Federated Hermes, Inc. Q3 FY2022 Earnings Call

Good morning, everyone, and welcome to the FHI Q3 2022 Analyst Call and Webcast. It is now my pleasure to hand it over to your host, Mr. Ray Hanley, President of Federated Investors Management Company. Ray, please take it away.

Thank you. Good morning, all. Leading today's call will be Chris Donahue, CEO and President of Federated Hermes; and Tom Donahue, Chief Financial Officer. And joining us for the Q&A are Saker Nusseibeh, who is the CEO of Federated Hermes Limited; and Debbie Cunningham, our Chief Investment Officer for the money markets. During today's 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 disclosures in our SEC filings. No assurance can be given as to future results and Federated Hermes assumes no duty to update any of these forward-looking statements. Chris?

Thank you, Ray, and good morning everyone. I will discuss Federated Hermes' business performance, while Tom will go over our financial results. Although Q3 presented some tough market conditions across asset classes, our diverse business mix allowed Federated Hermes to achieve positive net sales in equities, fixed income, private markets, and long-term assets overall. Additionally, we saw increases in revenue, operating income, and net income compared to the previous quarter, as growth in money market revenue compensated for lower revenues from market drops in long-term assets. Starting with equities, assets decreased due to negative market and foreign exchange impacts. However, Q3 net sales were $182 million, in contrast to net redemptions of $969 million in the prior quarter and $1.4 billion in Q3 of 2021. The net sales in equity were influenced by our strategic value dividend strategy. Our domestic strategy had nearly $1.6 billion in net sales for the third quarter, with significant contributions from both the fund, which brought in almost $600 million, and the separately managed account at about $1 billion, leading to solid net sales results. We also recorded positive net sales in 15 equity fund strategies during Q3, including several international strategies like Asia, ex-Japan, international strategic value, China equity, international equity, international growth, and emerging markets equity. The domestic MDT Small Cap Core and MBT Large Cap Growth strategies also delivered strong net sales results. While net redemptions of about $555 million in growth strategies occurred in Q3, this was an improvement from $955 million in Q2, reflecting ongoing challenges in the market for these strategies. We continue to focus on asset classes and strategies that have historically performed well in inflationary periods, including dividend income, international, emerging markets, and value strategies. By the end of Q3, our equity performance compared to peers was strong. Using Morningstar data for the trailing three years, nearly 60% of our equity funds outperformed their peers, with 40% landing in the top quartile of their category. For the first three weeks of Q4, combined equity funds and separate managed accounts saw net redemptions of $192 million, although we had 13 equity funds with positive net sales during this period, including strategic value dividend, Asia ex-Japan, international strategic value dividend, and international equity. Next, regarding fixed income, the third quarter saw overall net sales of about $1.1 billion. Fixed income separate account net sales amounted to $3.2 billion, partly offset by $2.1 billion in fund net redemptions. The separate account net sales were driven mainly by multisector strategies, with the majority coming from a large public entity. Within funds, our flagship Core Plus strategy, total return bond fund, experienced net sales of approximately $750 million, benefiting from a solid long-term performance record that has opened up more distribution opportunities. The Core Plus and other multi-sector fixed income SMA strategies contributed an additional $209 million of net sales. However, net redemptions of about $1.4 billion occurred across three ultrashort funds, and high-yield funds experienced about $462 million in net redemptions, down from $860 million in Q2. Nevertheless, we had 12 fixed income funds with positive net sales in Q3, including conservative Municipal Microshort, Muni high-yield advantage, total return, government bond, and others. In terms of performance, by the end of Q3 and using Morningstar data for the trailing three years, just over 60% of our fixed income funds outperformed their peers, with 22% in the top quartile of their category. During the first three weeks of Q4, fixed income funds and separate managed accounts faced net redemptions of about $693 million, primarily from ultrashort funds, around $400 million in high yield, nearly $200 million. However, we also had 14 fixed income funds posting positive net sales, led by conservative Municipal Microshort, Total Return Bond Fund, short-term income, and ultrashort government bond fund. In the alternative private markets category, net sales were $17 million, which included real estate, Pru Bear, MDT market neutral, and were partially offset by net redemptions in infrastructure, private equity, trade finance, absolute return, credit, and unconstrained credit. We continue to promote the fifth vintage of PEC, our co-invest private equity structure, and the third vintage of the Horizon Private Equity Fund. We kicked off Q4 with approximately $2.9 billion in net institutional mandates pending for both funds and separate accounts. Roughly $2.6 billion of this total is expected to be allocated to private market strategies, including just over $1 billion in private equity, about $1 billion in direct lending, and $400 million in unconstrained credit. Shifting to money markets, we saw an increase in assets during Q3 compared to Q2. Money market fund assets rose approximately $12 billion, supported by higher yields and sustained elevated liquidity levels in the financial system. Money market funds benefited from higher yields compared to deposit alternatives. We believe that elevated short-term rates will continue to enhance the appeal of money market funds over time, especially when compared to deposit rates. Money market separate accounts decreased by $10 billion, primarily due to seasonal factors concerning tax payment timings. Our market share in money market mutual funds, including sub-advised funds, was about 7.4% at the end of Q3, up from about 7.3% at the end of Q2. Looking at recent asset totals as of just a few days ago, managed assets stood at approximately $626 billion, which includes $437 billion in money markets, $77 billion in equities, $89 billion in fixed income, $20 billion in alternatives, private markets, and $3 billion in multi-asset. Money market mutual fund assets totaled $304 billion, which incorporates around $3.5 billion in fixed income assets from the CW Henderson transaction completed on October 1.

