8-K: Federated Hermes Achieves Record Assets Under Management in Q4 2023, Driven by Money Market Growth

Federated Hermes reported a strong fourth quarter and full year 2023, highlighted by record assets under management and increased earnings per share.

Summary

• Federated Hermes reported Q4 2023 earnings per diluted share of $0.96, up from $0.63 in Q4 2022, and full-year 2023 EPS of $3.40, compared to $2.65 in 2022.
• The company's total managed assets reached a record $757.6 billion as of December 31, 2023, a 13% increase from $668.9 billion at the end of 2022.
• Money market assets were a significant driver of growth, reaching a record $560.0 billion, a 17% increase year-over-year.
• Revenue increased by 5% in Q4 2023 compared to Q4 2022, primarily due to higher average money market assets and increased carried interest and performance fees.
• Operating expenses decreased by 7% in Q4 2023 compared to Q4 2022, mainly due to an intangible asset impairment in the prior year.
• The board declared a quarterly dividend of $0.28 per share, payable on February 15, 2024.
• During Q4 2023, Federated Hermes repurchased 1,902,861 shares of its Class B common stock for $61.0 million.

Sentiment

Score: 8

Explanation: The document presents a positive outlook with record assets under management and strong earnings growth, although there are some minor negative points such as a decrease in equity assets.

Positives

• The company achieved record assets under management, indicating strong investor confidence.
• Earnings per share showed substantial growth both for the quarter and the full year.
• Money market assets experienced significant growth, demonstrating the strength of their liquidity products.
• The increase in revenue was driven by higher average money market assets and performance fees.
• Operating expenses decreased in Q4 2023 compared to Q4 2022.
• The company repurchased a significant number of shares, potentially increasing shareholder value.
• A consistent dividend payout was declared, providing income to shareholders.

Negatives

• Equity assets decreased by 3% year-over-year, indicating some weakness in that segment.
• Alternative/private markets assets saw a slight decrease of 1% year-over-year.
• Revenue decreased by 3% in Q4 2023 compared to Q3 2023, primarily due to lower average equity assets and carried interest.
• Operating expenses increased by 10% for the full year 2023 compared to 2022.

Risks

• The company's financial results are dependent on market conditions, investment performance, and investor behavior.
• Fluctuations in asset levels and mix, product sales and redemptions, and market appreciation or depreciation can impact results.
• Regulatory changes and the ability to predict fee waivers and expenses pose potential risks.
• The company's performance is subject to the risk factors discussed in their SEC filings.

Future Outlook

The document includes forward-looking statements regarding performance, investor preferences, asset flows, and fee waivers, which are subject to various risks and uncertainties. The company's future results are dependent on market conditions, investment performance, and investor behavior.

Management Comments

• Federated Hermes' record assets at year-end were driven by another quarter of money market asset increases, as our liquidity products continued to provide a vital cash management resource for clients.
• Investors turned to a diverse range of our active management strategies from our fundamentally based MDT equity strategies to high-yield fixed-income to unconstrained credit alternatives.

Industry Context

The results reflect a trend of investors seeking liquidity and active management strategies in a volatile market environment. The growth in money market assets aligns with broader industry trends of increased demand for cash management solutions. The company's ranking among top fund managers indicates a strong competitive position.

Comparison to Industry Standards

• Federated Hermes ranks in the top 7% of equity fund managers in the industry, according to Morningstar.
• The company also ranks in the top 9% of money market fund managers and the top 11% of fixed-income fund managers, as per Morningstar.
• Federated Hermes is the 8th-largest manager of model-delivered separately managed accounts, according to Money Management Institute/Cerulli Associates.
• These rankings suggest that Federated Hermes is performing well compared to its peers in the investment management industry.

Stakeholder Impact

• Shareholders will benefit from increased earnings per share and a consistent dividend payout.
• Clients will have access to a diverse range of investment strategies and liquidity products.
• Employees will be part of a company experiencing growth and success.

Next Steps

• Federated Hermes will host an earnings conference call on January 26, 2024.
• The company will continue to monitor market conditions and investor behavior to manage its business activity and financial results.

Key Dates

Keywords

assets under management, earnings per share, money market assets, investment management, financial results, dividends, share repurchase, revenue, operating expenses, fixed income, equity, alternative investments