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

Good day, everyone, and welcome to the Federated Hermes, Inc. Annual Shareholder Meeting. [Operator Instructions] It is now my pleasure to turn the floor over to your host, Chris Donahue. Sir, the floor is yours.

Thank you, and good afternoon. I'm Chris Donahue, the Chairman, President and Chief Executive Officer of Federated Hermes, Inc., and I would like to welcome you to Federated Hermes Annual Meeting of Shareholders. The program today will consist of a brief business meeting to be followed by some comments on the company then a brief question-and-answer period for shareholders of the company. Before we begin the business portion of the meeting, I'd like to introduce certain individuals joining me on the conference line. On the line, Peter Germain, Executive Vice President, Secretary, Chief Legal Officer of Federated Hermes, Inc.; listening on the line, Joe Bartolacci, Director, Federated Hermes, Inc., and he is the President and Chief Executive Officer, Matthews International Corporation; Michael J. Farrell, Director of Federated Hermes, Inc. and President of Farrell & Co; Marie Milie Jones, Director, Federated Hermes, Inc. and Founding Partner of JonesPassodelis, PLLC; Thomas R. Donahue, Director, Vice President and Chief Financial Officer, Federated Hermes, Inc.; John B. Fisher, Director, Federated Hermes, Inc., President and Chief Executive Officer of Federated Advisory Companies; Saker Nusseibeh, Chief Executive Officer, Federated Hermes Limited; Dolores Dudiak, Vice President and Director of Human Resources; Robert Ostrowski, Chief Investment Officer for Taxable Fixed Income; Michael Granito, Chief Risk Officer, Federated Hermes, Inc. I would also like to introduce Mike Haver, Leon Hoffman, Dan Quirk, and Leah Oakes, representatives from Ernst & Young LLP, 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 Irrevocable 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 Irrevocable Trust are represented and present on the line.

The secretary's report indicates a quorum is present for the company and that the meeting is now lawfully convened and ready to transact business. The item of business for today's meeting is the election of directors to serve until the next Annual Meeting of Shareholders and election and qualification of their successors. Mr. Secretary, would 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 company 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 B. Fisher and Marie Milie Jones.

Mr. Secretary, the Voting Shares Irrevocable Trust hereby votes to elect each of the nominees for director. Now 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 been voted affirmatively for each of the nominees for director.

