Federated Hermes, Inc. (FHI) Earnings Call Transcript & Summary

Greetings, and welcome to Federated Hermes Annual Shareholder meeting. [Operator Instructions] I will now turn the conference over to your host, Chris Donahue, President and CEO of Federated Hermes, Inc. You may begin.

Thank you very much, Sherry. And I am Chris Donahue, Chairman of this meeting; and President and Chief Executive Officer of Federated Hermes, Inc. And I would like to welcome you all to Federated Hermes Annual Meeting of Shareholders. Now while we've begun to emerge from the unprecedented effects of the pandemic and its challenges, in the interest of our shareholders, directors, officers and employees, the Board of Directors has once again decided it was prudent to conduct this meeting by way of teleconference. The program, today, as indicated, will consist of a brief business meeting, followed by some comments on the company by me and then a brief question-and-answer period for shareholders of the company. Before we begin the business portion of the meeting, I would like to introduce certain individuals joining us on the conference line. Peter Germain, Executive Vice President, Secretary and Chief Legal Officer, Federated Hermes Inc.; Joe Bartolacci, Director, Federated Hermes Inc., President and Chief Executive Officer of Matthews International Corporation; Mike Farrell, Director, Federated Hermes, Inc., President of Farrell and Company; Marie Jones, Director, Federated Hermes Inc, Founding Partner, JonesPassodelis, PLLC, that's a law firm; Tom Donahue, Director, Vice President and Chief Financial Officer of Federated Hermes, Inc.; John B. Fisher, Director, Federated Hermes, Inc., and President and Chief Executive Officer of Federated Advisory Companies; Paul Uhlman, Vice President, Federated Hermes, Inc., and President of Federated Securities Corp; [ Debbie ] Cunningham, Chief Investment Officer for Global Money Markets; Steve Auth, Chief Investment Officer for Global Equity; and Dolores Dudiak, Vice President, Federated, Hermes, Inc., Director, Human Resources. I would also like to introduce Mike Haver, [ Arbor Hupmana ] and Lea Oakes, representatives from EY, the independent auditors for the company. Now in accordance with the amended bylaws of Federated Hermes, Inc., I will act as Chairman of the meeting, and Mr. Germain will act as Secretary of the meeting and inspector of elections. Mr. Secretary is there a quorum present?

Mr. Chairman, only the voting shares of revocable trust as the holder of the Class A common stock of the corporation is entitled to vote at this meeting, and the trustees of the voting shares in revocable trust are represented and present on the line.

Thank you. The Secretary's report indicates that the Quorum is present for the corporation, and the meeting is now lawfully convened and ready to transact business. The items of business for today's meeting are: the election of directors to serve until the next annual meeting of shareholders and the election and qualification of their successors. Mr. Secretary, will you please report on the nominations for Director.

Mr. Chairman, the Board of Directors has nominated the following individuals for election as directors of the corporation to serve until the next annual meeting of shareholders and the election and qualification of their successors, Joseph C. Bartolacci, J. Christopher Donahue, Thomas R. Donahue, Michael J. Farrell, John D. Fischer; and Marie Milie Jones.

Mr. Secretary, the voting shares revocable trust hereby votes to elect each of the nominees for Director. As inspector of elections, would you please report on the votes cast for the election of directors?

Mr. Chairman, in the matter of the election of directors, all of the shares of Class A common stock, which constitute all of the shares entitled to vote have voted affirmatively for each of the nominees for Director.

Thank you. As all of the shares entitled to vote have voted in favor of the nominee standing for election as directors, the nominees are duly elected.

Mr. Chairman, I move that the meeting be adjourned.

