Federated Hermes, Inc. Q2 FY2020 Earnings Call

Greetings and welcome to the Federated Hermes Q2 2020 Analyst Call and Webcast Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder this conference is being recorded. I'd now turn the conference over to your host Mr. Raymond Hanley, President of Federated Investors Management Company. Thank you. You may begin.

Good morning and welcome. Leading today's call will be Chris Donahue, CEO and President of Federated Hermes; and Tom Donahue, Chief Financial Officer, joining us for the Q&A are Saker Nusseibeh, CEO of the International Business of Federated Hermes, and Debbie Cunningham, our Chief Investment Officer for Money Market. During the call, we may make forward-looking statements and we want to note that Federated Hermes' actual results may be materially different than the results implied by such statements. Please review the risk disclosure in our SEC filings. No assurance can be given for future results and Federated Hermes assumes no duty to update any of these forward-looking statements. Chris?

Thank you and good morning, all. I'll review Federated Hermes' business performance and Tom will comment on our financial results. We continue to make progress establishing our brand as the leading provider of active responsible investment management, driven by the combination of strong fundamental analytical capabilities and the multi-sector insights provided by the EOS at Federated Hermes engagement operation. EOS assets under administration were $1.1 trillion at the end of the second quarter and we expanded the EOS staff of engagers and specialists to 60 during the second quarter. Now recently, the international business of Federated Hermes was assessed by Real Impact Tracker, which certifies institutions most committed to impact, and we achieved the highest score in the history of its certification. As a result, the firm has joined Real Impact Tracker's certified community for which only around 5% to 10% of fund managers are eligible to qualify. Real Impact Tracker identified our firm as a leader in creating impacts throughout its operation, investment process, corporate engagement, and policy and advocacy. In particular, the firm's philosophy and approach to stewardship were highlighted as the model for other firms looking to improve their active ownership. In addition, and separately, the United Nations PRI awarded the domestic portion of Federated Hermes with an overall A rating for our annual responsible investing assessment. The international business of Federated Hermes received an A+ rating. Now turning to our equities business, assets closed the quarter at $77 billion, up from $68 billion at the end of the first quarter as market values rebounded by just under $11 billion, offsetting net redemptions of $2.7 billion. While the overall net sales of combined equity and separate accounts were negative at $2.7 billion, we saw positive net sales in several strategies. We had 12 equity strategies with net sales in the second quarter led by Kauffman Small Cap. Other equity funds with net sales in the second quarter included Global Equity ESG, Global Small-Cap Equity, MVP Small Cap Core, and the SDG Engagement Equity Fund. Using Morningstar data for the trailing three years at the end of the second quarter, 30% of our funds, nine out of 30 were in the top quartile, and two-thirds, 20% to 30% were above median. Looking at the strategic value dividend strategy, its objective is to provide a high-growing dividend income stream from quality companies. The domestic fund's 12-month distribution yield was 4.4%, which ranked it in the second percentile of its Morningstar assigned category at the end of the second quarter. The SMA's strategy's gross weighted average dividend yield was 5.26 at the end of the second quarter. The domestic strategic value dividend strategy had combined mutual fund and SMA outflows of $1.6 billion in the second quarter compared to $461 million of outflows in the first quarter. Q3 results through July 24 show combined fund and SMA net redemptions of just over $200 million. Dividend stocks were soundly out of favor during Q2's cyclical risk-on tech-led rally. The best-performing market sectors were lower dividend-paying consumer discretionary and information technology stocks. Low beta underperformed high-beta high-yielding stocks, while low-yielding and high-quality stocks outperformed those of the lowest quality. While the second quarter market characteristics were not conducive to our low volatility, high dividend strategy, we believe that our continued focus on the core goals of providing higher-than-market dividend yields from high-quality business assets will resonate with investors over time, especially given the outlook for lower rates over an extended period. Recall that even during these net redemption times through July 24, the gross sales of the strategic value dividend and SMA strategy were just about $3.5 billion, showing there is active life in the strategy. Turning to fixed income, assets reached a record high of $73 billion at the end of the second quarter, driven by over $6 billion in net sales and nearly $2 billion of market gains in the quarter. Bond market conditions changed dramatically from the lows in March, and our broad array of solid fixed income strategies were well positioned to meet investor demand. We had 23 fixed income funds with net sales in the second quarter. High yield funds led the net sales with over $2 billion. Multi-sector bond strategies also had solid net sales, led by $300 million in total return bond fund and strong results in separate accounts. Corporate, international global, government, and municipal bond funds all had net sales as did our fixed income SMA strategies. Across sectors, short duration strategies were also in demand. At quarter end, using Morningstar data for the trailing three years, we had eight funds, which is 24% in the top quartile and 18 funds, which is 53% in the top half. Moving to money markets, assets increased by about $6 billion in the second quarter to a record high of $458 billion, with growth in money market funds of about $8.7 billion, partially offset by seasonal declines in separate account assets of $2.4 billion. Money market assets reached a high of $483 billion in late May in advance of tax payments, usage of care funds, and other uses of cash. Our money market share, including the sub-advised funds at quarter end, was 8.1%, down fractionally from 8.8% at the end of the first quarter. Taking a look at recent asset totals and movements, managed assets were approximately $629 billion, including $452 billion in money markets, $80 billion in equities, $75 billion in fixed income, $18 billion in alternatives, and $4 billion in multi-assets. The money market mutual fund assets were $339 billion. In terms of flows for the third quarter through July 24, equity funds and SMAs were negative $240 billion, while fixed income funds and SMAs were positive $756 billion. By the subtraction method, we were at $565 million through the positive so far in the third quarter. As we begin the third quarter, we begin with about $1 billion in net institutional mandates yet to find, and most of those are in fixed income. An overall comment as it relates to COVID, we have continued to function well throughout these challenges. We are fully operational. Our technology resources have enabled us to have upwards of 95% of our employees successfully working from home. The portfolio management teams are connecting regularly and managing well through challenging market conditions. Our regional consultants and other sales and customer service personnel are staying connected to their clients, and while we continue to hire and onboard new employees in the second quarter, we do look forward to the time when we can come together in person in our facilities. Now for the financials, we'll turn to Tom.

