• Assets Under Management (AUM): Record AUM of $830 billion, with money market assets at $630 billion.
• Equity Assets: Decreased by $4.2 billion from Q3 due to net redemptions and FX impact.
• MDT Strategies: Assets reached $13 billion, up 70% from year-end 2023, with $1.2 billion in net sales in Q4.
• Fixed Income Assets: Decreased by $2.1 billion in Q4 due to market valuations and net redemptions.
• Money Market Assets: Reached a record high of $462 billion in funds, with total money market assets at $630 billion.
• Revenue: Increased by $16.2 million or 4% from the prior quarter.
• Operating Expenses: Increased by $17.5 million from Q3, mainly due to FX-related expenses.
• Cash and Investments: $641 million at year-end, with $588 million excluding noncontrolling interest.
• Tax Rate: Q4 tax rate was 25.4%, expected to be 26% to 28% for 2025.

• Warning! GuruFocus has detected 2 Warning Sign with FHI.

Release Date: January 31, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Federated Hermes Inc (NYSE:FHI) ended 2024 with record assets under management of $830 billion, driven by record money market assets of $630 billion.
• The MDT fundamental quant strategies saw strong performance, with assets reaching $13 billion at year-end, up 70% from the previous year.
• The company successfully launched four active ETFs and a new collective fund, accumulating approximately $424 million in assets.
• Money market fund assets reached a record high of $462 billion, with total money market assets increasing by about $37 billion in Q4.
• Federated Hermes Inc (NYSE:FHI) has a positive outlook for money market strategies due to favorable short-term interest rate conditions, supporting cash as an attractive asset class.

Negative Points

• Equity assets decreased by $4.2 billion in Q4 due to net redemptions and FX impacts.
• Fixed income assets decreased by about $2.1 billion in Q4, primarily due to market valuations and net redemptions.
• Alternative private markets assets decreased by $1.8 billion in Q4, mainly due to FX rates and net redemptions.
• Q4 operating expenses increased by $17.5 million from Q3, largely due to FX-related expense increases.
• The company's market share in money market mutual funds slightly decreased from 7.32% to 7.22% at the end of 2024.

Q & A Highlights

Q: Could you explain the trends affecting money market fund market share, particularly in comparison to other large asset managers? A: J. Christopher Donahue, CEO, noted that while there was a slight decrease in market share, it was not due to losing clients but rather the natural ebb and flow of large amounts of money. Deborah Cunningham, CIO, added that year-end is typically volatile, and the first quarter often sees weaker mutual fund flows, but this year has started strong, indicating a positive trend.

Q: With a higher cash balance and a range-bound stock price, how is Federated Hermes approaching stock repurchases? A: Thomas Donahue, CFO, explained that the company continues to believe the stock is undervalued and plans to continue repurchasing shares. The decision to buy is made daily, based on market conditions and the company's growth outlook.

Q: How do you see the money fund business performing in a higher-for-longer interest rate environment? A: J. Christopher Donahue expressed a positive outlook, noting that higher rates make money funds attractive compared to bank deposits. Deborah Cunningham added that the expected terminal rate is higher than six months ago, supporting continued growth in money funds, although not at the same percentage growth as in previous years.

Q: Can you discuss the positioning and future of your ESG and sustainability products? A: J. Christopher Donahue emphasized that ESG factors are used to achieve better financial returns. Saker Nusseibeh, CEO of Federated Hermes Limited, noted that their ESG funds continue to perform well and meet client expectations, with thematic funds seeing varying interest based on market conditions.

Q: What are the spending priorities for 2025, and how do they differ from last year? A: Thomas Donahue highlighted expected increases in compensation due to higher incentive payouts and a step-up in technology and market data spending. Other areas are expected to remain stable, with FX impacts being hedged.

Q: Are there specific areas within alternative products where Federated Hermes is looking to expand? A: J. Christopher Donahue identified infrastructure and US real estate as areas of interest for expansion. The company is also seeing opportunities in direct lending and trade finance, with strong client interest globally.

Q: What is the outlook for private market realizations and fundraising? A: Saker Nusseibeh explained that the company is actively distributing and raising assets, with new funds like PEC VI replacing older ones as they mature. This cycle of returning assets to clients and raising new capital is seen as a sign of success.

Q: How is the strategic value dividend fund performing, and what is driving demand? A: J. Christopher Donahue noted that the fund is gaining traction as a dividend-focused product, appealing to investors looking for yield and market participation. The strategic dividend ETF's growth indicates a deeper understanding of the fund's objectives among investors.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.