Thank you. As all the shares entitled to vote have voted in favor of the nominees 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. At this point, I would like to comment on our business results, after which I'll be happy to entertain questions from shareholders during our brief Q&A period. Before beginning my comments, it's my pleasure to announce that the Board of Directors at a meeting immediately prior to this meeting declared a dividend of $0.28 a share to be paid on May 15 of '23 to shareholders of record as of May 8 of '23. If you'd like information on the most recent quarter, our news release announcing the final results of the quarter is being released this afternoon, will be available on the SEC website and will be available on our website as well. You are welcome to listen to our quarterly earnings call, which we will report financial and operating results for the first quarter. The earnings call will be tomorrow, Friday, at 9:00 Eastern Time. Shareholders interested in listening should call (888) 506-0062 domestic, (973) 528-0011 international or visit federatedinvestors.com for real-time Internet access. To listen online, you can go to the About section of federatedinvestors.com at least 15 minutes prior to register and join the call. So I'll begin with some comments about our Q1 '23 results before moving to the full year '22 results. As for the first quarter of '23, total managed assets reached a record $701 billion. The record assets were driven by significant increases in money market assets, which also reached a record of $506 billion. Federated Hermes has seen flows into our money market strategies since the Federal Reserve began its interest rate hike cycle in March of '22. Our money market flows were particularly strong in Q1 '23 as interest rates continue to rise, and investors also weighed regional banking issues. As many investors withdrew deposits from small- and medium-sized banks, they continue to embrace the benefits of money market funds: high credit quality, short duration, diversification, transparency, daily liquidity and market yields. Our record money market assets under management were accompanied by increases across all other classes from the previous quarter, demonstrating once again our diversified business mix, what we call our franchise for all seasons. In Q1 of '23, we also had record assets for money market funds, total funds, fixed income separate accounts, total long-term separate accounts, money market separate accounts and total separate accounts. Well, let's talk about '22. As we look back at our performance in 2022, as this is the annual meeting, market volatility and an inflationary global economy presented challenges. Investors continue to value our investment perspectives, and Federated Hermes' strategic business mix proved to be well positioned. Overall, assets under management achieved then-record $669 billion at year-end, up 6% from the previous year. Diluted earnings per share were $2.65 on net income of $240 million in '22. Our performance enabled us to maintain our commitment to delivering shareholder value. In 2022, we paid shareholders 4 quarterly dividends of $0.27, which included our 100th consecutive dividend payment in the fourth quarter, bringing total dividends for the year to $1.08. Asset growth was driven by increased assets in money market funds and separate accounts, sales in our flagship Federated Hermes Total Return Bond Fund and related fixed income separate accounts and continued demand for our popular dividend income equity products. Investors also sought haven in our low-duration fixed income options and alternatives such as market-neutral and bear market strategies. The Federated Hermes Strategic Value Dividend Fund led our equity funds with $2.3 billion in 2022 net positive sales. The fund invests in lower-volatility, income-producing companies that are believed to be in strong financial positions and have demonstrated resilience through business and economic cycles. In fixed income, our flagship strategy Federated Hermes Total Return Bond Fund had 2022 net positive sales of approximately $900 million, benefiting from a solid long-term performance record. In the alternative and private markets, Federated Hermes Prudent Bear Fund had net sales of almost $400 million for the year. Among other last year highlights for the firm, we increased money market assets by $29 billion, 37% from the prior year. Long-term asset categories, which comprise equity, fixed income, alternative/private markets and multi-assets, drove 59% of the firm's $1.4 billion in total revenue. Federated Hermes acquired substantially all of the assets of the Chicago-based C.W. Henderson and Associates, a specialist in municipal bond, separately managed accounts, that kind of products, which at the time of the acquisition had about $3.5 billion in assets under management. The acquisition built upon our strengths in offering our clients and fund shareholders choices across a variety of investment vehicles, including our then-record $231 billion in separate account assets, of which $32 billion were in SMAs. We launched the active, transparent Federated Hermes U.S. Strategic Value Dividend ETF, which seeks income and long-term capital appreciation by investing primarily in high dividend-paying U.S. stocks with dividend growth potential. This marked Federated Hermes' third ETF product following the '21 introduction of 2 active fixed income products: the Federated Hermes Short Duration High Yield ETF and the Federated Hermes Short Duration Corporate ETF. We launched 2 UCITS funds for non-U.S. investors: the Federated Hermes Biodiversity Equity Fund and the Federated Hermes Global Emerging Markets ex-China Fund. Looking ahead, we will continue to invest in areas for growth in a competitive environment. In '22, we made significant investments in technology, including customer relation, management tools, enterprise data and communications for regional consultants. We further diversified our product mix in '22 by growing assets in private markets, which include private equity, real estate, infrastructure and private credit. Private markets represent nearly $20 billion of assets under management. We also will continue to monitor the regulatory environment for the pace of new, proposed and final laws. Rules and regulations and other regulatory activity increased in '22 and is expected to continue at a rapid pace. As a leading global investment manager, Federated Hermes has and will continue to participate actively in the debate, especially surrounding mutual fund and money market fund reforms with the goal of ensuring that investors have the benefits of professional management, diversification and access to the capital markets to help them meet their goals. None of our accomplishments would be possible without the hard work and dedication of our more than 2,000 employees. I thank them for their tireless effort to build strong, vibrant and a resilient company. They have helped our business thrive for nearly 7 decades. In closing, I thank you, our shareholders, for the trust and confidence you place in Federated Hermes. Now prior to taking questions, I'd 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 within 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' questions should not ask for information that has already been discussed. Questions related to the corporation and its business results -- and its business, results of operation, financial conditions or business plans are appropriate. Unfortunately, not all questions may be answered.

The operator will now take questions from shareholders.

[Operator Instructions] There are no questions in queue at this time.

Thank you. Then that concludes our question-and-answer period, and the teleconference will now conclude. Good day.