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01/10 16:34
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Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
The earnings call summary presents mixed signals. Record high AUM and revenue increases are positive, but the restructuring led to asset decreases. The pause in share repurchase and high-yield bond redemptions are concerning. The Q&A section reveals management's lack of specific guidance and expense increases due to acquisitions and digital initiatives, causing uncertainty. The company's market cap suggests a moderate reaction, leading to a neutral overall sentiment.
Assets Under Management (AUM) Record high of $871 billion, an increase driven by gains in money market and equity strategies. Equity assets rose by $5.7 billion (6%) from the prior quarter due to market gains.
Equity Net Sales Slightly negative at $130 million in Q3, as $1.4 billion in net fund sales were offset by $1.5 billion in separate account net redemptions. Reasons include client shifts to passive ETFs and pension fund mergers.
MDT Equity Strategies Net sales of $2 billion in Q3. Strong performance with 7 out of 8 mutual fund strategies in the top quartile for trailing 1 and 3 years, and all 8 in the top quartile for trailing 5 and 10 years.
Fixed Income Assets Increased by $3.1 billion from the prior quarter to $101.8 billion, a record high. Net sales improved by $4.1 billion, with $1.7 billion in Q3 net sales compared to $2.4 billion in net redemptions in Q2. Reasons include inflows from two large public entities.
Alternative Private Markets Assets decreased by $1.7 billion from the prior quarter, mainly due to $1.1 billion in real estate fund transactions and $446 million in net redemptions from separate accounts. Reasons include property sales and restructuring of the U.K. Property Trust.
Money Market Assets Record high of $653 billion, an increase of $18 billion in Q3. Money market fund assets rose by $24.7 billion (5%) to $492.7 billion, while separate accounts decreased by $6.3 billion due to seasonal patterns.
Revenue Increased by $44.6 million (10%) from the prior quarter. Drivers include $17.6 million from higher money market assets, $14.8 million from higher equity assets, and $4.6 million from a termination fee related to the U.K. Property Trust restructuring.
Operating Expenses Increased by $32.2 million (10%) from the prior quarter. Reasons include $14.2 million in higher distribution expenses due to higher fund assets, $2 million in transaction costs for the FCP acquisition, and $9.4 million in FX-related expenses.
MDT U.S. equity UCITS fund: Launched in June, it has already achieved $340 million in net sales from inception through last week.
European Direct Lending III: The third vintage of the European direct lending fund has closed on about $680 million so far.
Global private equity co-investment fund: The sixth vintage of the PEC series has closed on approximately $318 million.
European real estate debt fund: A new pooled debt equity fund, with marketing continuing into 2026.
Tokenized money market funds: Two UCITS money market funds (Sterling Prime and U.S. dollar Prime) are now available in tokenized form through Archax.
FCP acquisition: Federated Hermes announced the agreement to purchase a controlling interest in FCP, a U.S.-based real estate investment manager with $3.8 billion in assets under management. This acquisition facilitates entry into the U.S. real estate market, particularly in the multifamily sector.
MDT distribution outside the U.S.: Actively developing MDT distribution opportunities outside the U.S., with considerable interest from institutions and intermediaries.
Record assets under management: Achieved $871 billion in assets under management, with $653 billion in money markets, $96 billion in equities, and $102 billion in fixed income.
Money market fund growth: Money market fund assets increased by $24.7 billion or 5% in Q3, reaching a record high of $492.7 billion.
Digital asset initiatives: Federated Hermes is working on digital asset infrastructure, including tokenized money market funds and blockchain-based ownership records for money market funds.
Energy Solutions product development: Following the Q2 acquisition of a majority interest in Rivington, Federated Hermes is actively working on Energy Solutions product development plans.
Digital asset focus: Federated Hermes is committed to innovation and growth in the digital space, exploring numerous digital asset opportunities.
Equity Net Sales: Equity net sales were slightly negative, with $130 million in net redemptions due to one client moving to passive ETFs and another merging pension funds into passive strategies.
Fixed Income Net Redemptions: Fixed income funds experienced net redemptions of $250 million in Q4, driven by high-yield bond outflows.
