Federated Hermes, Inc.

Good day, and welcome to the Federated Investors Management Company Q3 2024 Analyst Call and Webcast. At this time, all participants are on a listen-only mode. After management's prepared remarks, there will be a question-and-answer session. I would now like to turn the call over to the President of Federated Investors Management Company, Ray Hanley. The floor is yours.

Good morning, and welcome to the FHI Q3 call. And leading today's call will be Chris Donahue, CEO and President of Federated Hermes, and Tom Donahue, Chief Financial Officer. Joining us for the Q&A are Sacher Nasebi, the CEO of Federated Hermes Limited, and Debbie Cunningham, the Chief Investment Officer for 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. Good morning, all. I will review Federated Hermes' business performance, and Tom will comment on our financial results. We ended Q3 with record assets under management of $800 billion. driven by money market assets of $593 billion and record fixed income assets of $100 billion. Looking first at equities, assets increased by $5.7 billion from Q2 to $83.6 billion due mainly to market gains of $6.5 billion, partially offset by net redemptions of $1.4 billion. The strategic value dividend strategies had net redemptions of $779 million in the funds in the SMA combined, whereas in Q2, that negative number was $1.9 billion. We had Q3 positive net sales in 15 equity strategies, including MDT mid-cap growth, MDT large-cap growth, MDT all-cap core, and U.S. SMID Equity Usage Fund. We continue to have success growing our MDT fundamental quant strategies and have recently expanded the MDT product set. This year, through the end of Q3, MDT fund and SMA strategies have had about $2.2 billion in net sales compared to a little over $400 million in net sales in 23. In Q3, we expanded the distribution opportunities for MDT strategies with the launch of four new active ETFs and one new collective investment trust. We continue to look to these kinds of product enhancements and a variety of strategies to strengthen growth opportunities in domestic and international markets. Looking at our equity fund performance at the end of Q3 and using Morningstar data for the trailing three years, 59% of our equity funds were beating peers, and 41% were in the top quartile of their category. For the first three weeks of Q4, combined equity fund and SMAs had net redemptions of $51 million. Turning now to fixed income. Assets increased by about 4.9 billion in Q3 to a record high of 100.2 billion. Fixed income funds had Q3 net sales of 305 million, and fixed income separate accounts had net sales of 1.1 billion. The total fixed income net sales, therefore, were 1.4 billion compared to $1.4 billion of net redemptions in the second quarter. Fixed income fund net sales were driven by about $515 million of combined net sales in total return bond fund, ETF, and collective investment fund. Fixed income separate account net sales were driven by institutional multi-sector strategies and by the Core Plus SMA strategy. We had 21 fixed income funds with positive sales in Q3, including total return bond fund net sales previously mentioned and the government ultra-short fund. Regarding performance, at the end of Q3, using Morningstar data for the trailing three years, 37% of our fixed income funds were beating peers and 18% were in the top quartile of their category. For the first three weeks of Q4, combined fixed income funds and SMAs had net sales of $365 million. In the alternative private markets category, assets increased by $622 million in Q3 to $20.7 billion, due mainly to the impact of FX rates partially offset by net redemptions. We are in the market with three programs. The Federated Hermes GPE Innovation Fund II, which is the second vintage of our Pan-European Growth Private Equity Innovation Fund. The first close in this mandate was in 23 for approximately $110 million. Our target raise is $300 million. The first vehicle raised about $240 million. Next, European Direct Lending III, the third vintage of our European Direct Lending Fund. We had our first close in Q3 for approximately $235 million. Our target raise is $750 million. EDL I raised about $300 million and EDL2 raised about $640 million. Next, European Real Estate Debt Fund, a new pooled European debt fund. We're targeting a Q1 first close and plan to continue marketing in 2025. Our overall target is $300 million. We are also developing the Global Private Equity Co-Invest Fund, the sixth vintage fund, of the PEC series, P-E-C, targeting a Q1 launch. The target raise is $500 million. PECs 1 through 5 raised about $400 to $600 million in each fund. We began Q4 with about $1.5 billion in net institutional mandates yet to fund into both funds and separate accounts. About $1.4 billion of total net wins is expected to come into private market strategies, with wins in private equity and direct lending and outflows in absolute return credit. Fixed income expected net additions are about $1 billion, with wins in ultra-short duration, sustainable investment grade credit, emerging market debt, core ag, government bond, with a modest known loss in high yield. For equities, we have 644 in wins, offset by $1.5 billion of known redemptions. Nearly all of that is from a subadvisory account that will be internalized by the fund sponsor in Q4. Moving to money markets. In Q3, we reached another record high for money market fund assets of $440 billion and total money market assets of the aforementioned $593 million. Total money market assets increased by $6.4 billion in Q3 as money market fund gains of $14.8 billion were partially offset by seasonal money market separate account asset decreases of $8.4 billion. Our money market fund assets peaked at about $447 billion on September 23rd and decreased by about $7 billion over the last couple days of the quarter. We believe a late quarter jump in SOFR rates led to certain investors shifting some assets into the direct market. We also saw certain large clients using money market fund assets to pay down debt going into quarter end. Q3 saw the first of several expected reductions in the Fed funds target rate, driving substantial growth in industry money market fund asset levels, particularly in August and September. Looking ahead for the rest of 24 and into 25, we believe that market conditions for money market strategies will continue to be favorable and that money market fund yields will continue to be attractive compared to the direct market and bank deposit rates. Our estimate of money market mutual fund market share, including subadvised funds, was about 7.32% at the end of Q3, down from about 7.45% at the end of the second quarter. Looking now at recent asset totals as of a few days ago, Managed assets were approximately $799 billion, including $594 billion in money markets, $83 billion in equities, $99 billion in fixed income, $20 billion in alternative private markets, $3 billion in multi-asset. Money market mutual fund assets were $441 billion. Tom? Thanks, Chris.