Thanks, Chris. On the financials, total revenue for Q3 increased $15 million or 4% from the prior quarter, due mainly to lower money market fund minimum yield related waivers of $9.5 million, higher average money market assets, increasing revenues by $6.6 million, lower money market competitive waivers, an additional day in the quarter and higher carried interest and performance fees. These were all partially offset by lower average long-term assets which reduced revenue by $12.8 million. Q3 carried interest was $3.9 million and performance fees were $300,000. Q3 operating expense increased $10.7 million or 4% compared to Q2, driven by $9 million of higher distribution expense from lower money market fund minimum yield-related waivers. The decrease in compensation and related expense from the prior quarter reflected lower Q3 FX rates per pound sterling-based compensation of $3.1 million, partially offset by $1.5 million of higher incentive compensation related to carried interest. The Q3 increase in other operating expense compared to Q2 was due mainly to $1.3 million of net mark-to-market losses related to FX, including the currency forward used to hedge certain pound exposure. This expense was $4.9 million in Q3 compared to $3.6 million in Q2. This Q3 expense was largely offset by an estimated $3.8 million in higher pretax income related to the change in value of the pound in various revenue and expense line items such that our estimate of the net income impact of Q3 changes in the value of the pound was a loss of about $1.1 million pretax or about $0.01 of EPS. Investment losses after subtracting the impact attributable to noncontrolling interests reduced earnings per share for the quarter by about $0.04 due to the negative market impact on our investments. At the end of Q3, cash and investments were $481 million, of which about $427 million was available to us. Debt at the end of the Q3 was $397.5 million. During Q3, we purchased 212,000 shares of our stock for approximately $7 million. Jenny, that completes our comments and we would like to open it up for the question-and-answer session, please.

Your first question is coming from Patrick Davitt of Autonomous Research.

I think everyone has been a little surprised how anemic money fund flows have been in 3Q. And I hear your comment on the tax issue but still pretty bad here in October. You're clearly outperforming a lot of your competitors but the picture is still, I think, off from what we would have expected. So a couple of questions on that. Firstly, could you frame any other dynamics that might be going on given how high rates have gotten? And secondly, should we still expect a big 4Q surge on the usual seasonality plus the higher rates?

Thank you, Patrick. There are some other dynamics. And next week, what's the Fed going to do 75, what are they going to do in December? What we've always said on several of these calls is that over time, this helps the money fund business. We often go back to the story of 16% to 18% when the Fed was increasing rates where our assets then increased about 15% in the industry, about 11%. And then in the next period, once you're dealing with higher rates, our assets went up another 22% and the industry increased about 14%. So those two levels, we think, will obtain. When? I don't know. I'm going to let Debbie comment on other dynamics and let her take a guess about fourth quarter avalanches.

Thanks, Chris. Patrick, I want to address a few points. Historically, when considering cycles, Chris mentioned the 16% to 18% range, but there is typically about a six-month lag after policy changes begin. The Fed started making moves in March, so we are currently within that six-month timeframe. We expect to see some increase moving forward. Additionally, it's important to note that we're coming off a base of zero rates. For those who have been in the market over the past 15 years, much of that time was spent at zero rates, which is not the norm. This means that cycles emerging from zero behave a bit differently. Furthermore, there has been significant growth in the industry since March, especially in retail prime. This category has seen a remarkable growth of 67% over six months, while industry assets in this sector have increased even more, reaching the high 80s. This growth reflects the assets that dropped significantly in a zero-rate environment and are now reemerging as appealing alternatives to deposit products, which, as Chris mentioned, aren't very responsive to rising rates for retail customers. In contrast, prime institutional, burdened by the reforms enacted in 2016, has only seen a 13% increase, and government funds, being the lowest risk category, have grown by just 1%. The current dynamics of industry assets require looking at them on a case-by-case basis. However, once people are assured that the Fed won't continue to raise rates every six months, we should witness a substantial growth in all liquidity products. We're just not at that point yet.