Thank you, Chris. Q2 includes a full quarter of results from the HGPE private market subsidiary, which became a consolidated entity effective March 1. Total revenue for the quarter was up slightly from the prior quarter, due mainly to higher money market assets generating $30.5 million in additional revenue, a full quarter of HGPE results adding $6.1 million in revenue, and higher performance fees of $5.4 million, partially offset primarily by money fund minimum yield waivers of $19.6 million and lower equity asset-related revenue of $13.7 million. Looking at expenses, comp and related expense increased $8.2 million from the prior quarter. The growth was due mainly to a higher bonus expense of about $6.1 million, primarily related to higher sales, and $3.9 million from the impact of a full quarter of HGPE results, partially offset by $1 million of lower stock-based compensation expense and seasonally lower payroll tax expense down about $800,000. The decrease in distribution expense compared to the prior quarter was due to the impact of minimum yield waivers, which reduced distribution expense by $17.6 million, partially offset by an increase of $10.5 million, primarily from higher money market fund assets. The increase in other expense operating line item from the prior quarter was due largely to higher amortization of intangible expense from the MEPC and HGPE acquisition. We expect amortization of intangible expenses to be $3.1 million in the third quarter compared to $3.9 million in the second quarter. The impact of money fund yield-related fee waivers on operating income in Q2 was about $2 million. Based on recent assets and expected yields, the impact of these waivers on operating income in Q3 could increase to about $4 million. Of course, multiple factors impact waiver levels, and we expect these factors and their impact to vary. Non-operating income increased from Q1 due mainly to the increase in value of seed and other investments of nearly $15 million in Q2, compared to similar decreases in Q1 for a total swing of $29 million. This change was partially offset by the impact of the $7.5 million gain recorded in the first quarter related to the HGPE acquisition. The $4.5 million change from Q1 in net income attributable to non-controlling interest in subsidiaries was primarily from the increase in market value of consolidated funds. During Q2, we purchased 843,000 shares for $18.1 million, with nearly all this purchased in the open market. At the end of Q2, cash investments were $373 million, of which about $317 million was available to us. Debt at quarter end was $90 million. During March, we borrowed $100 million on our credit facility, we repaid that $100 million and an additional $10 million in Q2. The Q2 tax rate was 23.8%, down from last quarter due primarily to market value gains in the consolidated funds, which have no associated tax expense as the funds are not taxable entities to us. For 2020, we expect our combined federal, state, and foreign tax rate to be about 24% to 26%. Laura, that concludes our prepared remarks. We'd like to open up the call for questions now.

