8-K: Federated Hermes Achieves Record Assets Under Management Despite Earnings Dip in Q2 2024

Federated Hermes reported record assets under management of $782.7 billion for Q2 2024, despite a decrease in earnings per share due to a non-cash intangible asset impairment charge.

Summary

• Federated Hermes reported a record $782.7 billion in total managed assets at the end of Q2 2024, an 11% increase year-over-year.
• Money market assets reached a record $586.6 billion, driving the overall growth in assets under management.
• Q2 2024 earnings per diluted share were $0.20, down from $0.81 in Q2 2023, impacted by a $66.3 million non-cash intangible asset impairment charge.
• Net income for Q2 2024 was $21.0 million, compared to $72.2 million in the same quarter last year.
• Revenue decreased by 7% year-over-year, primarily due to a decrease in carried interest and lower average equity assets, partially offset by higher average money market assets.
• Operating expenses increased by 8% year-over-year, mainly due to the intangible asset impairment charge.
• The board declared a dividend of $0.31 per share, payable on August 15, 2024.
• Federated Hermes repurchased 1,559,200 shares of its class B common stock for $47.5 million during Q2 2024.

Sentiment

Score: 5

Explanation: The document presents mixed results. While AUM reached a record high, the significant drop in earnings due to the impairment charge and decreased revenue is concerning. The positive aspects are somewhat overshadowed by the negative financial performance.

Positives

• Total assets under management reached a record $782.7 billion.
• Money market assets reached a record $586.6 billion.
• Money market fund assets were a record $425.6 billion.
• Total average managed assets for Q2 2024 were $779.6 billion, up 11% from Q2 2023.
• Fixed-income assets increased by 9% year-over-year to $95.3 billion.
• The company declared a dividend of $0.31 per share.

Negatives

• Q2 2024 earnings per diluted share decreased to $0.20 from $0.81 in Q2 2023.
• Net income for Q2 2024 was $21.0 million, down from $72.2 million in Q2 2023.
• Revenue decreased by 7% year-over-year.
• Operating expenses increased by 8% year-over-year.
• Equity assets decreased by 6% year-over-year to $77.9 billion.
• Alternative/private markets assets decreased by 7% year-over-year to $20.1 billion.

Risks

• The company's performance is subject to market conditions, investment performance, and investor behavior.
• The level of fee waivers and expenses in future quarters is difficult to predict.
• The company's ability to earn and retain performance fees or carried interest is uncertain.
• The timing and level of product sales and redemptions can vary significantly.
• Changes in market conditions can impact revenues, asset levels, flows, and mix.
• The impairment of the intangible asset associated with the 2018 acquisition of Federated Hermes Limited indicates potential risks in past acquisitions.

Future Outlook

The document includes forward-looking statements regarding performance, investment strategies, asset flows, and market conditions, which are subject to various risks and uncertainties. No specific guidance is provided.

Management Comments

• Money market asset increases once again drove Federated Hermes to record total assets under management, as our liquidity products continued to offer excellent cash management services and attractive yields.
• In equities, our range of strong-performing Federated Hermes MDT quantitative products offered core and complementary strategies for portfolio diversification.
• We also saw interest in our Total Return Bond Fund and core plus strategies, which have the ability to dynamically shift sector, duration, yield curve and currency positioning in changing market conditions.

Industry Context

The increase in money market assets reflects a broader trend of investors seeking safety and yield in a volatile market environment. The company's focus on active and responsible investing aligns with growing investor interest in ESG and sustainable investment strategies. The decrease in equity and alternative assets may reflect a broader market trend of investors moving away from riskier assets.

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 10% of fixed-income fund managers according to Morningstar data as of June 30, 2024.
• Federated Hermes is the 9th-largest manager of model-delivered separately managed accounts according to Money Management Institute/Cerulli data from Q1 2024.
• While the company's AUM growth is positive, the significant decrease in earnings per share due to the intangible asset impairment is a concern and may be worse than some peers who have not had similar impairments.
• Companies like BlackRock and Vanguard, while having much larger AUM, may have different performance metrics due to their different business models and investment strategies. It is difficult to make a direct comparison without more detailed information.
• The performance of Federated Hermes' money market funds is strong compared to industry averages, but the performance of their equity and alternative funds may be lagging behind some competitors.

Stakeholder Impact

• Shareholders will be impacted by the decrease in earnings per share and net income, but will receive a dividend of $0.31 per share.
• Employees may be impacted by the company's financial performance, but no specific changes were mentioned.
• Customers will benefit from the company's strong performance in money market assets and the range of investment products offered.
• Suppliers and creditors may be indirectly impacted by the company's financial performance, but no specific details were provided.

Next Steps

• Federated Hermes will host an earnings conference call on July 26, 2024, to discuss the results.
• The company will continue to monitor market conditions and adjust investment strategies as needed.
• The company will pay a dividend of $0.31 per share on August 15, 2024.

Key Dates

Keywords

assets under management, money market assets, earnings per share, intangible asset impairment, dividend, equity assets, fixed-income assets, alternative assets, revenue, operating expenses, net income, investment management