Okay. One quick follow-up for Saker. It looks like Hermes might have had a fairly sizable announced realization in 3Q that’s set to close this quarter, a big Greek resort group. It’s not clear how much Hermes owned but it looks like the MOC is quite high. So do you have any visibility on how additive that deal could be to 4Q performance fees?

Thank you very much for the question. And the answer is that I'm afraid we don't give you breakdown of deal by deal of what we do close. So we can discuss this more offline if you'd like. But generally, we did not give you a deal by deal breakdown because it's unfair to all of the other clients who are also in the deals that we do.

And Patrick, this is Tom. On the timing, Saker doesn’t know, the team doesn’t know and we don’t know because you asked Q4 or other on any kind of carried interest that we’re getting, we just don’t – we don’t know.

Your next question is coming from Dan Fannon of Jefferies.

I wanted to follow up on the unfunded wins. I think you mentioned they were all in private markets. So could you talk about kind of the momentum across that side of the business? And whether this is just the timing where they’re coming in, in terms of the fourth quarter or prospectively thinking about momentum, fundraising other things across the private side, that would be helpful.

Okay. I will talk a little bit about this first. I'm going to let Saker have a swing at this one. On the institutional business, we've been focused on solutions-based type campaigns and sort of unique types of capital allocation, stimulus pools, infrastructure pools, opioid settlements and things like that. And the emphasis has been on fixed income type mandates. And so that’s been the workflow of the institutional business. And that reflects a U.S. domestic thing which we think is pretty good. In addition, on the domestic side, the state pools have been a very successful business for us and we look forward to continuing to grow that as well. I think we’re up to about $137 billion or $140 billion or so in state monies, not just state pools but in-state monies. And that remains a very, very strong business. On the private market side, I’m going to let Saker comment on those.

Thank you very much. And here, we have a variety of projects going on. Our private equity team which has had an excellent track record, as you've heard from Chris, is continuing our raise in PEC which is our co-investment private equity fund and the horizon where we have commitments. Now the reason for that is that there's a strong move from many institutional pension clients towards investing in private assets for the long term. In addition to that, our direct lending strategy which has had a very successful track record again, has continued a strong grade of assets as we go through and we see increased demand for that, both in the U.K. and in Europe. Constrained credit is also another place where we see demand. So this is part of the trend, I think, where particularly institutional clients see value and where previous strong track record and strong teams and processes seem to attract the flow.

Got it. Okay. And then for a follow-up, just wanted to talk about capital return. Buybacks obviously slowed versus the pace in the first half. You announced the acquisition of CW Henderson. So in terms of the backdrop, where things sit today, how you want to capitalize capital return and maybe characterize it also in the context of the M&A environment and kind of the bolt-on deals you've been known to do over time.

Sure, Dan, it's Tom. Regarding buybacks, you can see our history from last year and the start of this year where we bought back 10 million shares. Historically, when we engage in deals, our buybacks have decreased. However, we consistently assess our expectations for the company's direction and monitor our pricing models. Currently, we still have $5 million remaining in our newly approved buyback program, and our activity will vary based on our analysis throughout the quarter. As for M&A, we are quite enthusiastic about the CW Henderson acquisition. There has been a lot of excitement in sales, and moving forward, we aim to grow that acquisition successfully, ensuring they receive their contingent payments over the years. So our focus is on that for now in terms of M&A. Our team is actively seeking new opportunities, but we are currently concentrating on the growth of this existing deal.

Your next question is coming from Ken Worthington of JPMorgan.

Maybe first, in terms of money market fund mix. In recent months, we've seen money coming out of government obligation funds and going into prime obligation funds and it feels like this phenomenon of institutions taking money out and retail putting money in. Assuming my interpretation is correct and this trend persists, how should this impact management fee rates and distribution costs for money market funds? It feels like if we’re seeing a little bit of a transition from institutional to retail that both should be going higher but would love to hear your comments.