Our first question comes from Mike Carrier with Bank of America. Please go ahead with your question.

First, just a question on money market and the way we're all looking, Debbie, maybe first just wanted to get an update on an outlook for yield, those assets are getting reinvested including I know during the quarter just how much the Fed needs help. And then just trying to figure out how that could play out in terms of like mass waivers because it seems like a decent amount of the assets by the time we were at the end of the third quarter would have been reinvested at some lower rates, but just trying to get a sense on how that's playing out across the different products?

Debbie, why don’t you address the reinvestment rate and Tom and I'll talk about the impact on waivers.

Absolutely. Good to talk to you this morning, Mike. The Fed's moves were extremely helpful during the quarter by changing their repo rates and procedures, which influenced overnight rates significantly, especially for our government products that can see increases of over 50% in that kind of market. We observed an increase in the repo rates used on an overnight basis in those funds by about seven or eight basis points. They have generally stabilized around certain levels. For instance, they were previously in the one to two to three basis point range for a significant portion of the beginning and the end of the first quarter. We have 10% in overnight and an additional nine basis points in repo.

It sounds like Debbie fell off. Tom, would you address the waiver impact? We'll reconstruct Debbie's connection.

We mentioned $4 million, which would be up from our estimate of $2 million in the third quarter, and we stay very close with Debbie and her team on their forecasts, and as I've said before, that's what we use when we project out one quarter. If you were to ask Debbie what she’s going to say for the rest of the year, she will say, well, the rates will be similar to the third quarter, but probably a little bit lower, and that would make our waivers a little bit higher, but we only like to talk about one quarter.

Did you guys hear my answers? Sorry, my phone dropped.

I think we got the rate picture. So yes, we can move on.

Our next question comes from the line of Patrick Davitt with Autonomous Research. You may proceed with your question.

Hey guys, good morning. Could you quantify the performance fee this quarter and break out the nature of those performance fees and how they break into the various asset class revenue buckets please?

Well, the total was about $6.7 billion, and that was generated through Hermes strategy. So Saker may have a comment on that. The comparison number in the prior quarter was about $1.3 million. So as we've said before, those numbers are going to move around and are difficult to project, but Saker do you want to comment on the nature of the Q2 performance fees?

So let's start by saying you can never predict performance fees any more than you can predict performance, but you can get a pretty good idea if it goes through our reported numbers which are launched in the UK for previous history. We make performance fees in counter fees primarily from two main sources. One is from our property portfolios, and that then breaks down into further sources. One is a unit trust, in fact, two unit trusts, but one large unit trust. Unit trusts are like mutual funds, but they are essential for institutional investors, which have an automatic fluency, and that is triggered when we outperform our benchmark, and we continue to be one of the best performing funds in the markets over the long time and the short term. The other way we do it in property is in certain development projects. If at the end of the project, our shareholders benefit more than the accepted benchmark, that triggers a performance fee which is then paid to us, and the policies of properties have been consistent at least for the last 10 years, not in terms of quantum, but in terms of being paid. The other way in which we have performance fees is the carry on the private equity funds, which like all private equity funds tends to move around and get paid whenever the private equity realizes a gain that is then distributed to shareholders and takes a part of their performance fee. Does that answer your question?

So it sounds like it was all in the alternative revenue bucket.

So it's in the revenue buckets, and a lot of it is generated in property, yes. We do have some pulls in some private equity, sorry in public markets, but primarily just delta in the bucket.

Patrick, this is Tom. Just to give you some of the numbers as Saker mentioned, so year-to-date for performance fees, we have about $8 million. In 2019 we had $7.4 million. In 2018 we had $8.5 million, 2017 we had $7.4 million. For the carry year-to-date, we have $2.5 million, and 2019 we had $11.3 million, in 2018 it was $2.72 million. 2017 was $13.5 million. So you see why we don't want to predict the numbers.