If there is no objection, I declare the meeting duly adjourned. Now at this point, I would like to comment on the past year, after which, I will be happy to entertain questions from shareholders during a brief question-and-answer period. Before beginning my comments, it's my pleasure to announce that the Board of Directors had a meeting immediately prior to this meeting, declared a dividend of $0.27 per share to be paid on May 14, 2021, to shareholders of record as of May 7, 2021. If you would like information on the most recent quarter, our news release announcing the final results for the quarter is being released this afternoon and will be available on the SEC website at www.secgov.gov, and will be available on our website at www.federatedhermes.com. You're also welcome to listen to our quarterly earnings call, during which we will report financial and operating results for the quarter ended March 31, 2021. The earnings call will be held tomorrow, Friday, April 30 at 9:00 Eastern Time. Shareholders interested in listening to the conference call should dial (877) 407-0782 domestic or (201) 689-8567 international or visit federated hermes.com for real-time Internet access. To listen online, you can go to the Investors Relations section of the website and the Analyst information tab at least 15 minutes prior to register and join the call. Now as the U.S. and other nations are emerging from the effects of the pandemic and all the mitigation efforts, the Board of Directors of Federated Hermes has decided, as I mentioned, that a teleconference was the best way to go. Since the outset of the pandemic a little more than a year ago, our employees have shown resilience in meeting internal and external client needs. For much of the year, more than 95% of our 2,000 person global workforce have been working remotely, and the company has successfully remained fully functional. I want to acknowledge the dedication and ingenuity of the company's employees during these unprecedented times and thank them for their perseverance. With more than half of the U.S. now vaccinated and the pace of shots and jabs accelerating, we can begin to think about a return to the office. Employees who choose to do so are returning to the office now. In-person collaboration has always been and will continue to be an important part of the Federated Hermes culture, and we look forward to our employees returning to the office in 2021, and we will be announcing our specific plans soon. The Q1 2021 highlights are as follows: at the end of the first quarter of this year, Federated Hermes reached quarterly records for gross equity fund sales, $5.6 billion and gross fixed-income fund sales, $9.2 billion. We also reached quarterly records for equity fund net sales $1.2 billion and total fund net sales of $3.5 billion. Investment performance, combined with the efforts of our global sales consultants helped Federated Hermes reach new record highs in equity assets, $96.2 billion, in fixed-income assets, $86.5 billion and alternative and private markets of $19.3 billion. And those assets and classes together helped bring our total long-term assets to a new record high of $206 billion at the end of the first quarter. Overall, Federated's total assets under management have reached $625 billion at the end of the first quarter here in '21. Earlier this week, we also announced an agreement with Horizon Advisers to acquire more than $0.5 billion in equity and fixed-income assets. We expect that the transition to close late in the third quarter of 2021. We continue to look for additional roll-up opportunities with insurers, banks, broker-dealers and investment advisers as they evaluate their long-term plans. Now let's look at the full year of 2020. After all, this is the annual meeting. As the next step in the company's strategy, we rebranded in 2020 as Federated Hermes Inc., building on our acquisition of London-based Hermes fund managers limited from back in 2018. To reinforce our new brand, we also renamed our product line globally to reflect the new Federated Hermes identity and introduced a new ticker symbol, FHI, for our company's stock on the New York Stock Exchange. As Federated Hermes, we are focused on providing world-class active investment management and engagement services, the target financial outperformance across a wide range of asset classes for our clients around the world, all done in a sustainable and responsible way. Now ESG is a growing part of investment management in the U.S. and globally. In 2020, our investment management teams made tremendous progress in integrating ESG factors into their research and decision-making processes. Today, 98% of Federated Hermes managed assets incorporate ESG factors alongside traditional financial analysis. We have also expanded the EOS at Federated Hermes stewardship team with 13 new hires since Q4 '19, 10 in the U.S., 3 in the U.K., bringing the total number of professionals working across our stewardship and responsibility teams to 67. In 2020, our EOS assets under stewardship advice reached a then record $1.3 trillion. And assets today have since grown to $1.5 trillion. Our U.S. investment teams had strong performance in a diverse range of fixed-income offerings and in equities across growth, value, dividend income and international products. At the end of 2020, 10 U.S. fixed-income funds had top quartile 3-year performance, according to Morningstar, and 17 funds were above their media. A majority or 19 of our equity funds beat their peers for the 3-year performance. Additionally, nearly 2/3 of global and international funds managed in the U.S. beat their peers over the same period. Based on ratings for 3-year performance, more than 60% of equity and fixed-income funds managed out of London, beat their peers. In light of this performance, the ability of our sales force to adapt to the pandemic and our continued exceptional client service, we saw record annual gross mutual fund sales in 2020. We also increased net sales of long-term asset categories, including both funds and separate accounts, and this was by almost $8 billion over the prior year. Among the other 2020 highlights, despite the low yield environment, Federated Hermes finished the year with $420 billion in money market assets, an increase of $25 billion or 6% from the prior year. We launched the Federated Hermes U.S. SMID fund and a model delivery SMA in the same investment strategy. We introduced the Federated Hermes U.S. high-yield credit fund and Irish UCITS fund managed by a U.S.-based investment team and distributed by the international business sales team. We acquired MEPC Limited, a leading U.K. commercial real estate developer and asset manager, which focuses on urban regeneration projects that have a positive impact on the environment and communities in which they are located while also increasing value. We completed the acquisition of Hermes GPE, a private equity and infrastructure manager that focuses on creating sustainable returns for investors. Looking ahead, we will continue to invest in these areas for growth in a competitive environment. We are facing several headwinds in 2021. The low interest rate environment has negatively impacted the yields available to money market funds. The potential for new money market regulations also present challenges. We also face a challenge from the specter of higher corporate taxes. Yet our achievements and performance in the face of recent challenges enabled us to maintain our commitment to delivering shareholder value. In 2020, we paid you, our shareholders, a special cash dividend of $1 per share, bringing total 2020 dividends to $2.08 per share. The November 2020 dividend payment marked our 5th special dividend, which have totaled $7.53 over 12 years. In closing, I'd like to thank our shareholders. We value your continued support as Federated Hermes grows and pursues a future in which responsible investing is the way to create wealth over the long term. Now prior to taking questions, I would like to ask Mr. Germain to explain the guidelines.

We will conduct a brief question-and-answer period for only shareholders of the company. In order to allow for an orderly shareholder question-and-answer period and to allow time to ask questions when in the time allotted, we have established the following guidelines. Questions will only be taken from shareholders of the company. Please indicate to the operator that you are a shareholder of Federated Hermes, Inc. and let the operator know what your question is. Shareholders' question should not ask for information that has already been discussed. Questions related to the corporation and its business, results of operations, financial condition or business plans are appropriate. Unfortunately, not all questions may be answered.

So the operator will now take questions from shareholders and do not let a pause disturb you.

[Operator Instructions] There are no questions at this time. I would like to turn the conference back over for closing remarks.

Thank you very much. Have a great day.

Thank you. This does conclude today's meeting. You may disconnect your lines at this time, and thank you for your participation.