Ken, it's Ray. Just from a fee standpoint, the retail-oriented funds will tend to have both higher revenue and higher related distribution expense but if you consider it on a net revenue basis, it would be fairly comparable to institutional. So we should not see a meaningful change there in our blended, if you will, fee rate.

Okay. So even distribution channels are all sort of equivalent for money market funds in terms of the net rate that they’re generating?

Yes, roughly.

Okay. And then you’re having great success in SMAs in equities and fixed income. Can we talk about how SMA fees compare with fund fees? So if you take, for example, the biggest equity product, strategic value dividend, you’ve got a big fund presence but you have a big – maybe even bigger SMA presence there. How do the fees compare? How much lower are the SMA fees than the fund fees or maybe they’re more equivalent? But help us understand that. And is that phenomenon sort of consistent throughout SMAs versus funds?

Sure, Ken. SMAs are comparable to other what may be considered institutional accounts, even though the end user is typically a high net worth application and a wrap type of account. But in terms of fee level, you're dealing with the sponsor of the SMA. And so it's more analogous to an institutional account. If you look across in the industry, typically mutual fund fee rates would be as much as twice what average institutional account fee rates would be. So we were very cognizant of this when we went into the SMA business pretty much at the beginning of it. And we’ve had a lot of success. We’re close to $30 billion there. Of course, it’s weighted towards strategic value dividend but we’ve had some good growth over the last couple of quarters and good placement on our Core Plus fixed income product in SMA world that’s starting to pick up. And as Todd mentioned, the Henderson acquisition gives us some good performing strategies that are differentiated from other things we’re doing in the Muni space with an outstanding team and a very good long-term record. So we expect that business to continue to diversify and continue to see strength on the fixed income side.

Your next question is coming from Brian Bedell of Deutsche Bank.

Maybe just one more on the money market side. If you can comment in terms of the distribution channels, maybe what portion of your money fund assets would sit within sweep programs, so an option for sweep deposit investors to take uninvested cash and put that in a money fund and whether you’re seeing that action actually happen? And then back on the institutional side, is it sort of how we understand it where institutions can invest directly in fixed income securities to get a better yield? Once that recalibrates, would you expect that to come back and therefore, help accelerate money fund flows in money fund SMAs?

Right. On the sweep front, it's hard to identify a lot of our clients do with us on an omnibus basis. And so we don't always have visibility to the end use. I would peg it at somewhere in the neighborhood of 10% to 15% of our money fund AUM. But again, it's difficult to get a precise figure at that.

The other thing I'd add, Brian, is that the suite clients changed completely into the government products after the last set of reforms because of the institutional prime floating NAV at four digits, that was difficult for them from a programming and platform standpoint. So it's essentially a government product phenomenon now. As far as institutional growth goes and when that happens, generally speaking, it is lagging on a historical basis but even more so when you're talking about coming off of zero, it seems. The expectation is that when you're nearing a peak or getting to a point where you think there's a terminal rate in sight from a Fed funds target standpoint, that's when institutions really begin to move in earnest. Quite honestly, a steady to declining rate environment is really what produces inflows into institutional money market funds on an outsized basis as long as you're not declining into a zero rate environment again. So I think we're far away from both of those scenarios, either number one, the Fed reaching a terminal rate in the very near term or number two, when they do trended back to anything that's near zero. I think institutional growth is beginning to happen. It will continue to happen but it will increase in earnest more than likely in 2023 versus '22.

Truly makes sense. And then maybe just on fixed income and also through strategic value in here. What is your sales force saying in terms of what they’re hearing from financial advisers about the timing of when retail investors may shift back into bond funds? Obviously, they want to avoid the NAV hits from rising rates. But is that also an argument whereby once we are close to terminal rates, you would expect a reacceleration in retail on funds? And then from strategic value, that yield obviously is fairly – looks like it’s fairly close to short-term rates right now, that gives you equity optionality. Are you seeing – or do you expect more interest in that as we move into 2023?