Our next question comes from the line of Robert Lee with KBW. You may proceed with your question.

I guess maybe a little bit Tom of modeling question. So can you give some sense now on compensation? Obviously, you’ve had consolidation in the rest of the volume in the acquisition and talk about some bonus accruals that how should we be thinking about kind of on a go-forward basis of some of this kind of good run rate to be basing off? Is there anything kind of whether it is cash at the pools or anything we should be thinking about? So how should we think of comp kind of on a go-forward basis?

Sure, Rob, and we're doing well there, thank you. In my remarks I mentioned that the comp and sales-related, and of course, you look at the numbers that Chris mentioned, we're pretty happy with that. Realistically, we call that a success item because we have increased sales, and we're going to earn more money eventually. So that increase, but also investment performance and incentives aligned with investment performance has increased here in the States and so that line has increased. Our operating teams and administration have just done an outstanding job in this environment. So I expect that will continue to improve. Of course, that depends on earnings also, and then over in our international area and sectors area with the performance across the board, and they take a more holistic approach as things improve, the those numbers will expect to go up too.

I'm curious about the money fund business. After the industry experienced a surge in March during Q1 and Q2, it seems like the pace has slowed down across all sectors. With tax payments happening now, how do you view the demand for money funds, especially considering that yields have dropped significantly, creating a large gap between government funds and bank deposits? Should we consider this as a reflection of all types of institutional demand moving forward?

I'll make a couple of comments, Rob, and then allow Debbie to comment on the difference in yield between government funds and deposit rates and commercial paper funds. But overall, we always like to repeat the sounding joy of the fact that the clients are in there for daily liquidity apart, and the yield is a secondary consideration. This is a cash management service as much as it is an investment. Therefore, overall long-term big picture, we are looking at higher highs and higher lows on our charts as the ebb and flow of money market activities change, as you do, to fleet point out. This has been true since we got into this business in the mid-70s. Debbie?

Thanks, Chris. If you look at most bank deposit rates, they're at a basis point. So there's low on the totem pole from an earnings perspective. If you look at the gross yields on our money market funds for the government sector, it's about 25 basis points. The gross yields on our prime funds are currently about 37 basis points, so about 12 basis points over the given. If you look at the growth rate of assets on a year-to-date basis for bank deposits versus money market funds, those have grown substantially given the environment and the risk mitigation that investors are seeking and the build-up in cash frankly. But bank deposits have grown by a little over 12% on a year-to-date basis, where if you see market funds in total have grown about 17%. So again, although the numbers on a base, average, or base level are different, the growth rates have been higher in money market products. I do believe that that was since the given very, very, very low rates that are available on bank deposits.

The $6.7 for Q2 was just the performance fees. There was an additional $1.8 million of carry. So $8.5 million total for those two items.

Our next question comes from the line of William Katz with Citigroup Investment Research. You may proceed with your question.

Okay, thank you very much. I hope everyone's doing okay. You didn't spend much time talking about the multi-asset or the alternatives business, which had a bit of a lackluster quarterly looking at the net flows, they weren't really part of your flow update. Could you talk a little bit about why you're seeing weakness there, and how to think about the growth rate particularly for alternatives, particularly given just the tremendous growth we're seeing elsewhere in the industry for that bucket?

On the alternatives, which we consider the private markets, as you know we just spent the first quarter getting that organized in terms of corporate structures, ownership, and getting ready for the future. We did make it clear when we were doing those transactions on the last call that we weren't going to be looking for growth numbers in this calendar year from those activities, although they are extraordinary opportunities into the future. I would let Saker comment on some of the things that are going on there that are setting up the future growth plans.

