8-K: Federated Hermes Achieves Record Assets Under Management, Declares Special Dividend

Federated Hermes reported a strong first quarter with record assets under management and a special dividend for shareholders.

Summary

• Federated Hermes announced first quarter 2024 earnings per diluted share of $0.89, up from $0.78 in the same quarter last year.
• Net income for the quarter was $75.0 million, compared to $69.6 million in Q1 2023.
• Total assets under management reached a record $778.7 billion as of March 31, 2024, an increase of 11% year-over-year and 3% from the previous quarter.
• Money market assets also reached a record $578.8 billion.
• The board declared a total dividend of $1.31 per share, consisting of a $0.31 quarterly dividend and a $1.00 special dividend.
• The quarterly dividend was increased by 10.7%.

Sentiment

Score: 8

Explanation: The document conveys a positive sentiment due to record assets under management, increased earnings, and a special dividend. While there are some minor negatives, the overall tone is optimistic and reflects strong financial performance.

Positives

• The company experienced a significant increase in assets under management, driven by strong inflows into money market products.
• The increase in total managed assets was 11% year-over-year and 3% from the previous quarter.
• The company declared a special dividend of $1.00 per share, in addition to the increased quarterly dividend.
• The company's net income increased to $75.0 million from $69.6 million year-over-year.
• The company saw strong demand for fixed-income products, particularly the Federated Hermes Total Return Bond Fund.

Negatives

• Equity assets decreased by 4% year-over-year, although they increased slightly by 1% from the previous quarter.
• Alternative/private markets assets decreased by 3% year-over-year and slightly from the previous quarter.
• Nonoperating income decreased by 26% compared to Q1 2023, primarily due to a smaller increase in the market value of investments.
• Operating expenses increased by 3% compared to the previous quarter due to higher compensation and distribution expenses.

Risks

• The company's performance is subject to market conditions, investment performance, and investor behavior.
• Fluctuations in interest rates and market values of investments can impact nonoperating income.
• The company's ability to sustain product demand and manage sales and redemptions is a risk.
• The company faces competition in the investment management industry.
• The company's revenue is dependent on the level of assets under management and the fees charged.

Future Outlook

The company's future performance is subject to various market and economic factors, including interest rates, investor behavior, and market conditions. The company's ability to sustain product demand and manage sales and redemptions will also impact future results.

Management Comments

• Investors continued to turn to the attractive yields available in our liquidity products.
• Our money market asset increases drove Federated Hermes to record assets under management for the sixth consecutive quarter.
• Investors also sought to add duration to portfolios, and net sales of fixed-income products were led by our flagship core-plus offering.

Industry Context

The results reflect a broader trend of investors seeking safety and yield in money market funds, while also showing continued interest in fixed-income products. The company's strong performance in money market assets is consistent with the current market environment.

Comparison to Industry Standards

• Federated Hermes ranks in the top 7% of equity fund managers, the top 8% of money market fund managers, and the top 11% of fixed-income fund managers based on U.S. fund flows rankings from Morningstar.
• Federated Hermes is the 8th-largest manager of model-delivered separately managed accounts according to Money Management Institute/Cerulli.
• These rankings indicate a strong competitive position within the investment management industry, particularly in money market and fixed-income products.
• Competitors such as BlackRock, Vanguard, and Fidelity also manage significant assets in these areas, but Federated Hermes has demonstrated strong performance relative to its peers.

Management Changes

Stakeholder Impact

• Shareholders will benefit from the increased quarterly dividend and the special dividend.
• Employees may benefit from increased compensation due to higher incentive compensation.
• Customers will continue to have access to a range of investment products and services.
• The company's strong financial performance may enhance its reputation with suppliers and creditors.

Next Steps

• The company will host an earnings conference call on April 26, 2024.
• The declared dividend will be paid on May 15, 2024 to shareholders of record as of May 8, 2024.

Key Dates

Keywords

assets under management, money market, dividends, earnings per share, fixed income, equity, investment management, financial results