buying opportunity. And now that the money market thing is not as bad as it could have been, we think that our stock is underpriced. And so we will review as we buy shares based on that stock process.

Thank you.

Thank you very much. Your next question is coming from Mike Brown of KBW. Mike, your line is live.

Great. Good morning, everyone. You just touched on the dynamic with the Russell removal there. We did receive a number of inbounds about that dynamic and the resulting technical pressure on the stock. Can you just touch on this dynamic a little bit more? And I guess given your governance is really kind of part of your investment strategy. Why not meet the requirements to stay in the index?

So I'll deal with the first part and Chris can answer the last question. The dynamics are hard to understand and know exactly, but we looked at our volume and saw that before the index date, our volume picked up and the price came down leading up to it. If you look at, you know, A month or so beforehand, the price kept going down, down, down, and the volume went up. Whether that was people addressing and preparing their portfolios in advance of the Russell change, or whether it was people betting or selling based on what they thought was going to happen in the money market business, you can pick. I think it was probably both. After, you know, you had a big volume day. I forget, 12 million shares or something on the day that Russell changed. And actually, the few days before, the stock, we kind of outperformed relative to the market. And then roughly the five days after, we kind of underperformed. So maybe that was the people who were tied to the Russell index but not actually index funds were adjusting their portfolios. We thought that was a buying opportunity. and participated and I think it's in the rear view mirror now because our share trading seems to have settled down to more historical levels.

So, changing in order to get with an index didn't strike us as the way to do the strategy for Federated Hermes Inc. The index people decide not to be an index doesn't mean that we have to decide to join their non-index index. We have had this structure going all the way back into the 60s when we went public. It was an intervening time in the 80s when we were owned by Aetna. But when we brought ourselves back in 89, we went back to the same structure. And in conjunction with looking at the funds, the money that we manage on the institutional side, It's been our conclusion, and it's worked well for us, that it's very clear as to who is in charge and who is managing the money. And we're not worried about who's having lunch with whom. And we are able to, therefore, focus on investment management performance and growth of the enterprise. I would also add that because we do generate cash flow, we can take these incongruities in the marketplace as buying opportunities for the underlying stock. So we are happy with our structure where we are.

Okay, thank you for the thoughts there.

And then just as a follow-up, if I just approach the capital allocation question a little bit differently, just are you seeing any opportunities on the M&A front, and how are you thinking about some of the strategic opportunities that would best fit federated that you think could kind of take you on your next evolution of growth here?

Tom, we've talked about before looking in the real estate development area. That's going to be a long, long process. It's going to probably be an acquisition in the US and we've got to get the skills and expertise that we have in London and trying to bring that over here. will require boots on the ground in the U.S. And so that's a long-term thing. It has to fit with us. It has to culturally and all the things. You know, it took us a long time to find the acquisition in Hermes. I would expect that it's going to take us a long time to find something that makes sense for us there, too. That would kind of be the biggest thing. We don't have, you know, needs in, you know, growth or quant or value. So, you know, those would probably expect to be more roll-up type of things that happen. And then, of course, in the money fund business, we're all in in the money fund business. And if someone wants to be out, we are a highly interested player.

Okay, great. Appreciate the thoughts.

Thank you very much. Your next question is coming from Brian Bedell from Deutsche Bank. Brian, your line is live.

Great. Thanks. Good morning, folks. Thanks for taking my questions. First, on the money market side, sort of a combo question on the proposals from the SEC, particularly the liquidity rules, I think going from 10 to 30 percent in, I think, overnight and weekly to 25 and 50 percent, that proposal. Which subset of funds would that impact on the money side for you? And then I guess sort of connected with that, I know you tend to manage relatively conservatively across the money fund asset class. How do you see the competitive yield dynamic on the retail side of the business? Sometimes you get, obviously, flows chasing hot, you know, sort of hot money chasing higher yielding, and you don't typically engage in that, but maybe just some perspective on where you see your competitive yields in the marketplace and how that might change in the near to intermediate term.