Sure. Thank you, Chris. So again, you've got to think of alternatives in different buckets if you like. If you look at, start with the real estate portfolio, which is where we've had a lot of performance fees in the past, generally these are sold in big clumps to institutional partners. It takes several years to get one of those deals set up, typically quite large deals and typically invested for the next 10 to 15 years. Now for that we’re beginning to think about expanding our product capability into the United States. That will take some time to set up, some time meaning more than one year. In the meantime, within our home territory in the United Kingdom, we continue to attract interested parties. It's also dependent on finding the right projects to invest in. The Unit Trust, which is the mutual fund and property is pretty much at capacity. We have a long line of waiting investors wanting to come in when they can. If you move to private equity, we have a plan that was agreed with the team when the acquisition was completed of an expansion plan of increasing the client base. We will see that come to fruition in the next two to three years, primarily by expanding within, again, North American markets. We have other funds within which is called Alternative, which we put for the private markets, which are seeing some growth, but they're not as substantial as these two particular ones. So, I'd say that the private markets is being prepared for expansion, particularly in terms of private equity and real estate actually is on track. You will not see it quarter-on-quarter, these are elephants that will pick-off fixed time to get one in and then they're in for the long-term.

Okay, thank you for that, that's helpful. And then just to follow-up to Tom or Debbie, just as you think about the money market fee waivers and thanks for the update, any thoughts on how the relationship on the sharing side might be different this cycle versus the prior zero-rate backdrop with the distributors. So in other words, the question is how much sharing should we anticipate? Is there any risk that Federated might need to absorb a higher percentage of those fee waivers as we look ahead?

Well, Debbie, I'll answer first if you have a follow-up. We put in a lot of effort the last time in the low cycle to meet with everybody and work through the sharing arrangement and pro-rata thought process. We were very successful in the last time around and we're still getting asked by our partners for increased participation that they get versus us. But on terms of the waiver sharing, we have not seen any, any issue with our structure and sharing arrangements.

I have nothing to add to that. Thanks, Tom.

Okay, thank you all.

Our next question comes from the line of Kenneth Lee with RBC Capital Markets. You may proceed with your question.

Hi, good morning. Thanks for taking my question. Outside of the compensation expense, wondering if you could just share with us any of your latest thoughts on how operating expenses could trend, especially in this current environment? Thanks.

Yes, we didn’t discuss T&E because it's clear that salespeople aren't traveling, and neither is anyone else. We hope that will change soon. Once that happens, the low expense item in T&E will increase. We are still investing in technology and have various projects underway to enhance our operations, but those fit within our usual spending and focus areas. I don’t anticipate any unexpected changes there. We’ve already addressed the distribution line item, which aligns with asset flows, and I briefly mentioned the waiver issue, so we're actively managing that. We’ve also covered the non-consolidated items, and I don’t have anything additional to add.

Okay, great. Helpful. And just one quick follow-up if I may. You repurchased some shares in the quarter, wondering if you could just give us your latest thoughts on capital allocation priorities and perhaps any thought on potential M&A opportunity? Thanks.

Sure, on the breakdown, we’re very active at buying shares back, you see the numbers for the first and second quarter. The priorities haven't really changed. As you hint in the form of your question, the M&A remains the highest and best use, but we're very active on the share buyback and we of course like the dividend as well. On the M&A side, I see Tom thirsting to come to the podium.

Well, it’s pretty difficult to go out and meet people face to face, it's more than difficult. So doing Centers of Excellence, I think will be a challenge here, but roll-ups we remain active and hope to still close some deals here.

Our next question comes from the line of John Dunn with Evercore ISI. You may proceed with your question.

Thanks and good morning. Could you maybe talk about how your relationships with the different distributors are evolving during this period of time?

The relationships with the distributors are very, very strong. The evolution is now going deeper into the relationships with the distributors and the individual FAs, as people have less ability to go and visit, they're doing more on the phone, more by the Zooming and all of that. The FAs, as I mentioned, I think on the last call are doing increased quality evaluation of their portfolios. This is where our portfolio construction team comes into the mix because now, we’re able to present our FAs with the idea of looking at the portfolios as a construct where they may have 10 great funds, but they don't know how the bets are really being made inside those funds. We can help them with portfolio construction and find opportunities for various Federated products along the way. The way I would characterize it is that there is some degree of oligopolization in the business; when you can't go around and get new clients the way you would like to, those who have them are bucks up to those who don't. I don't know how good that is over the long haul. But right now, it tends to oligopolize and strengthen the relationships that are already there. We have been able to continue discussions on adding products, we added the sixth Hermes product, and those new products continue to work well. As you note on our sales numbers, we have the highest monthly average sales in our history. Our previous high had been about $3 billion a month in gross sales, and now we're well over an average for the first six months of $4 billion per month. This is telling you that even though the regional consultants can't spend T&E money, they're still able to tell the story and present a solution. To summarize, I think the relationships have strengthened, and I think they have gotten deeper and stronger.