Real Estate Fund Restructuring: The restructuring of the U.K. Property Trust led to a $1.1 billion decrease in assets, reflecting challenges in defined benefit client demand.
Real Estate Separate Accounts: Net redemptions of $446 million occurred due to property sales driven by a client's change in asset composition.
High-Yield Bond Redemptions: A single $1 billion high-yield redemption is expected, contributing to fixed income net redemptions.
Digital Asset Initiatives: Efforts in tokenized money market funds and digital asset infrastructure are in early stages, presenting potential operational and regulatory challenges.
Currency Exchange Impact: FX and related expenses increased by $9.4 million in Q3 due to the weakening of the pound against the dollar.
U.S. Withholding Tax Matter: A $2.8 million expense related to a U.S. withholding tax matter on certain non-U.S. funds was incurred.
Equity Fund Performance and Sales: For Q4 through October 2024, combined equity funds and SMAs had net sales of $580 million. The company is actively developing MDT distribution opportunities outside of the U.S., with strong demand from international clients. The MDT U.S. equity UCITS fund, launched in June, has already achieved $340 million in net sales.
Fixed Income Projections: For Q4 through October 24, combined fixed income funds and SMAs had net redemptions of about $250 million. Fixed income is expected to have net redemptions of about $650 million in the future, with wins of about $380 million in high yield and short duration offset by a single $1 billion high-yield redemption.
Alternative Private Markets: The company is in the market with European Direct Lending III, which has closed on about $680 million to date. They are also marketing a global private equity co-investment fund (sixth vintage) with approximately $318 million closed so far. Additionally, they are working on a European real estate debt fund, with marketing continuing into 2026. Energy Solutions product development plans are underway following the Q2 acquisition of Rivington.
Real Estate Investment: The acquisition of a controlling interest in FCP, a U.S.-based real estate investment manager, is planned to close around the end of Q1 2026. This acquisition is expected to facilitate entry into the U.S. real estate market, particularly in the multifamily sector, which has strong fundamentals and growth opportunities.
Money Market Strategies: The company is developing money market funds and share classes in tokenized form, including a planned GENIUS Act compliant money market fund designed to serve as collateral for stable coins. Two UCITS money market funds have been made available in tokenized form through Archax. They are also exploring additional digital asset opportunities and expect ongoing innovation and growth in the digital space.
Share Repurchase: During Q3, the company paused its open market share repurchase, as we entered exclusive negotiations with FCP. We expect to be active again in Q4 and repurchase shares in the open market.
The earnings call summary presents mixed signals. Record high AUM and revenue increases are positive, but the restructuring led to asset decreases. The pause in share repurchase and high-yield bond redemptions are concerning. The Q&A section reveals management's lack of specific guidance and expense increases due to acquisitions and digital initiatives, causing uncertainty. The company's market cap suggests a moderate reaction, leading to a neutral overall sentiment.
The earnings call reflects a positive sentiment due to strong organic growth, record high money market fund assets, and increased revenue. The dividend increase and share repurchase indicate shareholder-friendly actions. Despite some concerns about stablecoin impacts and expense increases, the overall tone remains optimistic, with management highlighting potential growth areas and strategic acquisitions. The Q&A session didn't reveal significant negative trends, and the company's market cap suggests a moderate reaction, leading to a positive prediction for the stock price.
The earnings call presents a mixed picture: strong shareholder returns with increased dividends and share repurchases, and positive growth in money market assets. However, challenges include FX volatility, substantial outflows due to margin calls, and unclear management responses in the Q&A, which raise concerns. While financial health appears stable, with decreased operating expenses and increased carried interest, the lack of clear guidance and potential economic headwinds temper optimism. Given the market cap of $2.75 billion, the stock is likely to remain neutral, with minor fluctuations within the -2% to 2% range over the next two weeks.
The earnings call reveals mixed but generally positive factors: a record high in assets under management, increased dividends, and share repurchases. Despite slight revenue decreases and competitive pressures, optimistic guidance and strong money market growth outlooks are evident. The Q&A highlighted some market challenges but also noted substantial inflows post-tax date. Given the company's market cap, the positive elements, especially shareholder returns and optimistic guidance, are likely to result in a stock price increase between 2% to 8%.
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