Debbie? Sure, I can take that. So going from 10% in overnight and 30% in weekly liquid assets that are required in the current rules, to 25% in dailies and 50%, which will be required in the new rules. The only funds that that will impact would be the prime funds. First of all, the municipal funds are exempt from any kind of daily liquid asset requirement, so it's only weekly liquid assets that impact them. And from both a municipal and a government standpoint, they operate well in excess of those either 25 or 50% requirements for dailies and weeklies. So it's really the prime funds that will be impacted. And for the most part, since 10 and 30, and especially the 30s, had a negative consequence of the potential for dates and fees, we tended to never manage our funds with 10 and 30s but rather something that was probably closer to 20 and 40. So 20 and 40 going to 25 and 50 is impactful. It will have, you know, a basis point impact in those particular products, prime retail and prime institutional, but they should still be able to maintain their competitive spread over the government sector, which is where they're mostly compared. from a competitive yields perspective in the market our products at this point are for retail especially are kind of the top of the heap from a standpoint of what their alternatives are generally speaking for cash management products mostly um our our highest competitor outside the industry would be um the the bank deposit market the retail bank deposit market and that continues to lag from a standpoint of what those banks are paying in an administered rate versus what the funds are earning and passing through as a market rate. On the institutional side, again, as yields peak, plateau, and start to go down the other side, the comparisons to the direct market for the institutional customers will also become very attractive at that point.

That's great color. My follow-up will be on the strategic value fund. This is, you know, Chris, as you described this, it's typical classic performance versus the peer group. And now we're in this, obviously, mega cap tech rally. Maybe just some color on your sales force and the advisors that you're selling this product to. Is it resonating that this is probably a good buying opportunity from at least a mean reversion? perspective or do advisors typically chase performance on this and buy it more when it's actually outperforming?

Well, you need to look at that in terms of when the money came in, how long it's been there, and how the advisors presented the product. Last year when it was number one, this is the exact experience we had before. The money that comes in because it's the number one fund is the money that goes out when that performance changes. However, The money that went in because it was a growth dividend story stays in. And so what the FAs prefer over the long haul is us sticking with our knitting and staying with the concept. And the PM and the team have written books on these subjects. They're coming up with a new one as we speak in terms of the efficacy of this type of investing. recent performance to the contrary notwithstanding. So the core group of those fund holders remain very, very steady, and that's why I mentioned the 7.4% return over the last 10 years, because that's what it takes. But at the margin, when the money comes in, when it's number one and because of number one,

it goes out when that backs up. And Brian, I would just add, we've had, continue to have the strategy added to platforms and exposed to growth opportunities within platforms precisely because it is an alternative to the growth-oriented small group of stocks driving returns. And I'd also mention that ETF that we launched late last year. It's around $60 million in assets, but we're having the same kind of experience. It's being added as an option. And so from an advisor standpoint, it's a strategy that they want to continue to have access to.

One other comment would be, don't forget, there were near $500 million worth of gross sales in that fund in that quarter when we had the net redemptions. So the product is alive and well. And our commitment to the whole thing is demonstrated by what Ray just mentioned, namely the new ETF. Maybe that wasn't the best time to come out with it. But on the other hand, it's a long-term look at a viable product for the long term.

Yep. That's a great perspective. Thank you.

Thank you very much. Your next question is coming from John Dunn from Evercore ISI. John, your line is live.

Good morning. Thank you. Maybe continuing on the theme of money market roll-ups, can you frame for us, you know, with the higher rates, with closer to the plateau, and maybe some more certainty around regulation, how do smaller players look at that environment, maybe the guys in the 10 to 25 range? Does it give them more confidence of joining up with someone bigger, or it doesn't work that way and it's just more episodic?