Got you. And then maybe a start-up, you guys are fortunate to be able to keep investing. Can you just maybe remind us of the top areas of investment spend for you guys at this point?

We will give everybody a shot at that. One of the areas which we announced recently was a new hire in the active ETF space. We’re beginning to get ready for that. So that's one which we think is important. I'm sure Saker has a few on his agenda, and I'll let him have a say there.

Thank you. I mean, besides the one that we continue to invest in the EOS, which we just mentioned, which was a substantial investment in senior seasoned professionals to join our stewardship team, we've also hired a couple of additional people to our Impact team in the U.K., which was strong. We've added expertise into our responsibility office where we do some research. That particular individual was a doctor and has a specialisation in pandemics as well. These are the areas that come to mind in this last quarter, but we've continued to have also finalized the hire of an MD for the private markets business that we've established, as we've said, and that went quite well.

Yes, in the Kauffman team, they've done so well and their performance speaks for itself, and we’re looking for a number of new hires in there and they pointed out that the recent hires that they've made have turned out very well. So more investing in the Kauffman team.

Our next question comes from the line of Brian Bedell with Deutsche Bank. You may proceed with your question.

Hi, this is Melinda Roy filling in for Brian. Maybe just one more follow-up on the fee waivers. Did you parse out the expected changes in management fees versus distribution expenses in 3Q versus 2Q in the context of your expected negative $4 million impact from fee waivers next quarter?

Melinda, we don't really do that on a line item basis. So that would be tough to do. We could, if you want to talk about that, following up after the call, I’ll be happy to try to help you there.

Okay, no problem. And then maybe just one cleanup question. The other service fees declined pretty significantly in 2Q versus 1Q. Could you maybe talk about the driver there and the $32 million levels going forward?

Yes, that would have been where the bulk of the revenue impact from the minimum yield waivers occurred. So that would explain just about the biggest portion of that change. There were some other things that happened in Q1; we had $1.2 million of non-recurring revenue in one of the private market companies. So that was booked in Q1 and obviously not in Q2. But the minimum yield waivers would explain the bulk of the step-down there.

Okay, great. Thank you so much.

Our next question comes from the line of Ken Worthington with JPMorgan. You may proceed with your question.

Hi, good morning, I jumped on a touch late. So hopefully you haven't covered this. But if you watch a series of Hermes ESG Focused Funds in the U.S., can you talk more about progress in bringing those products and services to the U.S.? And I think you said you've launched six funds thus far. How is the dialogue going with distribution? And are those products getting on platforms? Or maybe it's just too early. And then you mentioned in prior calls, I think really last year, about the incremental costs and investments to bring these products to the U.S., how much have you spent thus far? And what's the outlook for incremental investment to further launch these products over the next year or so?

Ken, the reception has been excellent. The assets in those funds were about $88 million at the end of the second quarter. Nearly all of that was externally sourced, so the seed assets in there were about $5 million. We’re evaluating other strategies to look at, and we've just launched our first SMA product based on our Hermes strategy, which will be coming out, so it is a little early to see how big these things will get. The reception has been good, and we've been able to onboard them and get on some platforms. Obviously, we want to get on more. In terms of the expense associated with that, yes, we talked when we did the deal and had forecasted, and put out millions of dollars of expected expense, but we now view ourselves as one company and aren't saying here's some extra expenses, it's normal fund cost and normal people cost, but it's not some extra thing to do to have the Hermes team manage the money over there. We haven't figured out and we don't break that out and don't look at it that way; we have our research committees get together and figure out what's the best product to bring out and what can we sell, and it's in our normal process now.