Well, the answer on when do the clients expect the worm to turn, it's not yet and they don't have a time on it. In fact, that's one of their principal questions of asking us or asking anybody. And if anybody knows, they're going to make a fortune. Right now, the word we get from our financial advisers is that, on the whole, they're bearish and defensive. And as you suspect, money funds are front and center. And you're seeing some moves in government Ultrashort which I mentioned and Microshorts. Now when you talk about total return bond, that still has strong legs and there's some amount of tax loss harvesting that's going to go on in other funds. And so that will be playing some musical chairs out in the marketplace that could be interesting. And because of exactly what you said where the dividend rates on the strategic value dividend fund are roughly comparable to some other rates, some FAs are getting more comfortable with that. And you see that in some of the flow numbers. But I understand that on the other side, you still have upticks in the Pru Bear fund which is basically a short fund. Overall, what our people are telling us is that their RFAs are having some of the toughest conversations with clients for a while and it’s very, very challenging. That’s why we try to offer things like products that are sensitive to the inflation which we’ve talked about before. And our portfolio construction activities where you can actually get a hold of the portfolio and show the FA and the underlying client exactly what risks are being run and make adjustments even to include things like the MDT market neutral fund to change the dynamic in some of those portfolios. Even though I’m telling you that the FAs are bearish or defensive and all of that, there are many things that can be done to advance the ball.

Your next question is coming from Mike Brown of KBW.

If we start on the ESG topic, that’s obviously been facing greater political scrutiny these days and I know it’s integral to the investment process at Federated Hermes. So what are you seeing in terms of pressure or pushback from investors on, I guess, either side of the aisle and how have you been navigating this kind of greater scrutiny now in ESG?

Okay. What we see is the repeating the sounding joy of the beauty of an integrated ESG analysis where you are investment managers managing money in the best interest of the shareholders. We are going to repeat this as long as we can because we are investment advisers. I mentioned the $137 billion in state money that we had. If you look at the top 10 states on that list, 5 are red and 5 are blue. So what is going to be Federated Hermes' answer? The answer is we are not going to politicize or get into the jambalaya of the politics of ESG. We are going to use those factors in order to improve performance, work on investment management techniques. And that's how we deal with it. So when you say we get pressure, you’re going to get pressure everywhere, every day on everything you do, get over it and get on with it. Now my dear friend Saker, who was at the beginning of this. And basically, the UN PRI wrote their documents in his office printed 100 years ago. I’m going to let him comment on this subject.

Thank you, Chris. Look, we started down this journey back in 1983. That's before I even joined here. The objective has always been to improve performance. We would argue that ESG factors put into effect improve the performance of companies and improve ultimately the long-term performance of shares. The politicization of ESG from the perspective of this side of the pond is partly to do with the model that people have between SRI, socially responsible investments which has a place. By the way, we run some thematic funds for people who so wish and mainstream ESG. We have found through our internal numbers and some external evidence, some truth that we believe in engaging with companies while holding their shares, not divesting shares. Engaging with companies while holding their shares will add performance over the long term. We found that companies that can improve some of the factors will add value over the long term. So we use ESG as a factor and as a way of understanding companies. We are fundamental analysts on both sides of the pond, we do fundamental understanding of the companies and we integrate that into our stock selection. The politics are going on both sides is interesting but it's not investment. So I leave it to the politicians and we stick to our knitting which is acting as fiduciary managers looking after the funds of our clients and trying to create wealth sustainably over the long term. Back to you, Chris.

Thank you, Chris and Saker, I appreciate the thoughts there. The lot of my questions have been asked about the money fund business. Maybe just 1 more there. What’s the latest on the regulatory front as it pertains to the money funds business? And can you remind us how much of your business is at risk from swing pricing?

Yes. It would be about $8 billion. We haven't come off of that number and to answer the last question. Various things occurred at the SEC and otherwise that put the actual implementation of the rule off at least a quarter. Now we don't know when they're going to come up with it. We thought it would be already. But because of some glitches in their systems on the common situation, they had to extend and so they're proceeding. Another thing which we mentioned in our queue is the GAO is doing a little study on money funds to see what impact has been had and that was requested by certain Congress representatives in Congress. I don't know what that's going to report but that's supposedly coming out here in the fourth quarter and perhaps that will help inform. We are, needless to say, using this additional comment period to point out other things on, as we've said before, that really swing pricing on money funds is a great disease to impose on the money funds and there's no basis data or history for doing that and it just doesn't seem right. Of course, the SEC announced they're going to put out something on swing pricing on bond funds. I don't know what they're going to propose or what the deal will be on that. That's another whole round. But it just makes no sense on the money funds at all. We've also been talking to them about what happens when, as and if you get to negative rates. Negative rates, are you kidding? We're not talking about negative rates but they have a little rule that says you've got to do some things which we don't think the intermediaries or the clients will do on that score. So we've had very recent discussions with them on reverse distribution method so-called in order to enable funds to deal with it long-term if you do get negative rates which nobody foresees and it's hard for us to figure out why you would injure current funds that are functioning well by that concept when you have plenty of time to study it. We don’t know when the regs are coming out. We know it’s been delayed. We know there’s been a lot of commentary much like ours that’s been unified by the industry and many others against doing what they’re proposing but we’ll see.