It depends on... how the money got in there, and who controls the money at the moment of redemption. So there are 50, maybe 60 listed money market fund players. The top 25 have all the assets. The top 20 are the only ones who really compete for the big assets. And it all depends on how that fits into your regular business. So we have a sales force that goes around and calls on all the players in the money market fund business to, as Tom pointed out, be a warm and loving home should they decide to change their mind on doing this. And it's episodic. There was no avalanche after the last go-round of SEC regulation. I don't expect an avalanche out of this one. But periodically, CFOs, CEOs, and managers decide that the time has come, the walrus said, to get out of it. That's what we're looking for. So I don't believe it'll be a catalyst to an avalanche.

Gotcha. And then you talked about strategic value dividend. But outside of that, can you talk a little more about your other equity strategies that you think can pick up in demand to kind of soak up some of those redemptions from SVD?

Well, the two MDT offerings have been very excellent, the large-cap and the mid-cap growth, picking up both regular fund business and large institutional business, and their growth is excellent. You look at the International Leaders Fund, that's another one that has excellent performance across the timeframes. and is a very good offering inside the retail distribution. If you go across the pond and you look at Asia X Japan, this fund is outstanding in terms of its flows and performance. The GEMS product, the Emerging Markets Fund, also continues to win institutional mandates. I'm probably skipping some of my children whom I love dearly, but those are ones that pop up immediately.

Great, thank you.

Thank you very much. Your next question is coming from Ken Worthington of JP Morgan. Ken, your line is live.

Hi, good morning, and thanks for taking the questions. Chris, SEC filings suggest you sold a substantial portion of the stock that you owned during 2Q. Some digging suggests that some of this was done by a trust and others were just transfers to other vehicles controlled by your family. But the end result seems like your direct interest in federated is substantially lower than it has been in the past. So maybe first, can you explain, you know, uh, what appears to be selling during the quarter? How much stock do you directly own at this point? And is that enough to adequately adequately align your interest with shareholders?

Well, as I just said, I love my children, too. And so there was no selling of the stock. There was transfers in trusts that are controlled inside our family, meaning me, eight kids, six spouses, and 40 grandchildren. And as to my commitment to the enterprise, it goes way beyond the stock interest in terms of our family and my commitment in terms of what's going on. I don't know exactly how many shares I have right now. I could find that out and get back to you on that one. But the big bunch of shares are still owned by the family and are still very, very much a role in adding incentive. But what I'm telling you is there's plenty of incentive in this whole family to keep the ball rolling. Remember, not almost 20% of that stock is owned inside the fort and counting the family enterprise. And so it's a very good deal. Now, one thing that did occur was that my mom, who passed away December 12 of last year, did sell her shares of which I am the trustee. And so that, in effect, counts against me. But that's all related to distributions due to estate planning to various entities, various charities, and various children and grandchildren and great children. P.S., the 179th great-grandchild of my mother was born two days ago.

Congratulations for that. Um, uh, and thank you for answering, uh, just as a follow up, um, money market fund share, you highlighted fell from 7.4 to 7.2% in two Q and the dynamics for retail and institutional highlighted by Debbie for two Q were true for your peers, as well as for you during the quarter. So what drove the law share in two Q and would you expect that law share to rebound in the second half of the year?

Debbie? Sure.

I think what drives it is that if you look at other money fund providers that have a larger retail presence than we do, and that retail sector being the largest growth sector, disadvantages us to some degree during an environment when retail is growing more than institutional. We do expect that to even itself out as rates increase only in a minor way going forward, plateau, and then ultimately start going down in a slow fashion back down again. we do expect that to influence then the institutional side of flows in a much larger way where we play a larger role in that market.

Okay, great.

Thank you very much.

Thank you. And that appears to be all the questions that we have in the queue today. I'm going to hand back over to the management for any closing remarks.

Thanks very much. And that concludes our call. Thank you for joining us today.

Thank you, everybody. That does conclude today's conference call. You may disconnect your phone lines at this time and have a wonderful day and a wonderful weekend. Thank you for your participation.