Okay, I think that's fair enough. Thank you. And then maybe some more color on performance fees. I know they're hard to predict, but maybe just some guidelines. Is there anything you can give us on the timing of when funds are eligible to pay? Clearly, this was a bigger quarter, is 2Q a big quarter, maybe 4Q? So timing there. And then anyway to size unrealized performance fees or unrealized carry, how big is the pool that we might have to look forward to based on where things are at this point in time?

Yes, Saker, you can follow up on my non-answer. It involves selling a building, and the timing for that or for private equity to realize and monetize their assets is highly uncertain. We have requested projections from them and attempted to work with Federated Hermes to get those estimates, but the process is taking longer than expected. There are various complications that have made it difficult for us to understand this situation. On a broader level, Saker can discuss the business aspects, which is why I provided the numbers to outline the future path. Saker, if you’d like to elaborate on that?

I think it's very difficult to try to project the future, but from the numbers that Tom has given you, you can see historically what property performance fees looked at. This is just a historical. This is just a buff; it doesn't mean the future is going to be the same, but it gives you an idea. Private equity is more variable. I think in becoming one firm as we become part of Federated Hermes, one of the things about the differentiating business is it tends to be very institutional, very long-term based, and so quite often, the projects that we work on which then pay us some dividends are not necessarily traceable on a quarter-to-quarter basis, but a much more long-term basis. Now in average, every year we make performance fees, and we make carry, and you can, as I say, see that in our history because one comes off the other. But projecting how much is going to be in the particular quarter, sometimes even in a particular year is very hard. All that we can say is we've been really successful in what we've done. Historically, you can see how much we've generated, but past performance is no indication of future performance as you always say when you're talking to investors. I'm sorry, I can't be any more specific than that.

Our next question comes from the line of Robert Lee with KBW. You may proceed with your question.

Great. Thanks for taking my follow-up. So just curious on your ETF business, you did mention the higher, the press release, but you can maybe talk about it that way plans there and talk about active EPS that have you licensed one of the compete, one of the approved technologies out there, your thoughts around that versus I'm not sure you’ve been filing yourself but your own technology so to speak.

All angles are up in the air being analyzed, and Clark just joined the firm. I met with him on Wednesday, and so we are just getting started on that, and we're going to figure out what the best way to go. Don't forget that overall business on the active side is really in the first inning. It may even still be in spring training, and it's only $120 billion of over $4 trillion of ETF business, and this is why we look at it this way. Federated is interested in strong Alpha high active share type projects and which ones we now put together and how we structure it is what we're going to be about. So I don't have the math because we brought in someone with a good deal of experience at a number of the big players, and this is the brainstorming that's going to go on here to see how the Federated Hermes active ETF should look.

Our next question comes from the line of Mike Carrier with Bank of America. You may proceed with your question.

Just a follow-up, bigger quarterly $6 billion of inflows in fixed income. Wanted to get a little bit of color, but Chris some you details on the product and the high-yielding incorporation. Just on the distribution side, if you can provide any color on institutional was sort of money market, some money shifting into short duration strategies, just to get a little bit more income. Retail we can see, and anything on the international side just given that some of the relationships that build over time, just trying to get a sense of how kind of broad-based that was in the quarter, thanks.

It is very challenging, and we don't typically discuss how many clients have shifted from money markets to other products. Historically, we engage with most of these clients anonymously, so we cannot accurately track cash flow. However, as I mentioned in last quarter's call, there is growing interest in active management projects because people are starting to realize they may not want to own the entire index. This is another important aspect. Regarding high yield, with net sales exceeding $2 billion, when comparing the performance of high yield to any of the passive ETFs, our high yield offerings are performing significantly better, which is quite positive. For the total return bond fund, clients are seeking long-term decisions rather than simply following the index, and we see indications of this trend. You can also observe it in the fixed income SMA strategies, where performance has been exceptionally strong. In terms of international, there is some growth as well, although not as much, but it remains active.

Ladies and gentlemen, we've reached the end of the question-and-answer session. I'd like to turn this call back to Mr. Raymond Hanley for closing remarks.

Well that will conclude our call for today, and we thank you very much for joining us.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation and have a great day.