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, Christopher Donahue, President and CEO of Federated Hermes, Inc. Sir, the floor is yours.

Thank you, and good afternoon. I'm in fact am Chris Donahue, President and Chief Executive Officer of Federated Hermes, Inc., and I would like to welcome you to the 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 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 me. Joining me in the room are Joe Bartolacci, Director of Federated Hermes, Inc. and he's also President and Chief Executive Officer of Matthews International Corporation; Karen Hanlon, Director of Federated Hermes, Inc. and Chief Operating Officer of Highmark Health; and Marie Jones, Director of Federated Hermes, Inc. and Founding Partner of JonesPassodelis law firm; Tom Donahue, Director, Vice President and Chief Financial Officer of Federated Hermes, Inc.; John Fisher, Director, Federated Hermes, Inc. and President and Chief Executive Officer of Federated Advisory Companies; Peter Germain, Executive Vice President, Secretary and Chief Legal Officer, Federated Hermes, Inc; Dolores Dudiak, Vice President and Director of Human Resources; Debbie Cunningham, Chief Investment Officer for Global Liquidity Markets; Mike Granito, Chief Risk Officer of Federated Hermes, Inc.; and Ray Hanley, President of Federated Investors Management Company. Joining me on the line is Steve Auth, Chief Investment Officer for Equities. I would also like to acknowledge Leah Oakes, Dan Quirk and Greg Staude, representatives from E&Y, the independent auditors for the company. Now before getting started, on behalf of Federated Hermes, Inc., its Board of Directors and its employees and shareholders, I would like to acknowledge the untimely passing of Mr. Michael J. Farrell on August 16, 2024. Mike was an Independent Director of Federated Hermes, Inc. since our initial public offering in 1998. His intellect, experience, business acumen and friendship will be greatly missed. Now I would like to call to order this Annual Meeting of Shareholders of Federated Hermes, Inc. to order. 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 Class A common stock of the company 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 the election and qualification of their successors. Mr. Secretary, would you please report on the nominations for director?

Mr. Chairman, the Board of Drifters has nominated the following individuals 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, John B. Fisher, Karen L. Hanlon and Marie Milie Jones.

Mr. Secretary, the Voting Shares Irrevocable Trust hereby votes to elect each of the nominees for director. As inspector of election, would you please report on the votes cast for the election of directors?

Mr. Chairman, in the matter of the election of the directors, all of the shares of Class A common stock, which constitutes 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 nominees standing for election as directors, the nominees are duly elected.

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

There is no objection. I declare the meeting duly adjourned. Now at this point, I would like to comment on our business results, after which I'll 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 at a meeting immediately prior to this meeting declared a dividend of $0.34 a share, which is an increase of 9.7% over the previous quarter. The dividend is payable on May 15 to shareholders of record on May 8, 2025. If you would like information on the most recent quarter, our news release announcing the financial results for the quarter is being released this afternoon and will be available on the SEC website at www.sec.gov and available on our website at www.federatedhermes.com U.S. You are also welcome to listen to our quarterly earnings call, during which we will report financial and operating results for the quarter ended March 31, 2025. The earnings call will be tomorrow, Friday, April 25 at 9:00 a.m. Eastern Time. Shareholders interested in listening to the conference call should dial (888) 506-0062 domestic or (973) 528-0011 international or visit federatedhermes.com for real-time Internet access. To listen online, you can go to the About section of federatedhermes.com U.S. at least 15 minutes prior to register and join the call. Now I will begin with some comments about our Q1 '25 results before moving on to discuss the full year '24 results. So let's begin Q1 '25. At the end of the first quarter, Federated Hermes total managed assets reached a record $840 billion. The record assets were driven by increases in money market assets, which also reached a record of $637 billion. Federated Hermes has continued to see flows into our money market strategies as investors have sought haven from market volatility and benefited from the yield advantages of money market products that they have over bank deposits and some securities in the direct market. Our record money market assets under management were accompanied by increases in equity and fixed income asset classes from the previous quarter, demonstrating once again our diversified business mix. Yes, a franchise for all seasons. Our first quarter also saw record assets for money market funds, total funds, money market or short-term separate accounts and total separate accounts as well. Finally, on April 7, 2025, we acquired through Federated Hermes Limited, a majority stake in Rivington Energy Management Limited, a leading U.K.-based renewable energy project development business. This acquisition combines specialist project development expertise with Federated Hermes' institutional investment and asset management capabilities. The Rivington business joins Federated Hermes' existing infrastructure platform, which provides institutional investors with cost-effective access to high-quality infrastructure equity investments across the U.K. and Europe. So that's Q1. Let's talk about 2024. As central banks worldwide began lowering rates, the Federal Reserve began reducing its federal funds rate by cutting rates 3x and settling in at a range of 4.25% to 4.5% in December of '24. In this environment, our money funds continue to offer the opportunity for a yield advantage again when compared to securities in the direct market, specifically overnight securities and those with floating rates, which generally adjust more quickly to actions by the Fed. All segments of our liquidity offerings: government, prime and municipal provided sensible cash management resources and opportunity for attractive returns. Asset growth was driven by increases in money market fund and separate accounts, where the '24 investing climate made the elevated yields of our liquidity offerings an appealing haven for investors. Many other diversified offerings helped us to continue to serve our customers' needs. We had strong net sales in our flagship core offerings, Federated Hermes Total Return Bond Fund and its related fixed income separate accounts. We also saw continued demand for our popular MDT equity strategies, which utilize our proprietary alpha-generating quant model. By distributing our diverse mix of investment offerings that provide customer solutions in a variety of market conditions, Federated Hermes achieved growth in assets over 9 consecutive year-over-year periods. Overall, assets under management achieved a then record $830 billion at the end of '24, up 10% from the prior year. Basic and diluted earnings per share was $3.23 on net income of $268 million in' 24. Our performance enabled us to maintain our commitment to delivering shareholder value: 4 quarterly dividends, one at $0.28 a share, followed by 3 at $0.31 a share, along with a $1 special dividend brought dividends to a total of $2.21 per share in '24. Among the other 2024 highlights for the company, we increased money market assets by $70 billion over 2023. We expanded our MDT quantitative offerings with the launch of 4 MDT ETFs and an MDT Collective Investment Fund. We launched the Federated Hermes Total Return Bond ETF. We reached a record $565 billion in fund assets. We achieved record gross sales in fixed income separately managed accounts, SMAs. We expanded our global presence as well with an office in Zurich, Switzerland. Private markets also represent an important diversification strategy and growth opportunity for the company. And our alternative private market strategies had approximately $19 billion of assets under management at year-end. Private markets, as you know, include private equity real estate infrastructure and private credit. Looking ahead, we will invest in areas for growth in a competitive environment, committing to a series of projects that will deliver a business built for our global customer base. 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 efforts to build a strong, vibrant and resilient company. I am confident that we are in a strong position in '25 with continued opportunities for growth. In closing, I thank you, our shareholders, for the trust and continued confidence you place in Federated Hermes. The end. Now prior to taking questions, I'd like Mr. Germain to explain the rules of the road.

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 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're 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 company and its business, results of operations, financial condition or business plans are appropriate. Questions relating to personal matters, including those related to employment, are not pertinent to the annual meeting and, therefore, will not be answered. Unfortunately, not all questions may be answered.

So the operator will now take questions from shareholders.

[Operator Instructions] That concludes our Q&A session. I'll now hand the conference back to our host for closing remarks. Please go ahead.

Thank you very much, and that ends our teleconference. All the best to everyone.

Thank you. Everyone, this concludes today's event. You may disconnect at this time, and have a wonderful day. Thank you for your participation.