Your next question is coming from Kenneth Lee of RBC Capital Markets.

In terms of the – just given the current market environment, I wondering if you could just share with us your thoughts around how operating expenses could trend more specifically – discretionary items could trend?

Yes. You broke up a little bit there. I think you're asking about where are we trending expenses. So comp and related. We went through what happened and you can see in the press release but we would expect that to go up, both the incentive and the base. We are facing the same inflationary situation that everybody else is. If you go down to distribution, if we're right and we collect more money fund assets, that distribution line will go up and we will be very happy about that going up. On the systems and communications tech, while there's going to be more tech spending, it seems like there's always more tech spending. And we have a lot of things going on to make us a global company and that’s kind of going to be a theme here in the future and that will require more technology spend which we will be doing and we expect it will help our performance. Professional fees and office stuff, I don’t have really any comments there. Advertising, we saw a tick up there. We have a lot of good products. In the future, we expect to be focusing on our good products. And if we come out with new products, we would expect to focus on those. So I wouldn’t be surprised to see increases there on travel and related. There are still pandemic – low pandemic costs in our in the history quarters. And so kind of year-over-year, you’re definitely going to get an increase as our teams get out there and have our excellent products to sell. In other, that’s where we talked about the FX stuff. So who knows what’s going to happen there.

Your next question is coming from John Dunn of Evercore.

Maybe an extension of the ESG question, an update on the EOS business, where you think it could translate into inflows and maybe the evolution of conversations with U.S. institutional clients?

Let me just make a few comments on EOS and then I'm going to let its founding father talk. To us, EOS is a grand source of data that has been accumulated over the long term that has an edge against the rest of the marketplace because it helps you look through the front of your car where you're going and not just the rearview mirror which everybody always already has, plus because it's a long-term engagement you get good judgments, good people who are subject matter experts making real determinations about which way things go. In terms of its growth and the impact that Saker has seen, I'll let him speak on that.

Thank you, Chris. To expand on Chris's introduction, we've been operating under EOS for nearly 18 years, and even longer before that. The core of our approach is engaging with our clients. We believe there are two key advantages that we gain from EOS. Firstly, as Chris mentioned, we have specialized analysts engaging with global companies over a decade-long horizon. The insights we gather from these interactions provide valuable fundamental understanding for our portfolio managers, aiding in our investment decisions. Secondly, we provide support for our clients, typically institutional ones with index exposures, helping them ensure that the stocks they are invested in increase their returns. A few years ago, we noticed a surge of interest in EOS coinciding with legal changes in the Nordics that emphasized stewardship. We observe similar trends in advanced markets like Australia, where we find continuing opportunities to grow our business. Overall, we are expanding globally, although it’s a gradual process to onboard new clients since it requires building partnerships. Unlike other models, EOS works not on behalf of FHI but on behalf of its clients, involving them in every engagement decision we make. We believe this model will continue to grow and is highly valuable to both shareholders and us as investors. Thank you.

Got you. And then maybe just a quick one on – could you remind us of kind of the gaps in your strategy and distribution sides and maybe check in on the temperature and willingness of firms to join you guys?

Well, in terms of gaps with the CW Henderson, we feel 1 that we have articulated for several years of Muni SMA adviser which has a great record, great people. As Ray points out and it gets us pretty close to $30 billion in SMA assets which is a pretty good size in there. So we're not exactly focused on any particular gaps right now.

The business in the London office, particularly in private equity, infrastructure, real estate, and direct lending, has been primarily focused on real estate in the U.K. We’ve mentioned before that we want to explore how to expand this into the U.S. There’s some consideration that an acquisition might be necessary to kick this off. Similar to how the Henderson deal and the acquisition of the London office took us a considerable amount of time, I anticipate we will maintain our discipline in finding a company that aligns with our culture and philosophy. We won't proceed until we meet those criteria, but we believe our London team, which has U.S. offices, presents a strong growth opportunity for us.

Thank you very much. There appears to be no further questions in the queue. I'm now going to hand back over to the management for any closing remarks.

Well, thank you for joining us today. That concludes our call.

Thank you, ladies and gentlemen. This does conclude today's conference call. You may disconnect your phone lines at this time and have a wonderful day. Thank you for your participation.